|Repeat after me: productivity growth.|
The New York Times reports that the apparent strength of the current economic turnaround has caught most economists off-guard. But then, they were out to lunch on the way down as well. Why are the economists so clueless? According to the Times (also clueless?), they missed the impact of “productivity growth.” Huh? Even I can recall that in every speech made by Alan Greenspan in the past 18 months, he has said to not underestimate the impact of productivity growth on the economy.
During the last 30 years, the average annual growth rate of productivity in all quarters was 1.7 percent. In quarters that included periods of recessions, as identified by the National Bureau of Economic Research, productivity shrank at an average annual rate of 0.35 percent. Yet in the three quarters since the most recent recession began in March 2001, productivity has clocked annual growth rates of 2.1 percent, 1.1 percent and 3.5 percent.
I will now make a bold prediction. In the not-to-distant future, the New York Times or Wall Street Journal will report that the economic downturn of 2000-01 would have been much more severe had it not been for, are you sitting down, the Internet. The pundits will observe that the “dot-com” stock-market bust masked the real story: that networked computers allow companies and consumers alike to be profoundly more productive.
Okay, perhaps my prediction is not so bold:
While some economists see the collapse of the dot-com economy as evidence productivity rates may be on a long-term dive, Federal Reserve Chairman Alan Greenspan argues that we have yet to fully exploit the potential of networked computers and other technology. (October, 2001)