Powerline directs us to this fundamental story about the economy, by Arnold Kling, at Tech Central Station. Productivity means output per worker-hour (non-farm). If a worker building four computers a hour changes some routine or uses new equipment, and thereby manages to build five computers an hour, his productivity has increased by 25%. If American workers produce more goods per hour this year than last, that is a national increase in productivity.
Productivity is the single most important measure of economic strength, for everything else relies on it. See Tech Central's interview with William Lewis, author of The Power of Productivity. Liberals tend to measure economic progress by distribution: who gets what out of the economy. That's indeed a very important question. Conservatives tend to point out that questions of distribution can only be asked if there is something to distribute. Only productivity can supply the food, shelter, and PlayStation's that the vox populi cries out for.
Says William Lewis:
Productivity is the best single measure of what leads to differences in economic performance. Even though GDP per capita is the all-encompassing measure, GDP per capita is determined primarily, almost entirely, by productivity. People basically work in order to have a place to sleep and something to eat and so on and so forth. The huge differences around the world are the efficiencies with which they work -- their productivity. So it is the power of productivity that determines what the global economic landscape looks like and because there are such differences, we have quite a number of severe issues that face us today.
Consider that the number of workers who support each retiree has dropped steadily over the last century, from about 50 to 1, to 3 to 1 today. Yet both retirees and workers have seen their standard of living increase. How so? Only because today's workers are vastly more productive. By the middle of the next century, it will take two workers churning out golf clubs to support one octogenarian playing golf. Only productivity growth will make that possible.
So how are we doing? Here is Kling's chart.
Five-year average annual productivity growth, first quarter to first quarter:
Period
Average Productivity Growth
1955-1960
2.03
1960-1965
2.79
1965-1970
2.09
1970-1975
2.31
1975-1980
1.55
1980-1985
1.38
1985-1990
1.65
1990-1995
1.59
1995-2000
2.28
2000-2005
3.39
What the table says is that the economy today is in great shape. The average productivity growth rate in the last five years is the highest over the past half century.
Productivity growth under President Bush has been higher than under any president over the last half century. It is well better than Clinton's record, and more than twice as strong as the Carter to Bush 41 years.
Now I would love to tell you that Bush 43 was responsible for this boom. But I don't believe that. Kling explains why.
What does this outstanding productivity performance say about economic policy under President Bush? Nothing. Let me repeat. Nothing. There is no political point-scoring to be made out of the news on productivity.
First of all, it is important to understand that, for the most part, productivity growth is the economy's gift to policymakers, not the other way around. It would be foolish to attribute to tax cuts that which ought to be attributed to Moore's Law.
Second, even when economic policy affects productivity growth, the effect comes with a long lag. We do not know how much of today's productivity growth reflects Clinton-era policies or Reagan-era policies or even the deregulation that began under President Carter.
It is easier to argue that Reagan, or Clinton is responsible for today's astounding figures. But it is ludicrous to argue that the current economy is not amazingly strong. Measured by more traditional standards like jobs and output, the economy roars along. This in spite of a hurricane that took a big bite out of our economic capacity, and soaring gas prices. If you really want workers and retirees to prosper, the question is what we have been doing and are doing that is producing these numbers.
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