Also Noah to explain the investment boom please give credit where it’s due to the 1993 Clinton Budget, it contained many tough decisions, significantly reversed Reaganomics and at great pain to Clinton politically (breaking his middle class tax cut pledge) it did what it was designed to do, reduced the deficit to free up capital for private investment
I get very angry that the left refuses to give Clinton credit for its Reaganomics reversing contents but what can you expect from those people but I really wish the centre left and outright centrists would give him credit for the tough decisions that arguably cost him the 94 midterms but did deliver the productivity growth and investment you discuss here as if it just arrived out of thin air, this was in fact the result of tough political decisions that delivered the outcomes they were planned to do (Read The Agenda but ignore the typical Woodward drivebys and focus on the substance)
Sorry- this fellow seems completely ignorant of international economics of the 1990s (globalization and overproduction/over investment abroad helped drive disinflation while increasing supply) as well as micro policy- particularly regulatory and competitive improvements in the US and Europe.
Productivity isn’t caused by Fed policy. Isn’t he aware that his fellow acolytes of the “run the economy hot” school (er- excuse me, “forbearance”) just created the biggest spike in inflation in decades accompanied by sharp falls in real wages?
Is he not aware that, very much unlike the 1990s, both parties wish to constrict competition and supply (except for targeted handouts)? Is he unaware Biden wishes to raise investment taxes and taxes generally (unlike the 1990s in most of the world)?
Is he unaware the frenzied over-investment of the late 1990s led to a bubble and then a crash in stocks, media/telco (particularly relevant and damaging as it was leveraged) and dot com darlings?
Seems to me like he is using one set of questionable productivity numbers (in a period where much of our econ data seems questionable/volatile and still impacted by Covid) to push for the same monetary policy that Brainard and Yellen (and Yellen’s old hires on the Fed economic team) that was disastrous the first time they tried it.
I do believe monetary policy will need to become stimulative again in the years ahead…..because we are going to have a decade of stagnation trying to get out from all of the irresponsible debt we are putting on, particularly since 2020.
If this is accompanied by Biden’s preferred model of high taxes, high regulation and protectionism I wouldn’t be expecting a productivity boom unless it is caused by falls in employment due to AI.
The lower cost growth in housing in the 1990s might have been because of the rise degree of illegal immigration. Illegal immigrants primarily work in agriculture and construction. From the late 2000s, part of the rise in construction costs might have been due to the net outmigration of Mexicans from American due to Mexico becoming an upper middle income country.
Very nice overview of the macro factors that contribute to stable booms. As a kid in the 90s, the explanation of how wage growth wasn't eaten up by rising energy, healthcare, and housing costs rings very true. It definitely felt like we were able to afford more and better stuff throughout the decade and really until the GFC in 2008.
It is an intriguing scenario. One speculative difference that would be hard to trace causality to is the "lull" in the Cold War that occurred in the 1990's, on such a productivity boom. I say lull because clearly many of us thought it was over - and it wasn't. Today, at least geopolitically, our prospects seem far different than the 1990's. We have a resurgent China, growing disunity amongst allies, a hot war on Europe's border, retrenchment and inwardness here in the USA (at least among the right). It would be interesting to track US military spending, our R&D spending, and major geopolitical risks and see how these do or don't correlate to the 1990's productivity boom.
We will probably see low commodities prices for the next few years. Recession in China + Overproduction of Chinese solar, wind and batteries will drive down the prices of coal, oil and natural gas which leads to lower growth/recessions in petrostates.
Interesting post - there’s been a lot of ink spilt in the CDN media regarding a serious lack of productivity growth in Canada. In the short term a crazy housing market has masked this but long term it’s extremely bad news for everyone.
The fetish for productivity gains has been a disaster for many Americans. US wage growth has badly lagged productivity growth for several decades, exacerbating the income and wealth gaps that characterize today’s economy. This will only get worse with the advent of AI, which will cost far more jobs than it creates, all in the name of progress. Progress for whom?
Interesting perspective. However, (1) many economic studies have shown that the productivity boom of 1996-2005 was driven largely by the first wave of digital innovation (Information and Communication Technology revolution) finally gaining traction across economic sectors. This is consistent with the fact that productivity accelerated across advanced economies — though especially in the US. Macro stability contributed but was not the primary driver.
(2) Similarly, whether the recent productivity growth acceleration is a flash in the pan or a turning point might be already baked in — hopefully we’re seeing the impact of the past decade of investment and implementation of new technologies finally starting to bear fruit. If that’s the case, again macro stability would help getting the productivity acceleration entrenched but would not be the primary driver.
(3) Looking forward, this also suggests that government intervention should focus more on “getting out of the way” with leaner and efficient regulation. Given the explosive growth of public debt, additional public investment would risk undermining the macro stability itself.
