Thursday, April 28, 2016

Productivity and Stagnation from an Engineer's Perspective

Tyler Cowen's famous book "The Great Stagnation" has been the subject of a lot of conversation in the econ blogosphere. Cowen and others point to stagnant total factor productivity and income growth among large segments of the population as evidence that something is very wrong with the economy these days.

Those on the other side of the debate point to the inability of TFP and income statistics to account for changes in the quality of goods over time and the dramatic benefits we all get from things like the internet.

This post tackles the issue from an engineering perspective. The author has a whole slew of charts and graphs on everything from information technology and solar power to steam generators and jets. It's definitely worth a look!

1 comment:

  1. I think the TFP slowdown is mostly a measurement problem inherent in such an ill defined thing. David Beckworth actually had an interesting post where he noted that if you separate out TFP for investment and consumption output that there is no apparent stagnation for investment, it's all in consumption.

    Tricky thing is that measuring "real output" an how it changes over time, requires objectively defining a "price level." This is ill grounded in value theory. I believe that properly applying the idea that value is subjectively perceived by individuals, would totally obliterate the idea that "real GDP" is an objectively measurable thing.

    Even failing that, most mainstream economists are all too willing to admit that they can't measure the price level very well. A lot of them think they're over estimating inflation in the long run, which, if true, means economic growth over the last several decades has actually been much faster than official measures suggest. Which means the stagnation theses are much ado about something which does not, in fact, exist.

    On the other hand, there's good reason to believe that, especially recently, we've had increasingly bad policies restrictive of supply of goods and labor alike, especially the regulatory state.

    I'd say people who subjectively perceive no progress, and those who subjectively perceive lots of progress, are both actually right, from their perspectives and expectations.