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)
Indeed. The likely reason you had an investment boom in the first place was because lower deficits meant that there was less crowding out of private investment. This is just normal economics at work in the absence of large shocks. Matt Yglesias does credit the Clinton admin with this. The deficit scolds more silent, because the deficit scolds are mostly people who use deficit scares to cut social spending and taxes.
In the US, the lesson is that the left and centre left should get deficits under control, but not do too much more on that unless you can efficiently shift taxes to the plutocrat/upper income caste. You'll get no credit for going above and beyond, you'll alienate your left wing, and when the right come into power they'll waste it all on tax cuts that cause the deficits to rise again anyway. And then they'll claim a budget crisis in order to cut social spending, preferably on the lower 50%.
Bush ran on jacking up defense spending while slashing taxes because that is how Clinton balanced the budget…and that also means Gingrich had little to do with it because Republicans would never balance the budget that way and Bush’s 2000 platform is all the evidence one needs to see that.
The Clinton administration was a very “moderate” group. The budget deficit dropped quickly driven by higher taxes on the rich (derided by columnist Robert Samuelson) and a good amount of by a dramatic decline in the estimated cost of bank failures due to the rapid decline in short term interest rates that radically changed banking industry’s income for the better. So between a better tax policy and a bit of luck from monetary policy the deficits became a surplus.
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.
"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 this why the entire western world experienced inflation - many countries worse than the US - without running the economy hot with stimulation packages? Could you please explain why Sweden (where I live) has higher and longer inflation despite not stimulating the economy and if anything pursuing austerity? Also Sweden has much lower national debt than the US.
I find the US debate terribly myopic. Inflation is not Joe Biden's fault, it's a global phenomenon with many different causes (Covid disturbances, Russia's war on Ukraine etc). If anything the US is severely outperforming the rest of the world.
The US did not have the energy price inflation of Europe, to be sure. Also, Europe’s real interest rates (due in part due to a desire for currency weakness) are very low relative to its higher inflation - these are both factors, despite lower deficits generally in Europe. Obviously fiscal and monetary policy needs to be looked at together, and on a global basis.
US fiscal stimulus was massive and had global impact. Between the $900 bio in C-19 handouts passed under Pelosi, McConnell and Trump in Dec 2019 and the $2 trillion in handouts a couple of months later passed by only Dems, that is nearly 15 percent of US GDP and 3 percent of global GDP in handouts (into a supply-constrained global economy) over a period of 3 months, injected into a US economy already recovering well. Of course 3 pct of global GDP in stimulus into the worlds largest importer leads to globalized inflation. For comparison, think of China’s much smaller stimulus during the GFC, which perhaps helped avert larger deflation and recession globally.
Cochrane has a good paper out on the fiscal theory of inflation. Maybe not the answer but shouldn’t be easily dismissed as a possibility.
Moreover, plot real Fed funds vs American “sticky core” CPI Inflation started turning down in the US in mid -2022 despite the Ukraine war (so much for war causing US inflation- though it did for energy prices in Europe) and despite the real Fed funds rates being negative - ie the Fed rate hikes did not stop inflation. What the US stopped doing in 2022 was issuing trillions in handouts (perhaps also a stock market correction and a switch away from QE). . In fact US inflation (sticky core) stopped falling only as the Fed became most restrictive. Doesn’t seem correlated with real Fed funds rates at all. Strange.
Real wages grew both now and in the 90s. That's a fact, not an opinion. The simple fact is, the economy was run too cold over the last 10 years, all over the world. Now it's possibly too hot. But so what? That just means you're closer to the possible frontier. Whether you want to define that as CBs 'causing' productivity, or merely CBs enabling the economy as a whole to utilise idle resources, that's up to you. The latter framing seems to be more to your liking. Regardless, that's the sort of policy we should adopt.
I should add that this isn't have to be an ideological right/left thing, unless you want to buy into the narrative that the right want to keep wages low and returns to capital high. This has been a point made by libertarian economists like Adam Ozimek and Karl Smith. The latter has worked for right wing Republican politicians, and has the view that the reason so many right wing economic predictions failed to materialise (minimum wage causing unemployment, budget deficits causing slower growth) was because monpol has been too tight for too long.
