Bye Bye American Pie: The Challenge of the Productivity Revolution

Here’s the good news. The economic pie is growing again. Growth in the 4^th quarter last year hit 3 percent on an annualized rate. That’s respectable – although still way too slow to get us back on track given how far we plunged.

Here’s the bad news. The share of that growth going to American workers is at a record low.

That’s largely because far fewer Americans are working. Although the nation is now producing more goods and services than it did before the slump began in 2007, we’re doing it with six million fewer people.

Why? Credit technology. Computers, software applications, and the Internet are letting us produce more with fewer people.

In theory, this is a huge plus. We can live better and have more time off.

But as Tonto asked the Lone Ranger, “who’s ‘we,’ kemosabe?”

The challenge at the heart of the productivity revolution – and it is a revolution – is how to distribute the gains. So far, we’ve been failing miserably to meet that challenge.

True, some of the gains are widely spread in the form of lower prices and higher value. My 3-year-old granddaughter gets more out of an i-Phone in five minutes than my 98-year-old father ever got out of reading the daily paper (putting to one side their relative capacities to process the information).

But many of the gains are distributed narrowly in the form of profits to owners, and fat compensation packages to the “talent.”

The share of the gains going to everyone else in the form of wages and salaries has been shrinking. It’s now the smallest since the government began keeping track in 1947.

If the trend continues, inequality will become ever more extreme.

We’ll also face chronically insufficient demand for all the goods and services the productivity revolution can generate. That’s because the rich save more of their earnings than everyone else, while middle and lower-income families – with fewer jobs or lower wages – no longer have the purchasing power to keep the economy going at full tilt. (Before 2008 they kept up their buying by sinking deep into debt. This proved to be an unsustainable strategy.)

Insufficient demand – as everyone but regressive supply-siders now recognize – is a big reason why the current recovery has been so anemic and the pie isn’t growing faster.

So while the productivity revolution is indubitably good, the task ahead is to figure out how to distribute more of its gains to more of our people.

One possibility: higher taxes on the rich that go into wage subsidies for lower-income workers, combined with job sharing.

We also need better schools (from early-childhood through young adulthood, followed by systems of lifelong learning) so everyone has a fair shot at a larger share of the gains.

Finally, the benefits of the productivity revolution should be turned into more abundant public goods – cleaner air and water, better parks and recreation, improved public health, and better public transit.

Regressive right wingers want Americans to believe we’ve been living beyond our means, and can no longer afford it.

The truth is just the reverse. Most Americans’ means haven’t kept up with what the economy could provide – if the fruits of the productivity revolution were more widely shared.

Regressives growl about America’s borrowing and tut-tut about future federal budget deficits. The reality is the world is willing to lend us vast amounts of money because we’re so productive. And the productivity revolution is making us ever more so.

Get it? The pie is growing again but most people aren’t getting much of a slice. That’s bad even for those getting the biggest pieces. They’d do better with smaller slices of a pie that grew much faster.