Must-read: Timothy Aeppel: “Silicon Valley Doesn’t Believe U.S. Productivity Is Down”

Must-Read: Timothy Aeppel: Silicon Valley Doesn’t Believe U.S. Productivity Is Down: “Contrarian economists at Google and Stanford say the U.S. doesn’t have a productivity problem…

…it has a measurement problem. Google Inc. chief economist Hal Varian says sluggish U.S. productivity doesn’t reflect a high-tech wave of innovations that save people time and money. ‘There’s a lack of appreciation for what’s happening in Silicon Valley,’ he says, ‘because we don’t have a good way to measure it.’…

U.S. productivity, meanwhile, has hit the skids. From 1948 to 1973, it grew at an annual average of 2.8%. The rate through the 1980s slowed to half that, even as computers spread through the economy, driving everything from welding robots in auto plants to bank ATMs. In 1987, during the last period of productivity hand-wringing, Nobel Prize winning economist Robert Solow quipped: ‘You can see the computer age everywhere but in the productivity statistics.’ From 1995 to 2004, it finally looked like the digital age was paying off: Productivity growth rates closed in on post-World War II highs of near 3%. Then average gains fell to 2% from 2005 to 2009; since 2010, they have dipped below 1%…. ‘You can’t be in the Valley without thinking we’re in the middle of a productivity explosion,’ Mr. Bloom says. ‘And when they do discuss it, everyone jumps to Hal’s conclusion here.’…

Outside Silicon Valley, the arguments aren’t as persuasive. University of Chicago economist Chad Syverson said there might be some measurement problems, but that has always been the case. And, he says, he doubts it would account for more than a small part of the recent productivity slowdown…. ‘I’m always reluctant to point a finger at failure in measurement because it feels like you’re making excuses, ’ says Marco Annunziata, chief economist for General Electric Co. One explanation for the paradox of low productivity in a time of technical advances may be the uneven way innovation spreads, he says…. American business since the recession has, in fact, been stingy about investing in new equipment…