The Productivity Slowdown and the Secular Stagnation Hypothesis

Abstract

Listen

Translate article

The recent dismal productivity growth in the U.S. and in the global economy has been seen as evidence of a potential return to a period of secular stagnation. Focusing on the U.S.—a proxy for the frontier economy—we consider a standard decomposition of the different sources of post-World War II growth of GDP per capita, and review existing projections. In the next 20–50 years, lower contributions of hours worked and education will negatively affect U.S. economic growth. However, total factor productivity—which some warn will also continue to stagnate—will be key. After showing that similar warnings have been issued after all deep recessions, we argue that such pessimistic predictions were consistently misguided—not because they were built on erroneous theories or data, nor because they failed to predict the discovery of new technologies, but because they underestimated the potential of the technologies that already existed. These findings suggest that we should not make the same mistake today by undervaluing the future effects of current information technology.