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
 

Blog Post

Artificial intelligence’s great impact on low and middle-skilled jobs

Artificial intelligence and machine learning will significantly transform low-skilled jobs that have not yet been negatively affected by past technological change.

By: Sybrand Brekelmans and Georgios Petropoulos Topic: Innovation & Competition Policy Date: June 29, 2020
Read about event More on this topic
 

Past Event

Past Event

The role of AI in healthcare

How can AI help us fight through a pandemic crisis?

Speakers: Dimitris Bertsimas, Georgios Petropoulos, Effy Vayena and Reinhilde Veugelers Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 23, 2020
Read article Download PDF More on this topic
 

Working Paper

Occupational change, artificial intelligence and the geography of EU labour markets

From 2002 up to 2009, the economies of European Union countries went through a skill upgrading, rather than a polarisation between low-skill and high-skill jobs. After 2009, this changed, with declining real wages and a significant increase in the share of workers in low-skill jobs. This assessment evaluates these changes in connection with labour market variables, population densities and the emergence of machine learning and artificial intelligence.

By: Sybrand Brekelmans and Georgios Petropoulos Topic: Innovation & Competition Policy Date: June 15, 2020
Read about event More on this topic
 

Past Event

Past Event

An alternative mobile operating environment?

Walking the wire: we discuss risks and benefits involved for the EU should it embark on developing a new smartphone operating system.

Speakers: Hosuk Lee-Makiyama, J. Scott Marcus, Renato Nazzini, Peter Stuckmann and Andreas Zimmer Topic: Innovation & Competition Policy Date: April 29, 2020
Read article More on this topic More by this author
 

Blog Post

Is the United States reneging on international financial standards?

The new Fed rule is a material breach of Basel III, a new development as the US had hitherto been the accord’s main champion. This action undermines the global order without being ostensibly justified by narrower considerations of US national interest.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: April 16, 2020
Read about event More on this topic
 

Past Event

Past Event

Find my virus: Mobilising AI and big data to fight COVID-19

At this event, the panellists will discuss the role of AI and big data in the fight against the coronavirus crisis.

Speakers: J. Scott Marcus, Alex Sandy Pentland, Georgios Petropoulos and Marietje Schaake Topic: Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 2, 2020
Read article More on this topic More by this author
 

Blog Post

Artificial intelligence in the fight against COVID-19

Artificial intelligence can help fight the coronavirus through applications including population screening, notifications of when to seek medical help and tracking how infection spreads. The COVID-19 outbreak has triggered intense work on such applications, but it will take time before results become visible.

By: Georgios Petropoulos Topic: Innovation & Competition Policy Date: March 23, 2020
Read article More on this topic More by this author
 

Blog Post

Big data versus COVID-19: opportunities and privacy challenges

All available resources need to be brought to bear on the novel coronavirus COVID-19. To what extent can digital technology help? What risks are there in using big data to combat COVID-19, and what policies can mitigate any limitations that these risks impose?

By: J. Scott Marcus Topic: Innovation & Competition Policy Date: March 23, 2020
Read article More on this topic
 

Blog Post

Three macroeconomic issues and Covid-19

COVID-19 raises a number of serious issues of a sanitary, social and economic nature. While recognizing the difficulty of giving definitive answers at this early stage, we attempt to shed light on three critical macroeconomic topics.

By: Leonardo Cadamuro and Francesco Papadia Topic: European Macroeconomics & Governance Date: March 10, 2020
Read article More by this author
 

Opinion

Europe may be the world’s AI referee, but referees don’t win

The EU needs to invest in homegrown technology.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, Innovation & Competition Policy Date: February 19, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

The EU's plan to catch up on artificial intelligence

While the US and China have been setting the pace when it comes to Artificial Intelligence, the European Union seems to be lagging behind. What are the Commission's plans to finally catch up? Will AI increase the gap between big and small companies? This week, Nicholas Barrett is joined by Julia Anderson and Guntram Wolff to discuss the EU's plan for AI.

By: The Sound of Economics Topic: Innovation & Competition Policy Date: February 14, 2020
Read article More on this topic More by this author
 

Blog Post

The dynamics of data accumulation

The bigger you are, the more data you can harvest. But does data accumulation necessarily breed monopolies in AI and related machine learning markets?

By: Julia Anderson Topic: Innovation & Competition Policy Date: February 11, 2020
Load more posts