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The Acceleration of U.S. Growth
J. Bradford DeLong
- In the nonfarm business sectorthe part of the economy on which productivity studies typically focusoutput per labor hour rose between 1995 and 2000 at 2.5 percent per year.
- This is more than double the pace seen in the preceding quarter century since 1970.
- This acceleration of productivity growth raises for the first time in a generation the likelihood of reasonably rapid and broad-based real income growth, if the jump in productivity growth can be sustained. An era like that of 1970-1995 in which productivity growth is slow must be, in Paul Krugmans (1989) phrase, an "age of diminished expectations."
- The case for attributing this acceleration in productivity growth to the technological revolutions in information technology is now very strong.
- Beginning in 1992, the American economy began an extraordinary investment boom. From 1992 to 2000, real business fixed investment grew at 11% per year, with more than half of the additional investment going into computers and related equipment. And as the information technology investment boom took hold, productivity growth and growth in real GDP accelerated as well.
- The most powerful reason to believe that this acceleration of aggregate productivity growth is permanent, and not a flash in the pan, comes from the underlying growth accounting of the impact of the information technology revolution.
- Today information technology capital accounts for 7.0% of income earned.
- Today the stock of information technology capital is growing at 20% per year.
- Multiply these two sets of numbers together to find that the increase in the economys information technology capital stock is directly responsible for 1.4% per year of economic growth.
Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
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