Monday, August 21, 2017

Investment, Productivity, Wages, and Economic Prosperity

Here’s a simple and fundamental question: What is economic growth?

And here’s a simple answer: It’s when there’s more national income.

That’s seems like a trivial tautology, but let’s explore some implications. When you dig into the numbers, it turns out that increases in national income (usually measured by gross domestic product, though I prefer gross domestic income) are driven by two factors.
  • More people.
  • More output per hour, also known as increased productivity.
This is why people sometimes say that GDP growth is a function of population growth plus productivity growth.

And what really matters, at least if we want higher living standards, is to have more output per hour. As a result, we should be very concerned that productivity growth seems to be lagging in the United States.

Here’s a chart that was created by the Wall Street Journal, showing data from the Labor Department on productivity all the way back to the 1950s...........To Read More.....

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