NCPA - National Center for Policy Analysis


January 3, 2007

There are few better indicators of our long-term economic prospects -- and also our prospects for political and social peace -- than productivity.  The good news is that productivity has been growing strongly; the bad news is that it may be moving to a much slower path, says columnist Robert Samuelson.

To see why that matters, consult a fascinating government report, "100 Years of U.S. Consumer Spending," says Samuelson:

  • A century ago, Americans spent 43 percent of their incomes on food and 14 percent on clothing; by 2002, those shares were 13 percent and 4 percent.
  • Meanwhile, family incomes (after inflation) had exploded; filling the spending gap are all the things we take for granted -- cars, TVs, travel, telephones, the Internet; home ownership has zipped to almost 70 percent of households.

The reason: What seem to be tiny productivity shifts have huge consequences.  For example:

  • In 2005, the U.S. economy produced $12.5 trillion of goods and services, or gross domestic product; per capita income -- the average for individuals -- was $35,000.
  • If productivity growth averages 2.5 percent a year, the economy reaches $34 trillion in 2035 (in constant 2005 dollars), estimates Moody's; per capita income rises to $73,000.

Productivity ultimately encompasses a society's entire economic culture: its technologies, management, workers' skills and motivation, schools, entrepreneurial spirit, work ethic, ambition and risk-taking, the competitive pressure on companies, government policies, financial markets. Everything counts -- and connects with everything else.

Therein lies a caution to the Democratic Congress and the Bush administration.  Although government can't easily dictate higher productivity, its policies may perversely favor lower productivity.  What's politically expedient today -- a dubious tax break, a lazy budget deficit, an expensive regulation -- may be economically corrosive tomorrow. Don't ditch the future, says Samuelson.

Source: Robert J. Samuelson, "The Big Economic Worry; Productivity Is Slowing," Washington Post, January 3, 2007; based upon: "100 Years of U.S. Consumer Spending: Data for the Nation, New York City, and Boston," U.S. Department of Labor, May 2006.

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