It isn’t often that I get two posts from one newspaper column. In the column I mentioned in my last post Robert Samuelson suggests some reasons for lagging productivity in the U. S.:
I have written about this subject before, because — though obscure — it is vital to our economic future. Faster productivity growth is the basic source of higher incomes and living standards. If not reversed, the productivity slowdown implies something close to long-term stagnation in wages and incomes. Changing the trajectory of productivity growth is a central challenge for the incoming Trump administration — as it would have been if Hillary Clinton had won.
To explain the puzzle, economists have offered many theories. Here are four: 1) Despite contrary appearances, American technology is actually lagging; 2) an aging society weakens risk-taking; 3) too many government regulations discourage start-up firms; and 4) the Great Recession, with peak unemployment of 10 percent, made both consumers and corporations more reluctant to spend, resulting in slower economic growth.
I believe his first point is absolutely right. American businesses aren’t investing in technology like they used to and aren’t creating new technology the way they used to. I’ve been complaining about this for some time. If American companies think they can prosper solely on the basis of retail and management with development, design, and manufacturing being outsource offshore, they’re making a disastrous error.
In fact American businesses aren’t investing in anything the way they used to. The recession of the early Aughts wasn’t caused by a drop in consumer spending but by business spending falling off a cliff.
With respect to an aging society, I guess it depends on what you mean. Contrary to popular belief historically the people who start new businesses aren’t kids. They’re people in their fifties and sixties. When a series of punches has sapped the capital of those people, you shouldn’t be surprised at a decline in startups.
If by aging you mean people in their 70s and 80s, I think that’s probably correct.
To his point about regulations, I think again that’s absolutely correct. Only businesses beyond a certain size can afford the ever-increasing amount of red tape and reporting being required these days. I would add during the Great Recession we subsidized big businesses and left small ones to fend for themselves. That was the wrong strategy although it was politically prudent.
His final point, that we’re still suffering a hangover from the Great Recession, practically goes without saying. If it weren’t true, the recovery wouldn’t have been as phlegmatic as it has been.
If the theory is that an aging society discourages start-ups, then I think that’s a misuse of statistics. We look at aging demographics when we’re concerned with issues like healthcare and retirement, which are universal issues. Demographic changes impact costs and ability to pay.
OTOH, most people don’t start their own businesses, never have (at least in the post-agricultural era). The median age moving from 29.5 (1960) to 37.8 (2015) does not have any relevance. To state it another way, if age 50 is the optimal age for starting a business, we don’t lack for 50 year olds, we probably have as many 50 years as we’ve ever had (or whatever age one wants to choose). We lack enough 50-year olds who have the desire and capacity and incentives to start their own business.
I have no doubt that people starting little retail establishments or hanging their consultancy shingle out push the age up. Our experience has been that substantial businesses are overwealmingly started between 35-45. It’s not even close.
I think you leave out income and wealth inequality as a factor. With our money so concentrated into the hands of a relative few, if those few don’t come through, we are hosed. Those new start ups depend upon money from family, friends and savings. Not many people have the savings, or the right family and friends.
Steve
“if those few don’t come through, we are hosed.”
I can’t speak to medical services or devices, because we don’t do,that industry. But throw out two corporate spin-outs and every business we have owned was started by people of very modest means. No rich families.
We’ve looked at so many businesses over the years I couldn’t count them. Hundreds. I can only recall one that was clearly started by a wealthy family. Of all things, they made switching engines in Iowa.