Half of inflation was due to rising corporate profits, per the Kansas City Fed, the Economic Policy Institute, and the IMF (and for Europe, too). This is the result of not enforcing antitrust laws over the last 40 years. Whatever else about Biden, he gets credit for actively going after monopolies. Running the economy “hot” had only a minor role, supply chain issues a bigger role.
That spoiler is a suggestion that one can’t learn anything about any economic conditions by looking at any other period in time. Surely it’s possible to learn something by looking at similarities between one time and another time, though it’s probably better to look at multiple time comparisons.
My comment was deliberately facetous, clearly you can learn from the past things you can also apply for the future. I was just pointing out the 90's (as well as the '80s, the '70s, the '60s, etc..) were a peculiar age with its intrinsic unreproducible characteristics and contest. For example, the '90s were the transitional period toward globalizazion and free trade. Today instead we are assisting an almost rejection of free trade, just think about IRA wich basically invented an autharcical ecologic transition.
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.
Yeh maybe, but if so then it would also have to be the case that immigration reduced construction wages in the 1990s and those wages accelerated past 2010. Is that the case?
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.
Actually the productivity gains in the 1990s were relatively modest compared to most of the post war period, just better than the 1980s and the even worse 70s. 2001 - 2007 was better than 1945-1973 (marginally) and the last decade was as bad as the 1970s.
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)
It's not that hard to explain in Australia. The RBA raised rates too slowly at first, then too fast at the end, causing inflation at first then the 'recession we had to have'. They then compounded that initial (understandable) mistake with a further (less understandable) mistake of raising rates off a fruit and veg price spike. Even if you want to say it was hard to avoid a recession, it's fair to say the recession was much deeper and scarring than it needed to be.
As a Keating devotee I’m well aware of that (correct) explanation for the recession but that’s not what I was talking about, I was talking about how will deep into the late 90s youth unemployment stayed stubbornly high (doing real damage to a decent chunk of the generation that left school in the mid 90s) and despite the fact that at the time Youth Unemployment and long term unemployment were THE economic issues (Blair’s windfall tax was used purely to get young people into training and into work, Howard put in place a program for small business where the government paid half the wages for the first year of any young person who’d been unemployed for 6+ months) yet somehow despite being in every newspaper and news bulletin for years at that time the history of that era just seems to have memory holed the fact youth unemployment was such a big issue back then
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.
The post is arguing the reverse. Firstly, that failure to hit r* on the high side - policy rate higher than it should be - you don't get the TFP growth that you would have otherwise.
Secondly, that good fiscal macro policy - public deficits in control - enable r* to go down. So borrowing costs go down, business investment increases, TFP growth goes up.
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.
Do you have any source where I can see justification for those claims? It seems to me that the increase in employment has been so severe that it couldn’t help but include a lot of American-born people. Especially given that immigration has been relatively low during the Biden presidency.
Yeah, that does seem to clarify that this is entirely about the American-born population aging out of the workforce. The fraction of American-born people ages 18-64 in the workforce is as high now as it was before the pandemic, and unemployment is lower, so the fraction of American-born people ages 18-64 that are employed must be higher. There are two peaks in 2006 and 2000 when some age and demographic groups had higher labor-force participation rate, but those periods had higher unemployment than the present, so it's hard to compare the fraction of people who were actually employed without more details.
I can see that a think tank with "low immigration" in its tag line wants to sell this as a problem, because it means there's a lot of jobs for immigrants, since Americans have filled up on them. But even they seem to be showing an increase in employment among Americans of working age during the Biden years (and I would have especially liked to see ages 25-55 broken out, rather than 18-64, because I think longer schooling and earlier retirement are both things that have gotten more popular in recent years).
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)
Indeed. The likely reason you had an investment boom in the first place was because lower deficits meant that there was less crowding out of private investment. This is just normal economics at work in the absence of large shocks. Matt Yglesias does credit the Clinton admin with this. The deficit scolds more silent, because the deficit scolds are mostly people who use deficit scares to cut social spending and taxes.
