The New Productivity Revolution

Are all the significant inventions already achieved? Economist Robert Gordon identified five Great Inventions, whose discovery in the late nineteenth century powered what he deems an unrepeatable burst of economic growth between 1920 and 1970. These inventions—electrification, the internal combustion engine, chemistry, telecommunications, and indoor plumbing—were indeed far more significant than what often passes for innovation today. While some recent IT breakthroughs are important, no number of Snapchat filters can hold a candle to—well, not needing to use candles to see at night.

The phenomenon that Gordon—a careful, data-driven economist—attempts to explain is real. Economists use the concept of total factor productivity (TFP) to track the degree to which output is not attributable to observable inputs like labor-hours, capital, or education. When TFP increases, it is due to intangible factors such as innovation or better institutions. From 1920 to 1970, TFP grew at about 2 percent yearly. Since then, it has grown at less than half that rate—and in the last 15 years, it has grown at less than 0.3 percent per year, according to the San Francisco Fed’s utilization-adjusted series.

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