Economists have been concerned about the sharp slowdown in productivity growth since 2005 and wondering whether it will persist indefinitely. Productivity (a.k.a. "automation") grew at an annual rate of almost 3.0 percent from 1995 to 2005, roughly the same pace as during the long Golden Age from 1947 to 1973. For reasons that are not clear, growth then slowed sharply to a 1.3 percent annual rate in the years since 2005.
Productivity: Non-farm Business Sector
Source: Bureau of Labor Statistics.
Projections from the Congressional Budget Office, Social Security Administration, and elsewhere assume that the rate of productivity growth will remain slow for the indefinite future.
But there is good news. In a New York Times column, Kevin Roose tells us about the secret he learned from talking to rich people at Davos. They apparently all have great plans for increasing productivity at their businesses but are keeping them a secret.
If the word from Roose's rich friends turns out to be accurate, then we can expect to see more rapid wage growth. We also don't have to worry at all about budget deficits. The more rapid productivity growth will mean more rapid economic growth and higher tax revenues. Also, with more rapid productivity growth, there will be less reason to fear that large budget deficits will push the economy too far and lead to inflation.