Your Friday Morning Dose of Doom & Gloom

Is the new normal really here to stay? Jim Pethokoukis spoke with AEI’s Stephen Oliner, who got to talking about the end of the big productivity gains we saw from the mid-90s until 2004:


The other thing that was happening during that decade is that the prices of information technology equipment – computing equipment, communication equipment – was falling at a historically rapid rate because of really rapid gains in semiconductor technology that allowed those prices to drop tremendously on a performance adjusted basis.

So firms had a lot of incentive to buy computing equipment, to automate, and they had the Internet as a tool to make those investments very valuable. And then, about a decade later, it really started to peter out. And that’s I think what was behind the break starting in about 2004. Part of it was just that, you know, the best ideas for how to use the Internet to improve profits and productivity are the ones that are developed relatively early on, and after a decade of development, there just wasn’t that much really good innovation that could be pulled out of the Internet compared to what had been done before.

And a second is that the prices for computing equipment stopped falling as rapidly as they had been, so firms had less incentive to buy that equipment.

And a third thing, which I think has not been given a lot of weight in the discussions, is that the U.S., through the ’90s, got a lot of productivity boost just from the production of computing equipment and semiconductors in this country. And a lot of that activity has been off-shored. It’s now in Asia. It’s in Mexico. And those sectors are very, very technologically dynamic sectors that by themselves contribute a lot to productivity growth. And we’ve shifted a chunk of that. A lot of that has now moved abroad, and isn’t in the United States anymore, and it doesn’t occur in the United States. It’s not part of our GDP.


We have the highest corporate tax rate in the world, which certainly isn’t helping. Apple has tens of billions in overseas banks, which they can’t even repay to American shareholders without first having to fork meaty chunks of it into Uncle Sugar’s gaping maw. And our business climate is no longer even in the Top Ten, which means of course we’ve lost dynamism.

That 2004 date is interesting to me however, and it goes back to a point I’ve made here before. That’s when the housing bubble was really starting to get big, and something like a trillion dollars had been diverted from potentially productivity-enhancing investments, and into bigger houses nobody really needed. People then borrowed against their bubbletastic home value gains — and again, largely not to invest in businesses, but to buy bigger SUVs nobody really needed. We’re still suffering from the debt overhang, and also from the lost productivity gains.

Growth is the only way out, but we have an Administration which prefers less work and more handouts, along with punitive taxes on the producers to pay for it all.


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