Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / The Long Shadow of the 1930s on Productivity
Transcript
- Lucas: So we talk a lot about productivity on this show, but I want to start with a number that's been bugging me. US productivity growth since 2005 has averaged around one point three percent a year, roughly half the pace we saw from the mid-nineties to 2004. Luna: Right, the famous slowdown. And economists have been arguing about why ever since. Lucas: Exactly. And one of the most influential explanations comes from Robert Gordon, an economist at Northwestern. He's been making the case that the slowdown isn't a puzzle at all, it's the new normal, because the big, economy-transforming inventions are behind us. Luna: Like electricity, the internal combustion engine, indoor plumbing. Things that changed how we live AND work in ways that a smartphone never could. Lucas: Precisely. Gordon's argument is that the great inventions of the late nineteenth and early twentieth centuries created a one-off leap in productivity that we're still living off. And the digital revolution, while real, is just not as transformative. He points to the fact that productivity growth in the 1920s and 1930s, even during the Depression, was actually quite strong. Luna: Wait, during the Depression? That's counterintuitive. You'd think productivity would collapse when output is falling. Lucas: That's the thing, output fell, but productivity, output per hour worked, actually kept rising in some sectors. Because the 1930s were a period of massive structural change. The shift from agriculture to manufacturing, the spread of electricity into factories, the early days of the assembly line. All of that was boosting efficiency even as the economy contracted. Luna: So the Depression was a productivity silver lining, in a way. Those gains later helped power the post-war boom. Lucas: Exactly. And Gordon's point is that we haven't seen anything like that since. The internet was great, but it didn't require rebuilding the entire industrial base. So he's famously argued that innovation is slowing, and that future growth will be closer to zero point five percent a year, not the two or three percent we got used to. Luna: That's a pretty grim forecast. But is it just him, or do other economists agree? Lucas: It's a real debate. Some, like Erik Brynjolfsson at MIT, argue the opposite, that we're in a productivity J-curve. New technologies like AI take time to diffuse and show up in the statistics, but when they do, growth could accelerate again. Luna: The J-curve, meaning productivity dips first as firms invest in new tech, then jumps when they figure out how to use it. Lucas: Right. And there's some evidence for that in the 1990s, when computers first showed up in the data but didn't boost productivity until firms redesigned their processes around them. So the question is, are we in another waiting period? Or is Gordon right that we're just out of big ideas? Luna: I want to bring in another angle. Demographics. We're getting older, and that has to affect productivity. Lucas: Absolutely. An aging workforce means a smaller share of prime-age workers, who tend to be the most productive. Plus, older workers may be less likely to adopt new technologies, which can slow diffusion. Japan is the poster child for this, and its productivity growth has been stuck near zero for decades. Luna: And inequality. If the gains from growth are going to the top, the median worker might not feel any improvement, even if GDP per hour is ticking up. Lucas: That's a key point. Real median wages have been essentially flat since the 1970s, even though productivity has risen. That disconnect is one of the reasons people feel like the economy isn't working for them, regardless of what the aggregate numbers say. Luna: And that's a political problem, not just an economic one. If growth doesn't show up in people's paychecks, they're going to be skeptical of any promises about future gains. Lucas: Exactly. And it's also a measurement problem. If we're not capturing the true value of free digital goods, like search engines and maps, we might be understating productivity growth. Some economists have tried to adjust for that and found that the slowdown might be less severe than it looks. Luna: But that's a hard sell when your paycheck isn't growing. And I think that's why this debate matters beyond economics. It's about whether we can deliver a better standard of living for the next generation. Lucas: Right. And that's also why we're so focused on this topic on this show. We want to make sense of the forces that shape our working lives, and productivity is at the core of it. And that's also why we do this without ads. We want to give you clear, honest analysis without trying to sell you something. Luna: Yeah, if you've found these conversations valuable, and you want to keep them ad-free, you can support us at buy me a coffee dot com slash fexingo. Lucas: And it genuinely helps us keep doing this. So, back to the future of productivity. I think the wild card here is AI. If it lives up to even half the hype, it could be the kind of general-purpose technology that comes along once in a century. Luna: Like electricity or the steam engine. But the J-curve people would say we're still in the trough, not the upswing. Lucas: Exactly. So the question is, will AI show up in the productivity statistics by, say, 2030? Or will we be having this same conversation a decade from now, still waiting for the payoff? Luna: And what would that payoff look like? More output per worker, obviously, but also better jobs, or fewer jobs? Lucas: That's the next big question. Historically, technology has displaced some jobs but created new ones, usually with higher productivity. But the transition can be brutal, and we're already seeing disruptions in writing, coding, and customer service. Luna: So the productivity story is also a story about the future of work. And I guess that's why we keep coming back to it. Lucas: For now, I think the takeaway is that the productivity slowdown is real, but it's not destiny. Whether we get back to two percent growth or stay at one percent depends on policy, investment, and the pace of innovation. And that's a choice we make as a society. Luna: A choice that will determine our standard of living for decades. Thanks for listening, and see you next time.