Missing the story of structural change
ASK THIS | May 21, 2004
Economics professor and blogger Brad DeLong says reporters aren’t getting to the bottom of the defining economic story of the past four years: a boom in the productive potential of the economy. First of a series.
By Brad DeLong
Q. In what businesses are people working much harder than they did five years ago, and what’s making them work so much harder?
Q. In what businesses are people working much smarter than they did five years ago, and what’s letting them work so much smarter?
Q. In what businesses are productivity gains due primarily to people figuring out how to use all the computers they bought in the late 1990s, and how are people using computers and related gear to boost worker productivity?
Q. As the price of information technology capital continues to fall, are there any signs of another boom in information technology investments that will greatly boost the productivity of IT-using industries yet further?
Q. What new jobs or industries are being created because of the falling price of information technology?
The press needs to be asking questions about the underlying structural changes in the economy under George W. Bush. By structural, we mean the things that change over the long-term: labor, capital and technology. These are the things that ultimately determine America’s standard of living (as opposed to the ups-and-downs of the unemployment rate and other cyclical factors that look bigger in the short run but are smaller in the long run).
On the structural side, the American economy has been growing fast over the past four years. The productive potential of the American economy has grown at an extremely rapid pace. But the rapid growth has not been the result of high investment (more capital). In fact, the rate of investment has been markedly slower than in the late 1990s. It has also not been the result of any action taken by the Bush Administration. Instead, the rapid growth is the result of:
(a) learning to efficiently use the information-technology capital
put in place in the late 1990s
(b) becoming smarter about organizing production processes, and
(c) speeding up the pace of work.
This story of positive structural changes in the American economy – the very rapid growth of potential output – is the big story about the economy during the past four years. It's important both at the macro level – why is output-per-man-hour 20 percent higher than it was five years ago? – and at the micro level – how are people today doing their jobs and being 30 percent more productive than their predecessors of a decade ago? The news media aren't covering this well. Yet it's the really big story about the economy in the Twenty-First century.