Would Biden-onomics be good or bad for productivity growth? The issue is an important one. Productivity growth is the most important factor driving overall economic growth and rising living standards. Before he left office in 2016, former President Barack Obama wrote an essay for The Economist in which he correctly identified “boosting productivity growth” as one of America’s big four economic challenges. And he added, “Without a faster-growing economy, we will not be able to generate the wage gains people want, regardless of how we divide up the pie.”
Unfortunately, the mid-1990s productivity boom ended in the mid-2000s — before the Global Financial Crisis — and has yet to return. How to bring it back? There are a number of possible policy approaches. Among them: enhancing worker skills, increasing competition to increase incentives to innovate, more or better-focused R&D investment, removing regulatory barriers, tinkering with the tax code. (Even if we are undermeasuring productivity growth, the urgency for better policy remains.)
As I write in my new The Week column: “Does Biden-omics address weak productivity growth? Proposed new spending for infrastructure and science research might eventually create a more efficient and innovative economy. Then again, some of those gains might be offset by tax and regulatory changes that seem to downplay or ignore any potential negative impact on productivity or economic growth.”
Interregnum. Two of my favorite economic quotes, each from a Nobel laureate. First is Paul Krugman on productivity growth: “Productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” And the second is from Robert Lucas: “Once you start thinking about growth, it’s hard to think about anything else.”
The point of the piece is not so much to tally up pros and cons, but instead to critique a lack of a laser-focus on productivity — particularly the role of tech progress and innovation — given the continued and forecasted low rate of US economic growth. Too much in Biden-omics seems about redistributing the pie, not enough explicitly on growing the pie. The balance seems off in a bad way. As economist Alex Tabarrok wrote in a neat little essay back in 2012 for The Atlantic:
Putting innovation at the center of our national vision is not simply about spending more money. An innovation nation would think about all problems differently. The long debate over the Patient Protection and Affordable Care Act (aka: Obamacare) for example, was almost entirely about welfare and redistribution, about dividing the pie. During this debate how much did we hear about health innovation? Looking at the future, if medical research could reduce cancer mortality by just 10 percent, that would be worth $5 trillion to U.S. citizens (and even more taking into account the rest of the world). The net gain would be especially large if we could reduce cancer mortality with new drugs, which are typically cheap to make once discovered. … Our economy is stagnant and for the first time in a long time, and the national mood is deeply pessimistic.
Unfortunately, what was true almost a decade ago remains true today, even before the Great Pandemic.