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December 19, 2004

Robert Gordon on Productivity

Why haven't I read this yet? It goes to the top of the pile immediately...

Matthew Yglesias: Projections: Kevin Drum emailed me a link to this in-depth discussion (PDF) of future economic growth projections. The stuff at the beginning about technical modeling is incredibly dense.... Later... [Gordon] gets into the core relevant areas -- projected productivity growth, projected falls in mortality for people over 65, and projected immigration and makes a compelling case that the SSA figures for all three topics are biased toward bad news for Social Security. He concludes on page 270 that futue GDP growth will likely be 3.28 percent per year versus SSA projections of 2.4 percent...

Robert Gordon (2003), "Exploding Productivity Growth: Context, Causes, and Implications," Brookings Papers on Economic Activity 2003:2.

Posted by DeLong at December 19, 2004 01:26 PM


Aren't things a bit more complicated than this because the three scenarios differ not only in terms of productivity but also in terms of demographics? So it's impossible to know whether the difference between two scenarios is due to more optimistic productivity assumptions or more optimistic (i.e. pessimistic) mortality assumptions. I'd love to see a study that breaks down the separate effects of the economic and demographic assumptions on trust fund solvency but have yet to find one. Any ideas?

Posted by: skeptic at December 19, 2004 01:35 PM


OT, but why do your posts keep disappearing? That's simply quite unacceptable for so good a blogger. God, you ought to sue MT.

Hope it gets better.

Posted by: Aaron at December 19, 2004 02:39 PM

Go read the trustees' report: http://www.ssa.gov/OACT/TR/TR04/. Although they don't break it down as nicely as you might like, they do give estimates for everything separately. You could then easily tweak the total output estimates just by using basic identities. A useful one involving only growth rates would be:

output = productivity + hours per worker + employment rate + population

The SSA's estimates surely follow this identity, and you can plug any changes you like into it to produce new estimates.

The tough part obviously, would be to turn this into an estimate about the size of the trust fund, and I'm not an actuary. One thing you could do would be to see how different estimates compare to the three possible outcomes the SSA provides, and guesstimate based on that. Don't forget that their optimistic outlook actually never shows the trust fund going bankrupt.

Posted by: Ian D-B at December 19, 2004 02:41 PM

I recommend Ron Lee's work, in particular his paper on stochastic forecasts for SS. You can get that here:

Posted by: DonPedro at December 19, 2004 03:07 PM

Anyone trying to make predictions about productivty growth over the next 75 years time is, well, not using their time very productively!~

Posted by: giles at December 19, 2004 03:19 PM


Good-Will Is Low for Social Security Talks

WASHINGTON - Nearly everyone agrees that it will be hard, perhaps impossible, for President Bush to overhaul Social Security without bipartisan support.

But the parties have not been this far apart ideologically on Capitol Hill for decades, some analysts say. And many Democrats assert that the last four years under Mr. Bush have only deepened the division and mistrust.

Democratic leaders are careful to say they are willing to engage in bipartisan discussions about the problems facing Social Security, with "no preconditions on either side," as Representative Nancy Pelosi, the Democratic leader in the House, put it last week. The president himself said Thursday that he understood that "I have a responsibility to reach out to members of both political parties and I will meet that responsibility."

But leading Democrats say Mr. Bush is beginning his Social Security drive with some unacceptable preconditions. Indeed, Democratic leaders dispute the Republicans' central assertions: that the problems facing Social Security constitute a crisis, and that diverting payroll taxes to private investment accounts is the way to solve it. Social Security trustees have estimated that without changes, the system will start running short of money to pay full benefits in 38 years.

"If we allow them to frame it that way - that there is a crisis, therefore we must go to private accounts - if we allow them to frame it that way, the fact is, we've perpetrated a huge fraud," said Senator Byron L. Dorgan, Democrat of North Dakota and chairman of the Democratic Policy Committee.

Moreover, any serious effort to build a bipartisan coalition is bucking some powerful trends. The latest analysis of roll-call votes by Congressional Quarterly showed that 2003 was the most partisan year of the past five decades studied, and 2004 was only slightly less so.

In fact, some political scientists say that Congress has not been this ideologically polarized for a hundred years, based on voting studies that show growing divisions between the parties. "Certainly, the early 20th century is the last time it was anything like this," said Eric Schickler, a professor of government at Harvard.

Posted by: anne at December 19, 2004 04:25 PM

I downloaded that PDF and skimmed through it to the high points (And BTW don't let "page 270" scare you, it starts on page 207) and am not sure where Matt came up with "3.28%" or for that matter anywhere that would suggest that the SSA were predicting 2.4%, the opening paragraph acknowledges that the Trustees are predicting a much lower number.

But both commenters agreed that 2.5% seemed about right as a floor. And numbers at that level swap the Low Cost Alternative which shows a fully funded Trust Fund. It just isn't broke.

Posted by: Bruce Webb at December 20, 2004 03:50 AM

Here's Dean Baker on Productivity Growth:

Productivity has proceeded at a more rapid pace over the last eight years. Since the third quarter of 1995, productivity growth in the non-farm business sector has averaged 3.17 percent. Last year, I attended a session at the American Economic Association that included many of the leading experts on productivity growth, such as Dale Jorgenson, Robert Gordon, and Martin Baily. The consensus within this session was that productivity growth in the non-farm business sector would average between 2.5 and 3.0 percent for the foreseeable future.

Posted by: bhaim at December 20, 2004 12:28 PM