Must-Read: Nick Crafts: Whither Economic Growth?

Must-Read: Nick Crafts: Whither Economic Growth?: “Only yesterday… the so-called new economy was ascendant…

…Today there is a widespread fear of a future of secular stagnation, in which very slow growth will be the new normal—especially in advanced economies…. Current mainstream growth projections for the United States and the European Union over the medium term represent a marked slowdown from growth rates in the decades prior to the global financial crisis that began in 2008… a serious weakening of growth in labor productivity… is expected…. Today’s pessimism… is based on the recent history of growth performance….

In the recent past, information and communication technology made a stellar contribution to productivity growth in a relatively short time span…. It is possible that a forward-looking approach could give a more optimistic view…. First, in a world where artificial intelligence is progressing rapidly and robots will be able to replace humans in many tasks—including in low-wage service sector jobs that once seemed out of the reach of technological advances—another surge of labor productivity growth may be possible…. Second, the rise of China could boost world research and development intensity considerably…. Third, the information and communication technology revolution—by reducing the cost of accessing knowledge and greatly enhancing the scope for data analysis, which is the cornerstone of scientific advancement—paves the way for discovery of useful new technology….

For Western Europe the narrative is about catch-up… rather than… cutting-edge technological progress… [in] three distinct phases. The first, which ended in the early 1970s, saw rapid catch-up growth…. The second… from the early 1970s to the mid-1990s… catch-up in terms of real GDP per person ground to a halt… a decline in work hours and employment despite strong growth in labor productivity…. Third… from the mid-1990s to the crisis… Europe steadily fell behind. The upshot is that in 2007 the income level of the original 15 members of the European Union (the so-called EU15—Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom) was slightly lower relative to that of the United States than it had been in 1973….