THE LESS GLORIOUS FORTY
But in 1973 (or thereabouts) it all stopped. On average, over the next twenty-five years, TFP has grown at only a third of the rate achieved in 1920–1970.10 What started with an economic crisis with a clear start date, and even a set of foreign powers to blame, became the new normal.
The persistence of the slowdown was not immediately apparent. Born and bred during the golden age of economic growth, scholars and policy makers initially believed it was a temporary blip, soon to fix itself. By the time it became clear that slow growth was not just an aberration, the latest hope was that a new industrial revolution, spurred by computing power, was right around the corner. Computing power was increasing at a faster and faster speed, and computers were being introduced everywhere, much as electricity and the combustion engine once were. This would surely translate into a new era of productivity growth that would pull the economy with it. And indeed it finally happened. Starting in 1995, we saw a few years of high TFP growth (though still significantly less than in the go-go years). It faded quickly, however. Since 2004, TFP growth and GDP growth both in the United States and in Europe seem to be back to the bad days of 1973–1994.11 In the United States, GDP growth did pick up in mid-2018, but TFP growth remains slow. Over the year, TFP grew only at an average of 0.94 percent,12 compared to the 1.89 percent achieved during the 1920–1970 period.This new slowdown has provoked a lively debate among economists. It seems difficult to reconcile it with everything we hear around us. Silicon Valley keeps telling us we live in a world of constant innovation and disruption: personal computers, smartphones, machine learning. Innovation seems to be everywhere. But how could there be all this innovation without any sign of economic growth?
The debate has revolved around two questions. First, will sustained fast productivity growth eventually return? Second, is the measurement of GDP, at best a bit of an exercise in guesswork, somehow missing all the joy and happiness the new economy is bringing us?