Joseph, an excellent description of a serious issue. My question is, what type of impact has the financialization of the economy had on this problem.. CEO's are far more concerned about repaying shareholders and driving stock prices higher than building whatever product they are building. This seems to be a key driver behind the lack of investment, as well as the fact that companies continue to buy competitors rather than build out their own physical plant as evidenced by the dramatic reduction in the number of publicly listed companies.
Finally, one other concern has been the change in the composition of higher education efforts, with far fewer engineers being minted and many more degrees in less useful majors. Consider how many fewer plumbers and electricians are around as since the 1990's there has been such a strong drive to get HS grads to go to college rather than into a trade. college is not for everyone, and I fear many have degrees, and the accompanying debt, without having acquired the requisite skills to be successful.
Alas, these are long term problems and it is not clear to me that government policies, which have a long history of failure across virtually every subject, are going to solve them without serious unforeseen consequences.
Can you elaborate on the productivity growth in services? I doubt there is much productivity growth in hospitality, trucking or construction. Is it in the predictable sectors like finance or software? Are the technologies driving the productivity growth? Work from home, IoT or LLMs?
I'm planning to write a full article about service sector productivity soon when the 2023 data comes out, but just to start there have been some long run productivity gains in places like trucking and accommodation. Productivity growth in trucking is about 20% since 2005, but slow recently (https://fred.stlouisfed.org/graph/?g=1o07E) and in accommodation it's up about 18% since 2005, nearly all post-COVID (https://fred.stlouisfed.org/graph/?g=1o07G).
Software publishing hasn't been as big a recent contributor as you'd think (https://fred.stlouisfed.org/graph/?g=1o07N), but there has been a ton in professional/business services that I think is partially driven by work from home. In regards to AI stuff specifically I don't think that has had enough time to make a measurable impact on productivity yet (will be writing about that soon too).
Do you happen to know what is happening with pharmaceutical productivity? Is this due to the rising cost of developing new drugs? Or is this computed in such a way that it is purely due to actual manufacturing costs? (Obviously this gets tricky: there are still some pre-approval costs that we want to include.)
Great post. Love how you've made it clear that difficult choices lie ahead. I'm surprised it's just from 2005. If it was from the 1980s, I would have said land. Maybe it's robots?
Joseph Politano dissects productivity trends in the U.S. The good news is that productivity in services is up. The bad news is that productivity in manufacturing has been stagnant. Assuming that this is all being measured correctly (statistical measures of changes in real output are only as good as the adjustments for quality change), it says that our comparative advantage may be in services, not in manufacturing. That would argue *against* trying to shift our economy to manufacturing. Of course, it is politically correct to say that producing *stuff* is superior to providing services. Indeed, there may be non-economic benefits of shifting resources from services to manufacturing. But I am even more skeptical than Joseph that the political process will produce benefits that outweigh the overall economic costs.
I recall reading that part of productivity is measuring input costs. Electronics inputs have shifted to be heavily imported, and far lower in cost. I wonder how much of the change there is actually not US productivity gains but China's
Joseph, an excellent description of a serious issue. My question is, what type of impact has the financialization of the economy had on this problem.. CEO's are far more concerned about repaying shareholders and driving stock prices higher than building whatever product they are building. This seems to be a key driver behind the lack of investment, as well as the fact that companies continue to buy competitors rather than build out their own physical plant as evidenced by the dramatic reduction in the number of publicly listed companies.
Finally, one other concern has been the change in the composition of higher education efforts, with far fewer engineers being minted and many more degrees in less useful majors. Consider how many fewer plumbers and electricians are around as since the 1990's there has been such a strong drive to get HS grads to go to college rather than into a trade. college is not for everyone, and I fear many have degrees, and the accompanying debt, without having acquired the requisite skills to be successful.
Alas, these are long term problems and it is not clear to me that government policies, which have a long history of failure across virtually every subject, are going to solve them without serious unforeseen consequences.
Hi, Joseph, It's a good article, but could I translate this article into Korean and upload it separately on my blog, citing the source?
Great post per usual. I noticed that in the "American Industry’s Lost Decades" section, charts 4, 5, and 6, all have the same subtitle.
Ah embarrassing! Fixed, thanks for the tip
Can you elaborate on the productivity growth in services? I doubt there is much productivity growth in hospitality, trucking or construction. Is it in the predictable sectors like finance or software? Are the technologies driving the productivity growth? Work from home, IoT or LLMs?
I'm planning to write a full article about service sector productivity soon when the 2023 data comes out, but just to start there have been some long run productivity gains in places like trucking and accommodation. Productivity growth in trucking is about 20% since 2005, but slow recently (https://fred.stlouisfed.org/graph/?g=1o07E) and in accommodation it's up about 18% since 2005, nearly all post-COVID (https://fred.stlouisfed.org/graph/?g=1o07G).
Software publishing hasn't been as big a recent contributor as you'd think (https://fred.stlouisfed.org/graph/?g=1o07N), but there has been a ton in professional/business services that I think is partially driven by work from home. In regards to AI stuff specifically I don't think that has had enough time to make a measurable impact on productivity yet (will be writing about that soon too).
great
Do you happen to know what is happening with pharmaceutical productivity? Is this due to the rising cost of developing new drugs? Or is this computed in such a way that it is purely due to actual manufacturing costs? (Obviously this gets tricky: there are still some pre-approval costs that we want to include.)
Great post. Love how you've made it clear that difficult choices lie ahead. I'm surprised it's just from 2005. If it was from the 1980s, I would have said land. Maybe it's robots?
Joseph Politano dissects productivity trends in the U.S. The good news is that productivity in services is up. The bad news is that productivity in manufacturing has been stagnant. Assuming that this is all being measured correctly (statistical measures of changes in real output are only as good as the adjustments for quality change), it says that our comparative advantage may be in services, not in manufacturing. That would argue *against* trying to shift our economy to manufacturing. Of course, it is politically correct to say that producing *stuff* is superior to providing services. Indeed, there may be non-economic benefits of shifting resources from services to manufacturing. But I am even more skeptical than Joseph that the political process will produce benefits that outweigh the overall economic costs.
I recall reading that part of productivity is measuring input costs. Electronics inputs have shifted to be heavily imported, and far lower in cost. I wonder how much of the change there is actually not US productivity gains but China's