In the US, the lesson is that the left and centre left should get deficits under control, but not do too much more on that unless you can efficiently shift taxes to the plutocrat/upper income caste. You'll get no credit for going above and beyond, you'll alienate your left wing, and when the right come into power they'll waste it all on tax cuts that cause the deficits to rise again anyway. And then they'll claim a budget crisis in order to cut social spending, preferably on the lower 50%.
I think Centrists are the only ones who DO give Clinton credit for raising revenue and reducing deficits.
Bush ran on jacking up defense spending while slashing taxes because that is how Clinton balanced the budget…and that also means Gingrich had little to do with it because Republicans would never balance the budget that way and Bush’s 2000 platform is all the evidence one needs to see that.
The Clinton administration was a very “moderate” group. The budget deficit dropped quickly driven by higher taxes on the rich (derided by columnist Robert Samuelson) and a good amount of by a dramatic decline in the estimated cost of bank failures due to the rapid decline in short term interest rates that radically changed banking industry’s income for the better. So between a better tax policy and a bit of luck from monetary policy the deficits became a surplus.
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.
"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 this why the entire western world experienced inflation - many countries worse than the US - without running the economy hot with stimulation packages? Could you please explain why Sweden (where I live) has higher and longer inflation despite not stimulating the economy and if anything pursuing austerity? Also Sweden has much lower national debt than the US.
I find the US debate terribly myopic. Inflation is not Joe Biden's fault, it's a global phenomenon with many different causes (Covid disturbances, Russia's war on Ukraine etc). If anything the US is severely outperforming the rest of the world.
The US did not have the energy price inflation of Europe, to be sure. Also, Europe’s real interest rates (due in part due to a desire for currency weakness) are very low relative to its higher inflation - these are both factors, despite lower deficits generally in Europe. Obviously fiscal and monetary policy needs to be looked at together, and on a global basis.
US fiscal stimulus was massive and had global impact. Between the $900 bio in C-19 handouts passed under Pelosi, McConnell and Trump in Dec 2019 and the $2 trillion in handouts a couple of months later passed by only Dems, that is nearly 15 percent of US GDP and 3 percent of global GDP in handouts (into a supply-constrained global economy) over a period of 3 months, injected into a US economy already recovering well. Of course 3 pct of global GDP in stimulus into the worlds largest importer leads to globalized inflation. For comparison, think of China’s much smaller stimulus during the GFC, which perhaps helped avert larger deflation and recession globally.
Cochrane has a good paper out on the fiscal theory of inflation. Maybe not the answer but shouldn’t be easily dismissed as a possibility.
Moreover, plot real Fed funds vs American “sticky core” CPI Inflation started turning down in the US in mid -2022 despite the Ukraine war (so much for war causing US inflation- though it did for energy prices in Europe) and despite the real Fed funds rates being negative - ie the Fed rate hikes did not stop inflation. What the US stopped doing in 2022 was issuing trillions in handouts (perhaps also a stock market correction and a switch away from QE). . In fact US inflation (sticky core) stopped falling only as the Fed became most restrictive. Doesn’t seem correlated with real Fed funds rates at all. Strange.
Real wages grew both now and in the 90s. That's a fact, not an opinion. The simple fact is, the economy was run too cold over the last 10 years, all over the world. Now it's possibly too hot. But so what? That just means you're closer to the possible frontier. Whether you want to define that as CBs 'causing' productivity, or merely CBs enabling the economy as a whole to utilise idle resources, that's up to you. The latter framing seems to be more to your liking. Regardless, that's the sort of policy we should adopt.
I should add that this isn't have to be an ideological right/left thing, unless you want to buy into the narrative that the right want to keep wages low and returns to capital high. This has been a point made by libertarian economists like Adam Ozimek and Karl Smith. The latter has worked for right wing Republican politicians, and has the view that the reason so many right wing economic predictions failed to materialise (minimum wage causing unemployment, budget deficits causing slower growth) was because monpol has been too tight for too long.
Half of inflation was due to rising corporate profits, per the Kansas City Fed, the Economic Policy Institute, and the IMF (and for Europe, too). This is the result of not enforcing antitrust laws over the last 40 years. Whatever else about Biden, he gets credit for actively going after monopolies. Running the economy “hot” had only a minor role, supply chain issues a bigger role.
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.
