Technology Isn't Boosting Our Productivity Like It Used To

Grant Engler is airborne as he flies in a jet pack suit into his wedding ceremony Thursday, Aug. 23, 2012 in Newport Beach, C
Grant Engler is airborne as he flies in a jet pack suit into his wedding ceremony Thursday, Aug. 23, 2012 in Newport Beach, Calif. The couple donned the (Canadian) $90,000 (C72,000) contraptions on their backs, along with a wetsuit for the groom and white board shorts and a rash-guard shirt for the bride. The jet packs from Jetlev Southwest helped the couple hover a few feet above the water, to the cheers of their wedding guests. Everything went smoothly, except for a kayaker who capsized during the newlyweds' first dance on the water. (AP Photo/Lenny Ignelzi)

Technology isn’t what it used to be, at least in terms of increasing American workers’ productivity. And that’s bad news for the U.S. economy.

A new paper from the Federal Reserve Bank of San Francisco has found that the big boost that tech gave to American productivity in the late 1990s and early 2000s "has vanished during the past decade." New and better technology is still helping Americans be more productive, but not anywhere near as much as it used to.

Between 1996 and 2003, increasing productivity alone added almost 3.5 percent to U.S. business' economic growth, the Fed paper shows. Since then, it has only added about 1.5 percent.

The problem is that we're not making big tech leaps at the same rate that we once did, the paper says. This issue started in the mid-2000s, it notes, when innovation became "more incremental than transformative." In other words, the huge economic changes brought on by things like better, cheaper computer hardware, software, and the Internet (think the near-universal use of email, electronic records and word processing) began to peter out.

Without the big productivity boosts of technology, the future of U.S. growth -- currently still subpar following the worst recession since the Great Depression -- looks even more unclear.

After all, as the authors of the San Francisco Fed’s paper and The American Enterprise Institute’s James Pethokoukis point out, economic growth is basically just how many people are making stuff, multiplied by how efficiently they make that stuff. The size of the labor force is the “how many people” part, and productivity is the “how efficiently they make that stuff” part.

But America, Pethokoukis writes, is getting older, and labor force growth is slowing down. So in terms of getting more economic growth, productivity is it. And things are not looking good. The report's authors write that “reasonable assumptions about the non-business sector and demographics ... would translate into GDP growth of 2.1 percent per year.” That's well below last quarter's disappointing 2.6 percent GDP growth number.

Even more worrisome: Not only is technology no longer driving big gains in worker productivity overall, but specifically, “the slowdown was in sectors that produce IT or use IT intensively,” the authors note.

That means the tech sector isn’t even making itself more productive. Call it disruption interrupted.

This conclusion matches up with a sweeping academic theory and a more popularized feeling about recent technology gains. The secular stagnation thesis, put forward by economists like Larry Summers and Tyler Cowen, says the slow growth we're experiencing now is permanent. Then there’s the general non-academic sentiment that new technology doesn’t really do what old technology did economically. Think your cranky uncle wondering what the point of Facebook is.

Venture capitalist Peter Thiel has a succinct mash-up of the two ideas: “We wanted flying cars, instead we got 140 characters.”

Oh, and also the possibility of permanently slow economic growth.