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Chapter 22: Problem 5

Writing in 2016 , economist Robert Gordon of Northwestern University stated his views of the effects of information technology on the economy: We don't eat computers or wear them or drive to work in them or let them cut our hair. We live in dwelling units that have appliances much like those of the \(1950 \mathrm{~s}\), and we drive in motor vehicles that perform the same functions as in the \(1950 \mathrm{~s}\), albeit with more convenience and safety.... Most of the economy has already benefited from the Internet and web revolution, and in this sphere of the economic activity, methods of production have been little changed over the past decade \(\ldots .\) The revolutions in everyday life made possible by e-commerce and search engines were already well established [by 2004]. If Gordon's observations about the information revolution are correct, what are the implications for future labor productivity growth rates in the United States?

Short Answer

Expert verified
If Robert Gordon's observations are correct, the implication could be slower growth rates in labor productivity for the future. This is because significant technological transformations, which previously led to increased labor productivity, seem to have plateaued recently according to Gordon.

Step by step solution

01

Understanding Gordon's Views

Robert Gordon noted two things. First, that we still use some technologies that have only marginally changed since the 1950s (like housing and vehicles) and, second, that most of the economy has already benefited from the Internet revolution, suggesting no significant changes in production methods in the last decade.
02

Understanding Labor Productivity

Labor productivity is a measure of economic performance that compares the amount of goods and services produced (output) with the number of hours worked to produce those goods and services. It generally improves with technological advancements, as these allow more to be produced with the same amount of labor.
03

Drawing Implications

Based on Gordon's observations, if technology improvements have plateaued and are no longer significantly changing production methods, this suggests that they will not contribute as substantially to future labor productivity growth. In other words, without further technological revolutions, labor productivity may not increase at previously seen rates.
04

Explanation of the Implications

A slowdown in technological advancements could affect labor productivity growth rates. Since technologies have dramatically improved productivity in the past, their saturation could lead to a slowdown in productivity growth. This could imply slower economic growth unless offset by other factors such as increased labor force participation or improvements in education and skills training.

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Most popular questions from this chapter

An article in the Wall Street Journal in mid-2017 noted, "Mexico's economy kept up steady growth in the first quarter, expanding for a 15 th consecutive period despite concerns that strained trade and investment relations with the U.S. will bring about a sharp slowdown." During this period, why were some observers concerned about Mexico's economic relations with the United States? Why are these relations particularly important if the Mexican economy is to experience sustained growth?

What are the consequences for growth of diminishing returns to capital? How are some economies able to maintain high growth rates despite diminishing returns to capital?

In an interview on PBS about economic development in Africa, Ghanaian economist George Ayittey stated that of the 54 African countries, only 8 had a free press. For Africa's economic development, Ayittey argued strongly for the establishment of a free press. Why would a free press be vital for the enhancement of property rights and the rule of law? How could a free press help reduce corruption?

(Related to the Apply the Concept on page 742) Economist Charles Kenny of the Center for Global Development has argued: The process technologies-institutions like laws and inventory management systems that appear central to raising incomes per capita flow less like water and more like bricks. But ideas and inventions \(-\) the importance of [education] and vaccines for DPT - really might flow more easily across borders and over distances. If Kenny is correct, what are the implications of these facts for the ability of low-income countries to rapidly increase their rates of growth of real GDP per capita in the decades ahead? What are the implications for the ability of these countries to increase their standards of living? Briefly explain.

Briefly explain whether any of the following policies are likely to increase the rate of economic growth in the United States. a. Congress passes an investment tax credit, which reduces a firm's taxes if it installs new machinery and equipment. b. Congress passes a law that allows taxpayers to reduce their income taxes by the amount of state sales taxes they pay. c. Congress provides more funds for low-interest loans to college students.
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