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January 27, 2011

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I don't think you're painting an appropriate picture when your numbers are taken pre-recession. Of course our growth didn't slow: our economy was growing a lot due to poor financial practices that eventually led to the recession. We were borrowing growth from the future, and that was growth that wasn't there. I'm not a scholar, or anything, but I feel like your criticism is full of holes.

1947 - 1973 (26 years)

1973 - 1995 (22 years)

1995 - 2007 (12 years, recession not included)

Is that really a good sample set to use to prove your point?

"beginning in the mid-'90s, fueled by the IT revolution, productivity growth came roaring back"

But we again fail to mention the dot-com bubble, or the financial collapse of 2008, or what is probably another dot-com bubble bursting soon (with Facebook to blame). I, personally, think a lot of the 'growth' you're seeing that takes away from the idea of 'stagnation' is the result of a lot of smoke and mirrors in the financial sector. But I guess there's no way we'll know, not at least for another 10 years, then we can look at the numbers.

I think the other major argument in the book was that GDP and productivity statistics are systematically overestimated. This is true for three reasons:

1. Government spending is accounted in GDP at cost. So a spending on a road that costs 300 million is put into GDP, but is it actually worth 300 million? It's hard to say. As the government has grown as a share of GDP, this is becoming a larger estimation problem.

2. The benefits of healthcare and the spending on healthcare don't necessarily match up. The US spends the most on healthcare out of any country in the world, but we have no where near the top in healthcare outcomes.

3. As with spending on healthcare, the benefits of our increased spending on education are very hard to quantify in the GDP figures. Spending has gone up over the past 50 years, but have education outcomes? That's not clear.

All three of these, which when combined are more than 25% of GDP (and growing), lead us to think that we're wealthier than we are. Thinking we're wealthier than we are leads to excessive risk taking.

These points were my major take away from the book.

Terrific insights, Brink. Here were my thoughts on Tyler's good essay at Forbes . . . http://blogs.forbes.com/bretswanson/2011/01/27/tylers-techno-slump/

> Once again, there was a big dropoff after the postwar boom. But then look what happened: beginning in the mid-'90s, fueled by the IT revolution, productivity growth came roaring back, nearly equaling the record of the Golden Age. It's hard to look at these figures and conclude, with Tyler, that the trees in the orchard are becoming bare.

IIRC, what Tyler specifically said was that this average productivity growth was only possible because companies became better at identifying the least productive workers and shifting their work onto more productive workers or otherwise replacing them.

And that this is not an indication of non-stagnation. It's low-hanging fruit. You can only fire the bottom 90% of performers a few times before you hit a limit.

If we looked at the median, or especially the upper deciles of productivity, the picture would perhaps not be so rosy and would show a leveling off with little growth - stagnation.

"2. The benefits of healthcare and the spending on healthcare don't necessarily match up. The US spends the most on healthcare out of any country in the world, but we have no where near the top in healthcare outcomes."

Is this based on studies of comparative clinical efficacy for specific medical interventions, or things like life expectancy and infant mortality?

Life expectancy is a very poor metric for assessing relative clinical efficacy since it's heavily influenced by lifestyle choices, accidents, murders, etc - that neither doctors nor hospitals have any meaningful influence over.

Infant mortality is defined differently in different countries, and babies that are too premature, too small, or die too soon are registered as stillbirths in some countries, vs infant deaths in others. America has very generous standards for what constitutes a live birth vs the rest of the world. This metric also covers 0-1 years, and factors that doctors and hospitals have little or no control over once again. Perinatal mortality is a much better stat.

WHO Rankings? Subjective estimate of the fairness of resource distribution, nothing to do with clinical efficacy.

KR. McKenzie,

I think you are making two very good points: First, that GDP may not be a very good indicator of wealth or our level of well being. Second, that government spending (your three examples) is inefficient.

In your first example, the road that cost $300 million is probably not worth that amount, and would likely have cost much less if built by a private actor. Nonetheless, $300 million was spent, so it is part of GDP even if it is wasteful.

exaggerates a man´;s virtue, an enemy his crimes.

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