
The Curious Case of Missing Global Productivity Growth - bootload
http://www.economist.com/blogs/buttonwood/2017/01/light-bulb-moment
======
philipkglass
Naive question from someone who never took economics courses: Could some of
the "missing" productivity come from measuring productivity in units of money
instead of physical units? Sectors with highly competitive markets can rapidly
increase real-product output but then see most of the dollar-gains erased by
competition.

For example, you could look at solar PV where last year the industry set a
record of 70 gigawatts-peak of modules installed. The price competition is so
fierce that manufacturer revenue has barely budged over 2012, when only ~30
GWp were installed, and actually declined from 2015. If an economist looks at
this sector do they see spectacular productivity improvements like I see (far
more watts, at lower prices, with real physical improvements up and down the
supply chain), or do they consider productivity "missing" because the physical
improvements aren't leading to revenue/profit growth? And if it's the latter,
does that imply that economists only recognize productivity improvements when
markets are imperfect enough that improved production technique delivers more
money instead of fiercer competition? Is there no such thing as growing
productivity (that would be recognized by mainstream economists) in a
deflationary environment?

~~~
three14
Naively, I'd say that there really is a lot of missing productivity. The
Empire State Building took a little over a year to build, while the Freedom
Tower took 8, if I'm reading Wikipedia correctly. On the one hand, the safety
precautions during construction were clearly different, but on the other, you
get a lot less for a investment in many areas these days.

Empire State Building according to Wikipedia: $645 million in 2017 dollars

One World Trade Center: $3.9 billion

~~~
bborud
In terms of complexity the two projects are not comparable. Modern buildings
have more bits and more of those bits need to work with other bits. And, for
the two projects to be comparable, you have to compare them at the time of
completion. (Empire state building has enjoyed 86 years of upgrades and
retrofits).

And that is before we look at things like worker safety, bureaucratic demands
etc.

We do harder things now.

~~~
three14
Perhaps I should have given a different example, but I don't think that your
objection affects the substance of what I wrote. Sure, the projects are
totally different. Still, an extremely advanced building at the time cost a
tiny fraction of what an extremely advanced building costs now, and the
tenants still just get office space. It is not clear that we get a steady
improvement in productivity across all areas of the economy.

~~~
icebraining
I think you've chosen a bad example, because the One WTC is a special case,
with all the legacy it represents.

The Bank of America Tower, for example, has about the same floor space as the
Empire State Building, and "is considered a worldwide model for green
architecture in skyscrapers", yet cost $1B.

~~~
three14
OK, so use your example. The Empire State Building was 2/3 the price, took 1/3
the time, and hilariously, from Wikipedia: "The magazine Time found out in
August 2013 that the Bank of America Tower used twice as much energy overall
as the Empire State Building did, due to the large energy usage in the Bank of
America Tower and the comparatively small occupancy rate of the Empire State
Building."

Even if you want to throw in the $120 million for fixing the Empire State
Building's energy efficiency in 2009, it still doesn't say great things for
modern productivity.

------
qwrusz
A bit frustrating to see these outdated ideas and old ways of thinking
continue to generate headlines. Total Factor Productivity (TFP) is a made-up
best-guess legacy issue based on mathematical remainders/residuals/error terms
from miscalculations of mis-measurements. Productivity and technology are real
things and important, but they were appropriated incorrectly a long time ago
and contemporary economics has moved on to try to be much more precise and
careful in discussing such things.

A similar, somewhat controversial example of a "distraction when math tries to
becomes words" can be seen in the news when it comes to discrimination.
Studies of sociodemographic differences and income levels, after controlling
for education and IQ and experience etc., find differences in pay between men
and women and between different minorities. The unexplained remainders for
differences in income got called discrimination. Discrimination is a real
thing and a real problem and must be addressed. But the reasons for
differences in pay is not entirely due to discrimination, it's clearly much
more complicated than that, studies that show this complexity are only
recently getting attention.

Lumping and labeling a problem as one big thing ("technology",
"discrimination") that's easy to explain to a layperson but when it's really
much more complex and the problem still largely misunderstood is a disservice
to everyone.

