In the markets, the short run is the next trade, the medium term is lunch and the long term is the end of the trading day. Economists should always consider the evidence of decades and, when available, of centuries.
Soon after I completed my PhD dissertation in 1975, economist began to discuss the
The fact that US productivity growth had lagged behind that of most other industrial countries during Europe’s Golden Age (1950-1973) was, I think correctly, attributed to delayed catch-up and convergence of the lagging European economies following the market segmentation and ‘autarkization’ of the interwar period and the destruction and dislocation of World War II and its immediate aftermath. European integration and the removal of trade barriers generally permitted European nations to shift labour from low-productivity agriculture to high-productivity industry; its corporatist economic model brought industrial peace and a business climate conducive to emulation and catch-up.
The failure of the
Then, during the second half of the 1990s, the long-expected productivity pay-off of the ICT (information and communication technology) revolution finally became visible in the aggregate and industry-level productivity data. Private non-residential investment boomed (by historical
Not surprisingly, the productivity growth figures of not much more than half a decade were declared to be a new trend and the new norm. The long-lasting, slow-building but ultimately explosive tech bubble started almost at the same time that the higher productivity growth finally shone through.
The tech bubble crashed in 2001. It now looks at though the ICT productivity growth miracle may have imploded around the same time. The optimism that led some to predict a growth rate of potential output as high as 3.5% (or even 4.0%) per annum appears to have increasingly fragile foundations. On recent revisions of productivity growth for the past three years, even 3.0% potential output growth looks generous.
Productivity is driven by flexibility and commitment (the willingness and ability to take the long view). Commitment for practical purposes can be measured by investment, broadly defined, in private capital, R&D, infrastructure, human capital, social capital, and environmental capital. The
All of these commitment/investment weaknesses of the
Without serious changes in policy orientation at the Federal, State and Local levels, it is hard to see