Having said this, the last sentence of the piece is spot on.
One big thing - white collar productivity went thru the roof because of the personal computer, email, Word, Excel and PowerPoint. And CAE like Solid Works.
Within 5 years in the 90s, once laptops came on and BSOD went away, these drove hidden productivity.
Almost overnight, the jobs of secretary, travel agent, 35mm slide presentations, draftsmen and more, disappeared forever.
At BigCorp, Welch drove great productivity, more revenue, less people. He had pretty much no clue about the enabling PC, internet and software.
I don’t deny the mid to late 90s were an economic boom time but I do think one thing from that period that has been kind of memory hole is that coming out of the early 90s recession, Youth Unemployment and long term unemployment were real problems (certainly in Australia and the UK) the long term unemployment was also impacted by deindustrialisation (and that’s why retraining was such a big political issue at the time) but the deep long running youth unemployment that really wasn’t fixed until the aughts is a tougher one to explain (a push for increased universe was partly a plan to bring down the youth unemployment headline numbers)
Productivity (TFP) IS very important. It is where real improvement in wellbeing over time comes from. It does NOT affect r* (except as it might lead to higher tax revenues and a smaller difficult.
Recently, I think Democratic control of national offices makes for more rational economic management which helps the economy. Michael Lewis's book The Fifth Risk tells how Trump replaced competent agency heads with loyalist hacks who lacked technical expertise. Governance matters.
Another factor is physics. From 2010 to 2020 U.S. oil production tripled. That kept oil prices down and helped productivity, surely. And don't forget low skilled immigration--Hein de Haas's book How Migration Really works makes a case that low skilled migrants help the economy in several ways including freeing more skilled American women to work (through nannies and other child care).
Out of curiosity, have you considered adding a voiceover option for posts, similar to what Damon Linker is doing on his "Notes from the Middleground" Substack? Not asking for it because I dislike reading it, I just think it might be a nice add, especially for those of us with a lot of other newsletters we try to track
So far ALL employment growth under Biden has been foreign born. Native born Americans have seen ZERO job growth., No, that won't support any "productivity boom." My son, in tech, notes that employees are H1Bs.
Also Noah to explain the investment boom please give credit where it’s due to the 1993 Clinton Budget, it contained many tough decisions, significantly reversed Reaganomics and at great pain to Clinton politically (breaking his middle class tax cut pledge) it did what it was designed to do, reduced the deficit to free up capital for private investment
I get very angry that the left refuses to give Clinton credit for its Reaganomics reversing contents but what can you expect from those people but I really wish the centre left and outright centrists would give him credit for the tough decisions that arguably cost him the 94 midterms but did deliver the productivity growth and investment you discuss here as if it just arrived out of thin air, this was in fact the result of tough political decisions that delivered the outcomes they were planned to do (Read The Agenda but ignore the typical Woodward drivebys and focus on the substance)
Sorry- this fellow seems completely ignorant of international economics of the 1990s (globalization and overproduction/over investment abroad helped drive disinflation while increasing supply) as well as micro policy- particularly regulatory and competitive improvements in the US and Europe.
Productivity isn’t caused by Fed policy. Isn’t he aware that his fellow acolytes of the “run the economy hot” school (er- excuse me, “forbearance”) just created the biggest spike in inflation in decades accompanied by sharp falls in real wages?
Is he not aware that, very much unlike the 1990s, both parties wish to constrict competition and supply (except for targeted handouts)? Is he unaware Biden wishes to raise investment taxes and taxes generally (unlike the 1990s in most of the world)?
Is he unaware the frenzied over-investment of the late 1990s led to a bubble and then a crash in stocks, media/telco (particularly relevant and damaging as it was leveraged) and dot com darlings?
Seems to me like he is using one set of questionable productivity numbers (in a period where much of our econ data seems questionable/volatile and still impacted by Covid) to push for the same monetary policy that Brainard and Yellen (and Yellen’s old hires on the Fed economic team) that was disastrous the first time they tried it.
I do believe monetary policy will need to become stimulative again in the years ahead…..because we are going to have a decade of stagnation trying to get out from all of the irresponsible debt we are putting on, particularly since 2020.
If this is accompanied by Biden’s preferred model of high taxes, high regulation and protectionism I wouldn’t be expecting a productivity boom unless it is caused by falls in employment due to AI.
SPOILER: You can’t, since the ‘90s were a peculiar age with peculiar technologies, demographics and culture (exactly like all other decades before).
You should ask how improve productivity considering what your current decade is, and not was.
The lower cost growth in housing in the 1990s might have been because of the rise degree of illegal immigration. Illegal immigrants primarily work in agriculture and construction. From the late 2000s, part of the rise in construction costs might have been due to the net outmigration of Mexicans from American due to Mexico becoming an upper middle income country.