~~~
roymurdock
What's a better way to measure the impact of technological infrastructure on
the economy than imputing TFP? Interested to hear how technology and
productivity are discussed in state of the art economics, as I find TFP a very
useful concept and measurement.

~~~
qwrusz
I'm not sure how to answer within the scope of this thread, but a short answer
is: the better way to measure the impact of technology infrastructure on the
economy is to _measure the impact of technology infrastructure on the
economy_. How this works: Pick a technology, go study its real impact in the
real world, repeat.

TFP does not do that. It doesn't measure anything. TFP is a residual from
theoretical economics, not empirics, often styled in a form of Y=A _K_ L. We
don't know how (or at least can't agree how) to measure K or L accurately,
more importantly we don't even know what A is or what it contains.

I am not surprised you find TFP useful. It's a Nobel Prize winning idea. And I
respect the thinking behind it. But it has since been kindly debunked by the
real world. Many people find prayer or homeopathic medicine useful and
practice them daily, this doesn't mean those things are working how people
think they are or at all.

I don't mean to punt an answer here but Wikipedia explains the problems with
TFP better than I. Follow the links through the Cambridge Critiques as a
start:
[https://en.wikipedia.org/wiki/Total_factor_productivity](https://en.wikipedia.org/wiki/Total_factor_productivity)

~~~
roymurdock
I understand its shortcomings, and I understand how it is derived and how it
fits into the classic production function.

For measuring productivity gains from technology, what does "go study its real
impact in the real world" entail? Is this the current thinking of state of the
art productivity/tech economics?

How do you disaggregate one technology from another in a system as complex as
a business, let alone an economy? These are the hard (impossible) questions
that TFP addresses - we don't try to look at each part individually in a
vacuum, we impute the total effects of "technology" and try to control for 2-3
main variables: capital, labor, and output elasticities.

~~~
qwrusz
Right. In terms current thinking I can't speak for an entire field, and I
should say from what I have seen economics maybe still follows the lead of
hard sciences where coming up with a theoretical model and a beautiful
equation on paper which is then strongly supported by empirical research is
still sort of a holy grail.

But today, the availability of empirical real world data or a way to go get it
if not yet collected is night and day different compared to 60 years ago when
many of the old economic theories were being thought up and became popular. Go
read the old papers there is no data just theory. Today, economic theories and
formulas can often very quickly be tested with empirical research and data.
And in my opinion current economics has turned toward empirical work having
weight over theoretical work

How do you disaggregate? You do the best you can. And yes we do try to look at
each part individually (not in a vacuum though). Because it turns out
aggregating is worse. _When you look at TFP the way you describe, you are not
just aggregating technologies you are aggregating everything...aggregating all
technologies and also whatever else is happening that K and L didn 't
capture._ Who needs that, it doesn't tell you anything practical but that
"other stuff is happening". Technology might turn out to be only <5% of TFP.
There's enough evidence that TFP has too many "factors" in it to be lumped as
just technology. Physicists didn't give up when they realized 95% of the
universe is dark matter/dark energy that they don't understand, economics is
following that lead, double down on the small stuff and hope to understand the
big stuff a bit better and the best you can.

I looked at your bio, not sure if you use TFP in your work or its just a
personal interest. I know a bit about about market and equity research. If you
have access to the data I would use PCA over TFP, if you don't have this I
would just proxy a series and risk off systematic variables and focus on key
known numbers. Better to ignore fake data than listen to hurtful real data.
Either way we are all always guessing.

[https://en.wikipedia.org/wiki/Productivity_improving_technol...](https://en.wikipedia.org/wiki/Productivity_improving_technologies)

[https://en.wikipedia.org/wiki/Aggregation_problem](https://en.wikipedia.org/wiki/Aggregation_problem)

Blah blah blah:
[https://www.youtube.com/watch?v=VVp8UGjECt4](https://www.youtube.com/watch?v=VVp8UGjECt4)

~~~
roymurdock
Just a personal interest, I don't use TFP in any of my work-related
calculations. We use real vendor financial (supply-side) and engineer user
survey (demand-side) data and simple statistical methods to do the majority of
our model building and forecasting.

But I do find TFP to be a very interesting concept that captures a whole ton
of important externalities and fundamental infrastructure/inputs to production
at the macro level. I was just wondering if you could point me towards
something that would do a better job of that than TFP, because I haven't come
across one yet in my studies.

------
rqebmm
I'm not an economist, but one thing I've wondered is "how much productivity
has been added since the 60s purely by adding women to the workforce"? Naively
it would seem that almost doubling the available workforce would have large
temporary effects on the economy until that became the norm.

An alternative theory posed by one of my favorite economists[0] is that
administration of public companies under the "maximize shareholder value"
doctrine is finally coming home to roost. By prioritizing short-term profits
in favor of long-term investment, companies have slowed their own growth for
the last ~30 years.

