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: Innovation & Competition Policy

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 More by this author
 

Opinion

Europe doesn’t need a ‘Mega-Fab’

Europe should defend its existing dominance in equipment manufacturing for semiconductors and invest in chip design instead of luring high-end fabrication to its shores.

By: Niclas Poitiers Topic: Global Economics & Governance Date: September 22, 2021
Read article More on this topic More by this author
 

Blog Post

Opening up digital platforms and reducing anticompetitive risks

The current convergence in measures to open up digital platforms leaves a door open to some form of international coordination.

By: Georgios Petropoulos Topic: Innovation & Competition Policy Date: September 22, 2021
Read article More on this topic
 

External Publication

Platform mergers and antitrust

Should internet era merger policy differ from industrial era merger policy? This paper was published in Industrial and Corporate Change by Oxford University Press.

By: Geoffrey Parker, Georgios Petropoulos and Marshall Van Alstyne Topic: Innovation & Competition Policy Date: September 16, 2021
Read article Download PDF More on this topic
 

Working Paper

Can climate change be tackled without ditching economic growth?

The notion of degrowth to reduce greenhouse gas emissions appears unrealistic; decoupling of emissions from growth is in principle possible but requires unprecedented efforts.

By: Klaas Lenaerts, Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate Date: September 16, 2021
Read article More on this topic
 

External Publication

Conditions are ideal for a new climate club

The technical and political conditions are ideal for the creation of a climate club to catalyse tougher climate action worldwide.

By: Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate Date: September 9, 2021
Read about event More on this topic
 

Past Event

Past Event

Academic lecture: International technology competition

Bruegel Annual Meetings, Day 3 - On the final day of the Annual Meetings, our Director Guntram Wolf sits with Keyu Jin to discuss international competition policy.

Speakers: Keyu Jin, J. Scott Marcus and Guntram B. Wolff Topic: Innovation & Competition Policy Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 3, 2021
Read about event More on this topic
 

Past Event

Past Event

Brave new digital industrial policy

Bruegel Annual Meetings, Day 2 - In this session our speakers will discuss innovation and digitalisation.

Speakers: Francesca Bria, Kerstin Jorna, Aura Salla, Marietje Schaake and Reinhilde Veugelers Topic: Innovation & Competition Policy Location: Palais des Académies, Rue Ducale 1, Brussels Date: September 2, 2021
Read article Download PDF
 

Policy Contribution

A new direction for the European Union’s half-hearted semiconductor strategy

The EU needs a more targeted strategy to increase its presence in this strategic and thriving sector, building on its existing strengths, while accommodating its relatively low domestic needs.

By: Niclas Poitiers and Pauline Weil Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: July 15, 2021
Read article More on this topic More by this author
 

Opinion

Could the RMB dislodge the dollar as a reserve currency?

The dollar remains the world’s largest reserve currency, but it is facing both domestic and external risks.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: July 14, 2021
Read article Download PDF More on this topic
 

Policy Contribution

Commercialisation contracts: European support for low-carbon technology deployment

To cut the cost of decarbonisation significantly, the best solution would be to provide investors with a predictable carbon price that corresponds to the envisaged decarbonisation pathway.

By: Ben McWilliams and Georg Zachmann Topic: Energy & Climate Date: July 1, 2021
Read article More on this topic
 

Blog Post

Workers can unlock the artificial intelligence revolution

Employers and artificial intelligence developers should ensure new technologies work for workers by making them trustworthy, easy to use and valuable in day-to-day work.

By: Mia Hoffmann and Laura Nurski Topic: Innovation & Competition Policy Date: June 30, 2021
Read article Download PDF More on this topic
 

Working Paper

Platform mergers and antitrust

This paper sets out a framework for addressing competition concerns arising from acquisitions in big platform ecosystems. This is a June 2021 update of the same paper published in January 2021.

By: Geoffrey Parker, Georgios Petropoulos and Marshall Van Alstyne Topic: Innovation & Competition Policy Date: June 15, 2021
Load more posts