Very nice overview of the macro factors that contribute to stable booms. As a kid in the 90s, the explanation of how wage growth wasn't eaten up by rising energy, healthcare, and housing costs rings very true. It definitely felt like we were able to afford more and better stuff throughout the decade and really until the GFC in 2008.
It is an intriguing scenario. One speculative difference that would be hard to trace causality to is the "lull" in the Cold War that occurred in the 1990's, on such a productivity boom. I say lull because clearly many of us thought it was over - and it wasn't. Today, at least geopolitically, our prospects seem far different than the 1990's. We have a resurgent China, growing disunity amongst allies, a hot war on Europe's border, retrenchment and inwardness here in the USA (at least among the right). It would be interesting to track US military spending, our R&D spending, and major geopolitical risks and see how these do or don't correlate to the 1990's productivity boom.
We will probably see low commodities prices for the next few years. Recession in China + Overproduction of Chinese solar, wind and batteries will drive down the prices of coal, oil and natural gas which leads to lower growth/recessions in petrostates.
Interesting post - there’s been a lot of ink spilt in the CDN media regarding a serious lack of productivity growth in Canada. In the short term a crazy housing market has masked this but long term it’s extremely bad news for everyone.
The fetish for productivity gains has been a disaster for many Americans. US wage growth has badly lagged productivity growth for several decades, exacerbating the income and wealth gaps that characterize today’s economy. This will only get worse with the advent of AI, which will cost far more jobs than it creates, all in the name of progress. Progress for whom?
Interesting perspective. However, (1) many economic studies have shown that the productivity boom of 1996-2005 was driven largely by the first wave of digital innovation (Information and Communication Technology revolution) finally gaining traction across economic sectors. This is consistent with the fact that productivity accelerated across advanced economies — though especially in the US. Macro stability contributed but was not the primary driver.
(2) Similarly, whether the recent productivity growth acceleration is a flash in the pan or a turning point might be already baked in — hopefully we’re seeing the impact of the past decade of investment and implementation of new technologies finally starting to bear fruit. If that’s the case, again macro stability would help getting the productivity acceleration entrenched but would not be the primary driver.
(3) Looking forward, this also suggests that government intervention should focus more on “getting out of the way” with leaner and efficient regulation. Given the explosive growth of public debt, additional public investment would risk undermining the macro stability itself.
Having said this, the last sentence of the piece is spot on.
One big thing - white collar productivity went thru the roof because of the personal computer, email, Word, Excel and PowerPoint. And CAE like Solid Works.
Within 5 years in the 90s, once laptops came on and BSOD went away, these drove hidden productivity.
Almost overnight, the jobs of secretary, travel agent, 35mm slide presentations, draftsmen and more, disappeared forever.
At BigCorp, Welch drove great productivity, more revenue, less people. He had pretty much no clue about the enabling PC, internet and software.
And all of those were super growth industries.
That was a unique time, a Guttenberg moment.
I don't see AI doing the same thing. Perhaps.
I don’t deny the mid to late 90s were an economic boom time but I do think one thing from that period that has been kind of memory hole is that coming out of the early 90s recession, Youth Unemployment and long term unemployment were real problems (certainly in Australia and the UK) the long term unemployment was also impacted by deindustrialisation (and that’s why retraining was such a big political issue at the time) but the deep long running youth unemployment that really wasn’t fixed until the aughts is a tougher one to explain (a push for increased universe was partly a plan to bring down the youth unemployment headline numbers)
Productivity (TFP) IS very important. It is where real improvement in wellbeing over time comes from. It does NOT affect r* (except as it might lead to higher tax revenues and a smaller difficult.
Recently, I think Democratic control of national offices makes for more rational economic management which helps the economy. Michael Lewis's book The Fifth Risk tells how Trump replaced competent agency heads with loyalist hacks who lacked technical expertise. Governance matters.
Another factor is physics. From 2010 to 2020 U.S. oil production tripled. That kept oil prices down and helped productivity, surely. And don't forget low skilled immigration--Hein de Haas's book How Migration Really works makes a case that low skilled migrants help the economy in several ways including freeing more skilled American women to work (through nannies and other child care).
Our Guatemalan roofers were hard working guys.
Out of curiosity, have you considered adding a voiceover option for posts, similar to what Damon Linker is doing on his "Notes from the Middleground" Substack? Not asking for it because I dislike reading it, I just think it might be a nice add, especially for those of us with a lot of other newsletters we try to track
So far ALL employment growth under Biden has been foreign born. Native born Americans have seen ZERO job growth., No, that won't support any "productivity boom." My son, in tech, notes that employees are H1Bs.