[0] [http://www.goodreads.com/quotes/434485-running-the-
company-f...](http://www.goodreads.com/quotes/434485-running-the-company-for-
the-shareholders-often-reduces-its-long-term)

~~~
AtomicOrbital
`by adding women to the workforce` the family is exposed to twice the chance
of a breadwinner loosing their job, increased cost due to childcare/a 2nd car
... also both partners working too often results in greater appetite for debt
- these risks are avoidable yet human nature tends otherwise

------
marcosdumay
And notice that this ongoing decline in productivity is completely
incompatible with that "the robots are taking all the jobs" line. What means,
either that measurement is wrong, or current unemployment levels are not
caused by automation.

Of course, that does not mean that the robots won't take all the jobs on the
near future. Just that they didn't do it already.

~~~
tonyedgecombe
If automation pushes people out of high paying jobs into low paying jobs then
it will result in lower productivity.

~~~
marcosdumay
In that case, the measurement is wrong.

I didn't dig deep enough on it to make my mind, and there are plenty of
reasons to think it's flawed.

------
acegopher
Globally there has been a lot of wage stagnation at the worker level.
Anecdotally, a lot of folks in my social circle have traded working hours for
salary. They used to work 50-60 hours for the same salary they are working 40
hours for now.

Or perhaps there is less hope or belief that working hard will result in
getting ahead. With most of the gains post-crisis going to the top and income
inequality growing, perhaps there is less worker incentive to work hard.

------
davidf18
At least in the US, purchasing power has declined with many for two factors:
1\. Rising health care costs now 18% of GDP at over $3.2 trillion. As firms
spend more on insurance, there is depressed wage growth, while direct employee
contributions (some premiums, larger deductibles, co-pays) have been
increasing.

2\. In cities such as NYC (where I live), Boston, DC, SF, LA, ...there is
rent-seeking in the real-estate market through zoning density restrictions
causing market inefficiencies that increase the cost of housing far higher
than in a functioning, efficient market.

Harvard Economist Edward Glaeser has written about this in the context of
affordable housing in NYC, in the article, Build Big Bill [DeBlasio, NYC
Mayor] [1]

3\. There are other cases of rent-seeking throughout the economy as well as
other market inefficiencies through negative externalities and information
asymmetry. Reasons why healthcare in the US is so expensive is negative
externalities of smokers, air pollution, not paying their way for additional
healthcare costs and information asymmetry where doctors have much more
information than patients and patients may have much ore information than
insurers related to medical conditions.

[1][http://www.nydailynews.com/opinion/build-big-bill-
article-1....](http://www.nydailynews.com/opinion/build-big-bill-
article-1.1913739)

------
Pamar
I would like to add another possible way to interpret this. (caveat: I am
suggesting stuff that I read in the blog of an Italian economist, I hope I am
not misrepresenting him).

 _What if Productivity was driven by demand_?

Do we "produce" stuff (or offer services) without any expectation to sell it
to someone? If something is selling like hotcakes the producers of such item
will do all they can to increase productivity, and competitors will try to
create a similar product which either costs less or offers more features (or
both) in order to capture the unfulfilled demand.

Ok, assuming this is reasonable, what happens when demand, in general terms,
starts to lag (due to a long economic stagnation/crisis)?

(Another symptom that could help strenghten my argument: Hanjin built a large
shipping fleet expecting to need it to ship stuff around and cope to
increasing demand... and now: [http://www.abc.net.au/news/2016-09-05/south-
korean-shipping-...](http://www.abc.net.au/news/2016-09-05/south-korean-
shipping-collapse-leaves-freight-stranded/7814768) )

------
eugenejen
how about the possibility that the whole system's complexity outgrow our
abilities to manage the system for the moment?

~~~
deathhand
Capital expenditure drives productivity. Companies/individuals are holding
onto that potential energy at unpreccedentaded levels. These are the seeds of
revolutions and war and that's when the 'system' will correct itself.

~~~
drinkjuice
That sounds like one mighty crappy system though, considering the next set of
global wars could spell the end of human civilization as we consider it
worthwhile, so I came up with one I like better in 3 seconds: every 3 years, a
random number between 0.001 and 1.0 gets generated for every person on the
planet (no age restrictions), all those numbers get added and everybody gets
their respective share of global wealth. Call it Fununism. It'd be the only
argument you'd ever need to convince me to go totally cashless forever.

