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August 14, 2005

The Most Important Economic Statistic: Productivity

Economist Arnold Kling, formerly a staff economist for the Fed’s Board of Governors, says productivity statistics should get the most weighting in the President’s economic briefings.

Another well-spoken economist, James Hamilton, explains in his blog Econobrowser, why productivity is so important. I urge you to absorb his post in its entirety; an excerpt follows to whet your appetite:

Between 1947 and 1973, U.S. output per worker chugged along impressively at an annual growth rate of 2.7% per year. Beginning in 1973, however, that trend abruptly deteriorated, with productivity growing at only a 1.4% annual rate for the next two decades. . . .

. . . U.S. productivity began to grow quickly again in the late 1990's, and there now are enough data to suggest that this change is for real. Between 1995 and 2004, U.S. output per worker grew at a 2.9% annual rate, even faster than the impressive pre-1973 pace. It's hard to attribute this to a change in any of those factors thought to have contributed to the slowdown in the seventies. Instead, the good news seems to be the result of a new set of favorable developments, chief among which is the way that computers and information technology have changed so much about the American workplace. . . .

Please read Hamilton’s important comments in full.

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