U.S. Productivity and Economic Forecasts
STEVE INSKEEP, host:
One factor in today's workplace will determine how our kids and grandkids live. It's productivity, and in particular how quickly productivity grows.
To explain what productivity is and how quickly it is growing, we turn to David Wessel, Deputy Washington Bureau Chief for the Wall Street Journal. David, good to talk with you again.
Mr. DAVID WESSEL (Deputy Washington Bureau Chief, Wall Street Journal): Good morning.
INSKEEP: The basics first: what is productivity and why is it so important?
Mr. WESSEL: Productivity is how much stuff we make for each hour of work. If we are more productive, we have more stuff for less effort. The reason we have more goods and services than our grandparents did, even though we don't work more hours, is that productivity has grown so much since their time.
And little differences in the numbers make a big difference. At 1 and a half percent annual productivity growth, it takes 50 years to double the standard of living. At just 2 and half percent, it takes only 29 years.
INSKEEP: This is like compound interest - if it's going a little faster every year, it just goes like a snowball downhill.
Mr. WESSEL: Exactly.
INSKEEP: So, how's productivity been doing?
Mr. WESSEL: Well, productivity grew very slowly for about 25 years, until there was this remarkable surge about 1995. It went from about 1 and half percent a year to 2.7 percent a year on average. Alan Greenspan at the Federal Reserve saw it coming, but few other people did. That was a huge change and allowed the prosperity of the ‘90s. It let the Federal Reserve tolerate faster economic growth.
Now there's a big debate about whether this surge of the ‘90s is over or whether it's going to continue.
INSKEEP: Which is of great interest, I know, to the Fed chairman now, Ben Bernanke. But it raises the question of why, because he's thinking about interest rates and inflation.
Mr. WESSEL: Right.
INSKEEP: What's the connection?
Mr. WESSEL: If you're the chairman of the Fed, you have to think about what the speed limit is on the economy. If the economy grows faster than its speed limit, you get inflation. And your job is to prevent inflation. Productivity determines the speed limit on the economy.
Higher productivity, the faster Mr. Bernanke can let the economy grow without raising interest rates.
INSKEEP: How does American's productivity growth compare with Europe, say? Or Japan?
Mr. WESSEL: American workers are among the most productive workers in the world. That's why their wages are higher than other workers. And American productivity growth is the envy of the industrial countries around the world.
INSKEEP: Is there a competition between the United States and, say, China as China comes up in the world?
Mr. WESSEL: If Chinese workers were as productive as American workers, meaning if they - if the stuff they produced per hour of work were as valuable as the stuff that American workers produce, their wages would be much higher. There's lots of competition in the global marketplace, but the winner is almost always the country that has the most productive workers.
INSKEEP: Is this our defense, in effect, against cheap imports from abroad and low wage workers abroad? As long as we're more productive, we can deserve and earn more money?
Mr. WESSEL: Absolutely. The key to prosperity in a global economy is having evermore productive workers. The problem is, it's easy to say that and hard to accomplish it.
That's why there's so much emphasis now on how do we get our schools better, because in today's modern economy, more educated workers tend to be more productive. That is, the value of the stuff they produce is more valuable. We need to figure out how to lift the education of our workers across the economy so that they can be more productive and compete with workers in Mexico, India, and China.
INSKEEP: Some analysis from David Wessel, Deputy Washington Bureau Chief for the Wall Street Journal. David, good to talk with you.
Mr. WESSEL: Thank you.
INSKEEP: Do you need coffee, by the way, are you doing all right? Okay.
Mr. WESSEL: Do I look bad?
INSKEEP: You look - like this.
Mr. WESSEL: Oh.
INSKEEP: You look like this. You look bored to death, almost asleep.
Mr. WESSEL: No, no, no. I'm just trying to figure out how I'm going to do everything I have to do today before I leave.
INSKEEP: Oh, okay. Well, you've got to be more productive.
(Soundbite of laughter)
Mr. WESSEL: Yeah.
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