This is one in an occasional series of stories on the record-breaking expansion of the U.S. economy.
It wasn't just Watergate and
Wings that made Americans in the 1970s pine for the lost prospects of the previous decade. From the vantage of the fuel-pump queue, the 1960s were one big, happy blur of strong growth and low inflation. Those were the salad days, and there was reason for some pride in the fact that it had all been built on the back of a U.S. workforce more productive than any had been in the last 40 years.
The salad days are here again, we're told. The economy's current growth cycle is now the longest in its history. Inflation remains remarkably benign. And the end of a two-decade-long slump in productivity growth has economists hurling superlatives and daring to wonder if maybe things aren't different this time.
"We're in the second inning of one of the greatest periods of wealth creation the world has ever seen," says Brian Wesbury, chief economist at
Griffin Kubik Stephens & Thompson
. "Attempting to slow that down -- because we're worried about inflation -- is a counterproductive policy."
Wesbury, you might have guessed, is more than a little excited about recent productivity growth. And not without good reason. Only with sustained gains in productivity can an economy grow without putting untoward upward pressure on wages, and thus prices. So it matters that new information technologies have pushed trend productivity growth above 2.5% over the past four years. No less careful a speaker than
has been caught
wondering aloud whether we may be experiencing the fruits of "a once-in-a-century acceleration of innovation, which
is propelling forward productivity, output, corporate profits and stock prices at a pace not seen in generations, if ever."
Still, all lofty rhetoric and devil's advocacy aside, experience urges a more cautious view of the current productivity trend.
"It pales in comparison to the sustained growth productivity saw in the 1960s," said Paul Kasriel, chief U.S. economist at
in Chicago. "Especially in the first half of the 1960s. But in terms of peaks in productivity growth, it pales in comparison to a lot of periods. Even in the mid-'80s, we saw productivity growth approximately as strong as now. Even in the early 1970s we saw stronger growth than we're seeing now."
Kasriel is correct in pointing out that our age is not without historical precedent. In the 1920s, for example, the U.S. economy came roaring back from the first World War, backed by productivity gains garnered from the widespread use of technologies like the automobile and telephone, and the implementation of assembly line production methods.
'We Managed to Screw It Up'
But it's the 1960s that, by all reliable statistical accounts, were the greatest decade ever for productivity growth. The economy was at that time enjoying the fruits of yet another "
once-in-a-century innovation," the development of the interstate highway system. And it used that position to turn in a string of productivity gains that look simply astounding next to today's 2.5% growth trend: Between 1961 and 1966 -- a period two years longer than our current trend -- productivity grew 3.2%, 4.6%, 3.5%, 4.3%, 3.1% and 3.5%.
"We managed to screw it up, though," notes Richard Berner, chief U.S. economist
Morgan Stanley Dean Witter
When prices started rising at the end of the 1960s, it certainly wasn't for a lack of productivity. Rather, it was heavy government spending on "guns and butter" and an accommodative
that loosed the inflation genie from its bottle. By the time the Fed started jacking up rates in response, the investment landscape of the salad days was no longer intact. Productivity growth lapsed into a flat line.
To most economists, today feels a little bit like the mid-1960s.
"The backdrop that the Fed has provided has fostered a very favorable environment for technology investment, and investment in general," Berner says. "That means that markets are a hospitable place for people who want to invest in technology. The cost of capital has come down dramatically in the last 15 years, and that has benefited the cause of technology.
"To sustain the kind of gains we've had -- or even gains a bit below -- we're going to need to extend those favorable trends. That's why the Fed understands that continuing those trends is essential to continued productivity."
And that's why what New Era optimists would call a "counterproductive policy" maker could turn out to be productivity's best friend.