I’m afraid that the report that Robert Samuelson is highlighting in his recent Washington Post column is sugar-coating the problem if anything:
Unless you’ve been vacationing on Mars, you know that productivity is the catchword for economic efficiency — and also that we’re facing a quiet productivity crisis. Gains in productivity have slowed to a crawl or stagnated. Unless they revive, prospects for higher living standards will fade or vanish.
The conventional solution is more innovation, driven by advances in science and technology. We need the equivalent of the invention of the computer chip or the Internet. Nope. That’s too simple, says economist Jonathan Rothwell, author of the report for Gallup, the polling firm.
A huge part of the productivity slowdown, Rothwell contends, is the poor performance of these three large sectors of the economy: health care, education and housing. These sectors have gotten bigger, he says, without getting more productive. As their costs escalate, they absorb more of families’ incomes, making it harder to satisfy other wants.
The size of these three sectors has increased from 25 percent of national spending (gross domestic product) in 1980 to 36 percent of GDP in 2015, Rothwell estimates.
Do you know what those three sectors have in common? They’re all subsidized ferociously. In two of the three, education and health care, not only are they not getting more productive they’re actually getting less productive. Outputs per input are actually declining in those sectors. I have documented that so frequently over the years I feel no need to go over the territory again.
How do you increase the productivity of the entire economy when 36% of it is either not increasing in productivity or actually decreasing? That’s not a rhetorical question. How do you do it? I really want to know.
As a sidebar and to highlight the difficulty in increasing GDP growth over our present phlegmatic 1.6%, it is definitional that there are only two ways to increase GDP. Either you’ve got to increase productivity or you’ve got to increase the number of workers without decreasing productivity. Increasing the number of workers without decreasing productivity implies very selective immigration. Increasing productivity by definition implies capital investment.
IMO our gravest economic problem has been very low non-real estate domestic business investment. The problem goes back long before the Great Recession right to the end of the 1990s.
