Opinion

Could the U.S. economy be experiencing a hidden tech-driven productivity revolution?

In the last decade, most advanced economies have grown more slowly than before. Slower growth has frequently been seen as a legacy of financial crises, especially that of 2007–2009.

By: Date: January 6, 2020 Topic: Digital economy and innovation

In the last decade, most advanced economies have grown more slowly than before. In Japan, a slowdown began in the 1990s. Slower growth has frequently been seen as a legacy of financial crises, especially that of 2007–2009. Indeed, shocks generated by that crisis in particular include a far reaching financial disintermediation that depressed demand in short term. However, it coincided with a deterioration of several supply-side factors. The first was related to demography, that is, the stagnation or decline of working-age population and population aging. So far, the United States has been less affected than Japan, Europe, or China, but a slower increase in the U.S. labor force is visible. Increasing immigration and a higher retirement age can neutralize partly negative demographic trends, but both meet political resistance.

Lower productivity growth as compared with the 1990s and early 2000s is the second factor. Perhaps this phenomenon is also partly related to demography (is an aging society equally as innovative as a younger one?), or perhaps it is just a matter of the technology cycle.

Is actual technological progress under-measured? There is no empirical evidence in favor of such a hypothesis. Can one expect a new wave of technological revolution, this time related to robotisation, artificial intelligence, big data, or any other great innovation? Maybe, but we do not know when exactly it will happen. History suggests that for rapid productivity growth, innovation itself is not enough. It must be broadly applied, as happened with electricity and the combustion engine in the first half of twentieth century and, more recently, with computers. It is also worth noting that the recent wave of trade protectionism, foreign investment screening, and security-motivated restrictions on technology transfer will harm both technological progress (which requires global cooperation), and its fast and broad application.

Can monetary policy help accelerate economic growth in such circumstances? Not at all. Advanced economies do not suffer from insufficient demand. The International Monetary Fund estimates of output gap show that the eurozone is growing at potential and the United States above potential. Additional monetary (or fiscal) stimulus is unable to push up economic growth on a sustainable basis because these economies are supply-side constrained. Therefore, the recent monetary easing decisions of the U.S. Federal Reserve and the European Central Bank cannot bring the expected growth effects. On the contrary, they may do more harm than good if they contribute to further financial disintermediation and new financial bubbles.

Similarly, attempts to deliver on declared inflation targets (usually 2 percent) are pointless because there is no evidence that such an inflation rate is better for economic growth and employment than a slightly lower one such as 1.5 percent. In fact, the latter is closer to the literal meaning of price stability, which is the overarching mission of most central banks. Hence, central banks should revise down their operational inflation targets rather than push inflation up.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to [email protected].

Read article More on this topic
 

External Publication

'In Situ' Data Rights

Privacy empowers individuals to control what is gathered and who sees it; portability permits analysis and creates competition. By moving our data to portals that would share more value in return, we might capture more of our data value. After all, that data concerns us.

By: Bertin Martens, Geoffrey Parker, Georgios Petropoulos and Marshall Van Alstyne Topic: Digital economy and innovation Date: December 1, 2021
Read about event
 

Upcoming Event

Dec
1
14:00

China’s medium term outlook: Will innovation save China from becoming old before it becomes rich?

What can China do to stop the deceleration of its economy. Is innovation the solution?

Speakers: Jean-Francois Di Meglio, Alicia García-Herrero and Guntram B. Wolff Topic: Digital economy and innovation, Global economy and trade
Read article Download PDF More on this topic
 

Policy Contribution

What is holding back artificial intelligence adoption in Europe?

To accelerate the roll-out of AI technology across the European Union, policymakers should alleviate constraints to adoption faced by firms, both in the environmental context and in the technological context.

By: Mia Hoffmann and Laura Nurski Topic: Digital economy and innovation Date: November 30, 2021
Read about event
 

Upcoming Event

Dec
7-8
13:00

Future of work and inclusive growth: Annual conference

The inaugural conference of the the project Future of Work and Inclusive Growth in Europe.

Speakers: Janine Berg, Arturo Franco, Stijn Broecke, Esther Lynch, Mario Mariniello, Laura Nurski, Sharon Parker, Leah Ruppanner, Nicolas Schmit, Kim Van Sparrentak and Tilman Tacke Topic: Digital economy and innovation, Inclusive growth
Read article Download PDF More on this topic More by this author
 

External Publication

Chinese economic statecraft: what to expect in the next five years?

Chapter from 'Storms Ahead: the Future Geoeconomic world order' on the expectations from the next five years of Chinese economic policy, published on 27 October 2021.

By: Alicia García-Herrero Topic: Global economy and trade Date: November 26, 2021
Read article More on this topic
 

Blog Post

Goodbye Glasgow: what’s next for global climate action?

After COP26, and as the debate on whether Glasgow represents a success or a failure dies down, what next for global climate action?

By: Klaas Lenaerts and Simone Tagliapietra Topic: Green economy Date: November 18, 2021
Read article More by this author
 

Opinion

European governance

Growth and inflation after the pandemic in the EU

Countries hit comparatively hard during the financial crisis, helped also by domestic and European policies, are bouncing back from the pandemic faster than their peers.

By: Maria Demertzis Topic: European governance, Macroeconomic policy Date: November 18, 2021
Read article Download PDF
 

Policy Contribution

Inclusive growth

Biometric technologies at work: a proposed use-based taxonomy

Technology may not have a significant negative impact on the quantity of jobs available to humans, but it certainly transforms them, changing how jobs are performed, with implications for workers’ quality of life and for productivity. Hence the focus shifts from a quantitative to a qualitative perspective.

By: Mario Mariniello and Mia Hoffmann Topic: Digital economy and innovation, Inclusive growth Date: November 17, 2021
Read article Download PDF More on this topic
 

Working Paper

Towards efficient information sharing in network markets

In this paper, we turn our attention to market failure due to information asymmetry between platforms and their users and between competing platforms.

By: Bertin Martens, Geoffrey Parker, Georgios Petropoulos and Marshall Van Alstyne Topic: Digital economy and innovation Date: November 10, 2021
Read article Download PDF
 

Policy Contribution

European governance

Next Generation EU borrowing: a first assessment

The Next Generation EU programme is radically changing the way the EU finances itself and interacts with financial markets. This paper assesses the first design decisions made by the European Commission and the issuances that have taken place so far. It also outlines the potential risks and opportunities linked to this upgrading of the EU borrowing.

By: Rebecca Christie, Grégory Claeys and Pauline Weil Topic: Banking and capital markets, European governance, Macroeconomic policy Date: November 10, 2021
Read article More on this topic More by this author
 

Blog Post

What to make of the EU-US deal on steel and aluminium?

While deeply disappointing that the surprise deal maintains aluminium and steel tariffs against the EU beyond a modest quota, it alleviates a major irritant in transatlantic relations and contains interesting and innovative features relating to climate policy and to dispute settlement under WTO rules.

By: Uri Dadush Topic: Global economy and trade Date: November 4, 2021
Read article
 

Blog Post

European governance

Is the risk of stagflation real?

Most economic forecasts predict a return, in the medium-term, to pre-pandemic growth and inflation. Nevertheless, the European Central Bank and fiscal authorities need to be vigilant for signs of the contrary.

By: Monika Grzegorczyk, Francesco Papadia and Pauline Weil Topic: European governance, Macroeconomic policy Date: November 2, 2021
Load more posts