Is stagnation in total factor productivity durable?:
About that TFP stagnation..., by Noahpinion: Via Tyler Cowen, I see that David Beckworth has posted a graph of U.S. total factor productivity from 1947 to 2010, using data from John Fernald at the SF Fed (who BTW is a co-author of my advisor, Miles Kimball). Total factor productivity (TFP), remember, is the part of production that can't be explained in terms of inputs of capital, labor, and other known factors of production; TFP is often called "technology", though it probably includes a few other things. Anyway, here is Beckworth's graph:
Assuming that TFP = technology, this graph definitely seems to support Tyler Cowen's hypothesis of a "Great Stagnation" in technological progress around 1973.
However, just for fun, I decided to update the graph. John Fernald, ever the careful empiricist, breaks his TFP series down into two categories: total factor productivity in the production of durable goods (cars, buildings, TVs, machinery) and TFP in the production of nondurable goods (clothing, food). Here's what it looks like when we graph both of those on the same graph:
Wow! If you look only at productivity in the durables sector, there was no Great Stagnation at all - in fact, quite the reverse, since durables TFP has been growing more strongly post-1993 than it ever did pre-1973!
Form this graph, it definitely looks like something big did happen to technological progress. But it looks like it happened not in 1973, as Cowen claims, but a decade earlier. In the 15 years to 1963, TFP in the two sectors grew pretty much in tandem. But sometime in the early- to mid-60s, they diverged wildly, with nondurables TFP rising anemically through the late 70s and then basically flatlining until now. Durables TFP looks to have suffered its own very minor slowdown in the mid-70s (which is probably the reason why overall TFP looks like it took a turn around that time), but exploded with unprecedented vigor after '93.
Like David Beckworth, I am also more convinced of a Great Stagnation than I was before I looked at Fernald's data. But I think Cowen's hypothesis needs a bit of updating. It is only nondurables productivity that has stagnated, and it happened in the early 60s, not the mid-70s (although it worsened in the 70s). Why did this happen? My first guess was agriculture, but nope, it's not that. Did the years just after WW2 simply see an unprecedented one-off boom in nondurables production, with a return to normalcy in the 60s?
Anyway, figuring out what really happened to technology in the 60s will take far more data-gathering and careful analysis than I can put into this blog post. A detailed historical breakdown of TFP by industry would probably be the place to start. But in the meantime, I think we should look at the "Great Stagnation" as a more subtle phenomenon than simply the exhaustion of the "low-hanging fruit" of nature. Our technologies for producing durable goods are improving faster than ever.