Editor’s note: The following post is James Pethokoukis’ contribution to The Atlantic’s series on economic predictions for 2016. The complete expert reactions can be found here.
If it were possible to peer into the near future and glimpse just one statistic about the U.S. economy in 2016, which would be the most telling? GDP growth? The unemployment rate? The Dow Jones Industrial Average?
In fact, the most important indicator of the United States’s long-term economic prospects—that is, productivity—remains persistently weak. Over the past five years, productivity growth has averaged just 0.6 percent, in contrast with the postwar average of 2.2 percent. What’s more, the consensus forecast suggests more of the same in the coming 12 months.
Despite steady GDP and job growth, a permanently sluggish “new normal” for productivity would be alarming, especially given the demographic challenges an aging society already poses for growth. It would mean living standards improving so slowly that most Americans would feel they were no better off than their parents. A few years of anemic growth has already given rise to an unhealthy economic populism in the American electorate. Imagine how corrosive a few decades of stagnation might be.
Yet perhaps the productivity picture really isn’t so bleak. It’s hard to reconcile gloomy official numbers with the age of “unicorns”—those dynamic technology companies worth over $1 billion—and the amazing burst of innovation happening right now in places like Silicon Valley and New York.
Explaining this apparent “productivity paradox” leads in several directions. Maybe those innovations really don’t amount to much. After all, what’s a digital app compared with the invention of the combustion engine? Or perhaps what’s happening is that we’re really bad at measuring the effects of technological progress, especially in the digital economy.
Another possibility is simply that it takes a maddeningly long time for innovation to boost productivity. For instance, it took years for factory owners to figure out how to efficiently employ electric motors. Recent advancements in areas like artificial intelligence, big data, Bitcoin, drones, the sharing economy, and the “Internet of things” may yet be broadly transformative, even if their effects on broader productivity aren’t immediately apparent.
Today, we can instantly access all of humanity’s collective intelligence with a small device pulled from our pockets. It certainly seems like this should end up making society more productive. It would just be reassuring if the numbers confirmed that intuition. Hopefully in 2016, they will.
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