A hydraulic fracturing, known as fracking, operation in the greater Fort St. John area in northeastern British Columbia is shown in this undated handout photo. Productivity – the amount we can produce with a given dollop of labour and capital – has barely budged in recent years despite gaudy advances in everything from fracking to artificial intelligence.Jeremy Sean Williams/The Canadian Press
I am highly productive. You, of course, are even more so. So why is it that productivity in the economy is missing in action?
New technology and global markets were supposed to boost our capacity to create useful stuff. But in Canada, the United States and other industrialized countries, that boom hasn't happened.
Productivity – the amount we can produce with a given dollop of labour and capital – has barely budged in recent years despite gaudy advances in everything from fracking to artificial intelligence.
The past week brought fresh evidence of the great snooze that has enveloped once dynamic economies.
New figures from the U.S. Labour Department showed that non-farm productivity shrank at an annualized rate of 0.5 per cent in the second quarter. It was the third quarterly decline in a row, the worst stretch since 1979.
As a result of that slide, the U.S. economy now features an odd combination of surging employment but stubbornly low growth. Many more Americans are working than in years past, yet the overall economic pie is barely growing because all those newly employed people have not been accompanied by any pickup in productivity.
The malaise is reflected in this unusually crazy U.S. election season, which has focused to a large degree on worries about lost greatness and economic insecurity.
In many ways, voters' anger is really about missing productivity. It's higher productivity that boosts living standards. Without growing productivity, feelings of economic suffocation fester and worries about middle-class impoverishment deepen. That provides fertile ground for populist politicians such as Donald Trump.
Voters are absolutely correct to sense things aren't right. The new figures "reveal that the stagnation in productivity growth was even worse than we previously believed," Paul Ashworth of Capital Economics said.
Productivity growth in the United States "is set to be close to zero" this year, Krishen Rangasamy of National Bank wrote, even assuming things pick up in coming months. "That would mean a six-year average of roughly 0.5 per cent [a year] for productivity growth, the lowest ever recorded."
There's no reason to think that Canada is doing much better. In fact, most measurements show Canadian productivity growth lagged behind the United States in recent years.
A similar slowdown bedevils the rest of the developed world. Productivity growth in most industrialized countries has been in a slump for more than a decade, according to statistics compiled by the Organization for Economic Cooperation and Development.
But why? The happiest explanation for the so-called productivity puzzle is that things are just fine, but economists are falling down when it comes to measuring the impact of new technology. Wikipedia, for instance, has replaced the encyclopedia that used to sit in many middle-class homes, but because the online reference work is free, it may not be reflected in estimates of economic growth.
Yet this argument isn't as compelling as it initially looks. To tap free stuff on the Internet, you have to buy a computer and pay for online access, both of which are measured by economy-watchers.
Furthermore, many of the benefits from online content occur outside of work and simply displace other free activities. We may spend an hour browsing Wikipedia instead of an hour kicking around a soccer ball.
Tote everything up and it doesn't look as if there is a big mismeasurement problem. In a paper published earlier this year, economists David Byrne of the U.S. Federal Reserve Board, John Fernald of the Federal Reserve Bank of San Francisco and Marshall Reinsdorf of the International Monetary Fund concluded that productivity in the United States experienced a real decline beginning around 2004 and that similar slowdowns occurred around the same time in many other countries.
This mass slowdown may be the natural conclusion to an unusually lush age of invention. Robert Gordon of Northwestern University argues the rapid growth of living standards during the 20th century was propelled by a handful of key inventions – the electric power grid, the light bulb, the internal combustion engine, the telephone, radio, television and computers – as well as the less glamorous spread of indoor plumbing and running water.
The majority of those innovations occurred more than 100 years ago. More recent breakthroughs simply aren't in the same league: Facebook will never improve our lives as much as indoor plumbing did. Given the decline in high-impact innovation, Prof. Gordon believes we're inevitably mired in a slow-growth world.
A more hopeful view comes from Larry Summers, the Harvard economist and former U.S. Treasury secretary. He says we are in a period of "secular stagnation" caused by a simple deficiency of demand. He recommends a new burst of government spending to remedy that deficiency.
Or maybe the problem is more subtle. Andrew Smithers, a British economist, says the real problem is a "bonus culture" at the top of big companies. The habit of tying executive compensation to short-term profits makes chief executives reluctant to pour funds into long-term projects that require years to pay off. That starves the economy of the capital it needs to add the equipment and tools that would boost productivity.
All these explanations may be correct, or perhaps none of them are. What is clear, though, is that the productivity puzzle is quickly turning into a productivity crisis, one in which living standards are rising far too slowly for comfort.
Anyone tempted to write off Mr. Trump should keep in mind that the frustration he is addressing is real.
Ian McGugan