~~~
politician
If physical assets (land, gold bars) are not redistributed under Fununism,
then what stops a new aggregation of wealth?

Otherwise, how would you redistribute the assets? Gold bars can be shipped,
but land ownership is difficult. For example, would a random illiterate from a
developing nation be assigned ownership of a Manhattan skyscraper? One could
imagine a system of guardianship in place to steward the property, but that
system would enable a new aggregation of wealth through fees.

It seems to me that your proposal would be an extremely efficient way for a
small group of people to rapidly consolidate wealth.

~~~
kmicklas
> It seems to me that your proposal would be an extremely efficient way for a
> small group of people to rapidly consolidate wealth.

Sounds like capitalism.

------
pm90
tl, dr: The rate of productivity growth is slowing down and the authors don't
know why, they speculate that the IT revolution has not yet achieved the same
level of productivity gains as offered by light bulb/cars etc.

~~~
freehunter
A problem I can see with productivity gained by automation is, humans are
clever. They can come up with novel answers to their issues and work faster.
But once it's automated, the computer/robot isn't going to automate its job
any more. It won't come up with clever or novel solutions. Humans could make
those computers/robots better, but only if there is a pressing need. Robots
that build cars will get better because the company that builds them wants to
sell factories a new model. But if I'm replaced by an Excel macro, no one is
trying to sell a new Excel macro. That task will stagnate.

~~~
pm90
Well, if the automation is good enough, it doesn't make (financial) sense to
improve it. If its not, there will be other companies/teams that will come up
with an automation that is better and that automation will be adopted.

e.g. before Docker/Containers came along, tools like Chef/Puppet/Ansible were
already automating much of infrastructure deployment/management. But a new
paradigm was introduced which was (seemingly) better and that is catching on
now.

------
shae
I'd argue we're still working for hours rather than accomplishments.

I spent a few years self-employed, I would bid a money cost for an
accomplishment based on how many hours it would require. If my bid was
accepted, I was then immediately motivated to find a more efficient approach
so I had more of both time and money.

Every iteration of that approach improved my ability to accomplish tasks in
smaller amounts of time.

------
nickbauman
Anyone notice that the end of productivity gains correspond to the end of
Moore's Law (at least at the singe core level)? Coincidence?

~~~
sergiosgc
Moore's law has not ended (yet). Transistor count is still following an
exponential curve.

~~~
nickbauman
True in theory the transistor count increases the performance, but in practice
while the transistor count has increased, the performance has leveled off at
around this time.

[https://www.lordabbett.com/content/dam/lordabbett/en/images/...](https://www.lordabbett.com/content/dam/lordabbett/en/images/articles/chart2/CHART-
Moore's%20Law%20on%20Trial%20Chart-11.11.2015.png)

------
Nomentatus
Of course, some important kinds of productivity aren't measured at all, or
just barely. If I buy a video game today, its virtual territory is much bigger
and more detailed than a decade ago, but that increase isn't reflected in
economic statistics. Nor better resolution on TV, etc, etc. What's easiest to
measure is whatever is most obsolete or traditional, which is to say, whatever
isn't keeping up with the times. I'm not saying there aren't other losses,
however. Years where wages went up by 4% in the U.S. were common until Reagan
took office; they've never happened in all the time since - in fact raises of
2% are rare now.

I wonder whether goods becoming more durable in general is an influence. Cars
last a lot longer now than when I was young, but they aren't as easy to make.
It's easier to churn out shoddy goods than long-lived ones; as consumers
insist on better quality, the "same" item takes longer to make.

------
cik2e
What are the incentives for workers to be more productive? Compensation tied
to their productivity of course. As long as people are working on fixed
salaries without significant equity, you can bet your ass that we're going to
have "missing" productivity.

------
petra
A layman's theory:

First: total_factor_productivity = price_of_output/(0.7 _labor_cost + 0.3_
capital_cost)

Let's say we're in a state of ideal competition - the minute some company
improves productivity , which leads to reducing the input costs they put into
the process by X% , other companies copy that process, which lead to the price
going down by X%.

And on the other hand, companies insulated from competition usually don't grow
their productivity.

So maybe the economy has many more of those 2 types of companies and that's
mirrored in the economic statistics ?

------
CyberDildonics
Is education getting better or more accessible?

------
jwildeboer
The amount of time wasted by humans trying to access paywalled articles might
be quite a factor. #sarcasm