That spoiler is a suggestion that one can’t learn anything about any economic conditions by looking at any other period in time. Surely it’s possible to learn something by looking at similarities between one time and another time, though it’s probably better to look at multiple time comparisons.
My comment was deliberately facetous, clearly you can learn from the past things you can also apply for the future. I was just pointing out the 90's (as well as the '80s, the '70s, the '60s, etc..) were a peculiar age with its intrinsic unreproducible characteristics and contest. For example, the '90s were the transitional period toward globalizazion and free trade. Today instead we are assisting an almost rejection of free trade, just think about IRA wich basically invented an autharcical ecologic transition.
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.
Yeh maybe, but if so then it would also have to be the case that immigration reduced construction wages in the 1990s and those wages accelerated past 2010. Is that the case?
That's my assumption
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.
What about WalMart logistics being adopted across retail? I thought that was supposed to account for half of productivity gains in the 1990s.
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.
The internet running on Windows 95 sitting on everyone's desk at work changed workplace productivity forever.
Hmm. Forever? If so why has it dropped off.
Actually the productivity gains in the 1990s were relatively modest compared to most of the post war period, just better than the 1980s and the even worse 70s. 2001 - 2007 was better than 1945-1973 (marginally) and the last decade was as bad as the 1970s.
Source:
https://www.bls.gov/productivity/
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)
It's not that hard to explain in Australia. The RBA raised rates too slowly at first, then too fast at the end, causing inflation at first then the 'recession we had to have'. They then compounded that initial (understandable) mistake with a further (less understandable) mistake of raising rates off a fruit and veg price spike. Even if you want to say it was hard to avoid a recession, it's fair to say the recession was much deeper and scarring than it needed to be.
As a Keating devotee I’m well aware of that (correct) explanation for the recession but that’s not what I was talking about, I was talking about how will deep into the late 90s youth unemployment stayed stubbornly high (doing real damage to a decent chunk of the generation that left school in the mid 90s) and despite the fact that at the time Youth Unemployment and long term unemployment were THE economic issues (Blair’s windfall tax was used purely to get young people into training and into work, Howard put in place a program for small business where the government paid half the wages for the first year of any young person who’d been unemployed for 6+ months) yet somehow despite being in every newspaper and news bulletin for years at that time the history of that era just seems to have memory holed the fact youth unemployment was such a big issue back then
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.
The post is arguing the reverse. Firstly, that failure to hit r* on the high side - policy rate higher than it should be - you don't get the TFP growth that you would have otherwise.
Secondly, that good fiscal macro policy - public deficits in control - enable r* to go down. So borrowing costs go down, business investment increases, TFP growth goes up.
That's almost my position except that I would not say we need to know exactly what R* is to know that the Fed should have started reducing the EFFR.
And I certainly agree that the higher the deficit, the greater r*.
But for the moment suffice it to say that r* < 5.25%
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.
I guess Lewis didn’t follow politics from 2001-2009…and Tillerson was a Bush loyalist and do you think he was competent??
Immigration can lower productivity by not forcing companies to spend on capital improvements.
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.
Do you have any source where I can see justification for those claims? It seems to me that the increase in employment has been so severe that it couldn’t help but include a lot of American-born people. Especially given that immigration has been relatively low during the Biden presidency.
This is his source. Or it’s what I found.
https://cis.org/Report/Employment-Situation-Immigrants-and-USborn-Fourth-Quarter-2023
Yeah, that does seem to clarify that this is entirely about the American-born population aging out of the workforce. The fraction of American-born people ages 18-64 in the workforce is as high now as it was before the pandemic, and unemployment is lower, so the fraction of American-born people ages 18-64 that are employed must be higher. There are two peaks in 2006 and 2000 when some age and demographic groups had higher labor-force participation rate, but those periods had higher unemployment than the present, so it's hard to compare the fraction of people who were actually employed without more details.
I can see that a think tank with "low immigration" in its tag line wants to sell this as a problem, because it means there's a lot of jobs for immigrants, since Americans have filled up on them. But even they seem to be showing an increase in employment among Americans of working age during the Biden years (and I would have especially liked to see ages 25-55 broken out, rather than 18-64, because I think longer schooling and earlier retirement are both things that have gotten more popular in recent years).
Fair enough.