LOOK around you. From your drone home delivery to that oncoming driverless car, change seems to be accelerating. Warren Buffett, the great investor, promises that our children’s generation will be the ‘luckiest crop in history’.
Everywhere the world is speeding up — except, that is, in the productivity numbers. This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative following a decade of slowdown. Yet our Fitbits seem to be telling us otherwise. Which should we trust: the economic statistics or our own lying eyes?
A lot hinges on the answer. Productivity is the ultimate test of our ability to create wealth. In the short term you can boost growth by working longer hours, for example, or importing more people. Or you could lift the retirement age. After a while these options lose steam.
Unless we become smarter at how we work, growth will start to exhaust itself too.
Other measures bear out the pessimists. At just over 2pc, US trend growth is barely half the level it was a generation ago. As Paul Krugman put it: “Productivity isn’t everything, but in the long run it is almost everything.”
It is possible we are simply mismeasuring things. Some economists believe the statistics fail to capture the utility of setting up a Facebook profile, for example, or downloading free information from Wikipedia. The gig economy has yet to be properly valued. Yet this argument cuts both ways. Productivity is calculated by dividing the value of what we produce by how many hours we work — data provided by employers. But recent studies — and common sense — say our iPhones chain us to our employers even when we are at leisure. We may thus be exaggerating productivity growth by undercounting how much we work.
This year, for the first time in more than 30 years, US productivity growth will almost certainly turn negative following a decade of slowdown....Unless we become smarter at how we work, growth will start to exhaust itself too
The latter certainly fits with the experience of most of the US labour force. It is no coincidence that since 2004 a majority of Americans began to tell pollsters they expected their children to be worse off — the same year in which the internet-fuelled productivity leaps of the 1990s started to vanish. Most Americans have suffered from indifferent or declining wages in the past 15 years or so. A college graduate’s starting salary today is in real terms well below where it was in 2000. For the first time the next generation of US workers will be less educated than the previous, according to the OECD, which means worse is probably yet to come. Last week’s US productivity report bears that out.
It is also possible we are on the cusp of a renaissance — we just don’t yet see it. The economist, Robert Solow, quipped: “You can see the computer age everywhere but in the productivity statistics.”
That was in 1987. A few years later the computer age showed up in big numbers. By the same token, we may be on the cusp of reaping the benefit of artificial intelligence, personalised medicine or take your pick. This may better fit our own fevered imaginations. Or it could be a chimera.
Until then, the US and most of the west are stuck with a deepening productivity crisis. The slowdown has one manifest effect and a seductive remedy.
The first, an embittered backlash against business as usual, is already upon us. Witness Donald Trump’s ascent. Most of his proposed cures for middle America’s anguish are worse than the disease. Shutting down immigration and erecting trade barriers would subtract from US growth. Likewise, it is hard to think of a bigger waste of resources than another budget-busting tax cut for the highest earners. Yet his popularity is clearly fuelled by economic frustration.
One or two of Mr Trump’s ideas, such as investing heavily in US infrastructure, would be helpful. Indeed, at a time like this, it is all but a given — and a rare point of agreement with Hillary Clinton.
Research shows that part of US economic growth is created in small numbers of hyper-connected urban hubs, such as Los Angeles and the corridor between Boston and New York. Steps that would better link America’s urban boomlands to the large economic backwaters around them would help spread growth more widely. Such projects would take time to bear fruit. Yet it is worth sticking to that ‘hunger games’ image for a moment.
Imagine that the US takes much the same course in the next 10 years as it has over the past decade. That would mean a further corrosion of US infrastructure, continued relative decline in the quality of public education and atrophying middle workforce skills. It would also hasten the breakaway of urban America’s most gilded enclaves, further enriching the educated elites. It could possibly trigger a breakdown in democratic order. If you think Mr Trump’s rise is ominous, picture America after another decade like the past one.
Which brings me to the remedy: a universal basic income. UBI has several plus points. It draws support from all parts of the ideological spectrum: libertarian and socialist alike. It would replace today’s messy overlap of benefits and do away with the humiliation of proving your eligibility to federal bureaucrats. Most important of all, however, it would buy a measure of social peace. Today’s stagnation may be temporary or lasting. We have no way of telling. Common sense dictates we must act as though it is here to stay.
Published in Dawn, Business & Finance weekly, June 6th, 2016
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