American productivity and the law of diminishing returns

While it seems counter intuitive, there is no doubt that America and the West are living through a period of meager productivity. Factories are becoming automated, software is revolutionizing, and in some instances replacing¸ professional services like accounting and law, and anyone who has been to a grocery store lately has noticed that some of the cashiers have been replaced by self-check-out lanes.  It certainly seems like we’re getting more done with fewer labor inputs.  And then there is that cultural and economic phenomenon called Silicon Valley, a place teeming with energy, ideas and a passion for creating what are known as “disruptive technologies” that revolutionize the way we work, play and go about our daily business.  Just think of how many tasks, from paying bills to arranging a business meeting, can be done from your phone!  Yet the data is undeniable.  Productivity gains began tapering off in the latter half of the 20th century and have all but disappeared here in the 21st. And so the question of productivity, why we have less of it and how to get more, becomes one of paramount importance.  And that brings us to an article we saw this week in the New York Review of Books. Written by Edmund S. Phelps, a Nobel Prize-winning economist, it addresses the social and cultural impediments to increasing productivity. The crux of Mr. Phelps’ argument is that Western economies have lost their dynamism because innovation is confined to an ever-narrowing coterie of elites.  In the 19th and 20th centuries you could find people from all walks of life solving problems and creating new technologies.  He uses as examples George Stephenson, inventor of the steam engine, who was illiterate.  John Deere, inventor of the cast-steel plow that “broke the plains” was a blacksmith. Isaac Singer, developer of the sewing machine, was a machinist with no formal education and Thomas Edison, who also had no formal education.  There… | Read More »