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Productivity and the Recession

By Matthew Yglesias  

"Productivity and the Recession"

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David Brooks, writing skeptically about the case for more fiscal stimulus, says:

But the overall message is: Don’t be arrogant. This year, don’t engage in reckless new borrowing or reckless new cutting. Focus on the fundamentals. Cut programs that don’t enhance productivity. Spend more on those that do.

So leaving aside the fact that it’s a bit difficult to know exactly which programs enhance productivity and which don’t (arrogant, even), obviously “do more productivity-enhancing stuff” is never terrible advice. But it just can’t be emphasized enough that even though the American economy is in fact sub-optimal on the supply side in many ways, this is also true of every other economy on earth at every other time on earth. When nations fall into a macroeconomic funk, it’s natural—and in some ways even a bit healthy—for people to start focusing on structural problems that they didn’t care about so much a few years ago in fatter times. But it can also get morbid. The United States is one of the most productive countries in the entirety of human history and according to the Bureau of Labor Statistics we’re more productive than ever:

Nonfarm business sector labor productivity increased at a 2.8 percent annual rate during the first quarter of 2010, the U.S. Bureau of Labor Statistics reported today, with output rising 4.0 percent and hours rising 1.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.0 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.1 percent (tables A, and 2). This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1 percent over the four-quarter period ending in the first quarter of 2002.

For a look at what that means in practice, take a gander at the CBO’s estimate of potential output:

specter1 1

Over the long-run, boosting our productivity growth rate will help us become more prosperous. But over the short-run, our potential to produce goods and services simply isn’t the issue. The issue is that because of demand shortfalls, that potential isn’t being used.

Having said all that, the really odd thing about Brooks’ column is that after bashing stimulus proponents for many grafs, he turns out to basically agree with stimulus proponents:

First, extend unemployment insurance; that’s a foolish place to begin budget-balancing. Second, you need to mitigate the pain caused by the state governments that are slashing spending.

Exactly. But if that’s what Brooks thinks, he should be complaining about conservative senators who don’t want to do those things, not about Paul Krugman.

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