Tuesday, April 5, 2011

There is No Great Stagnation in the Durables Sector

That is what Noah Smith finds when he graphs TFP by durable and nondurable sectors.   Here is the stunning figure he provides:

 Here is Smith:
From this graph, it definitely looks like something big did happen to technological progress. But it looks like it happened not in 1973, as Cowen claims, but a decade earlier. In the 15 years to 1963, the two sectors progressed pretty much in tandem. But sometime in the early- to mid-60s, they diverged wildly, with nondurables TFP rising anemically through the late 70s and then basically flatlining until now. Durables TFP looks to have suffered its own very minor slowdown in the mid-70s (which is probably the reason why overall TFP looks like it took a turn around that time), but then exploded with unprecedented vigor after '93.
Smith is responding to an earlier post of  mine that Tyler Cowen linked to yesterday.  In that post I showed using John Fernald's data that the TFP growth rate had slowed down dramatically since 1973.  Using the same data set, Smith shows us the Great Stagnation only is true for nondurable output.  For durable output there never is a slowdown.  How do we make sense of this finding?

1 comment:

  1. First of all, here is the complete historical record via Alexander Field:

    Average annual TFP

    Note that the "Golden Age" (1948-73) is behind three other periods in the rate of TFP growth.

    With respect to the divergence in "nondurable" TFP growth after 1963 the devil is in the details.

    If one looks at the historical record from the "Golden Age" what you see is the following for the fastest growing sectors. the following are average annual rates of change.

    Public utilities-4.8-1.2
    Real estate-3.3-1.3

    (Manufacturing includes both durable and nondurable manufacturing.) Note that there was a dramatic slowdown in TFP growth in all of the rapidly growing nonmanufacturing sectors with the exception of Trade and Transportation after 1966. (It's useful to remember that Alexander Field credits much of the rapid TFP growth during this period to Trade and Transportation, and specifically the Interstate Highway System.) Thus the divergence between durable manufacturing and the rest of the economy in the mid 1960s was due to the slowdown in the rapid growth in these sectors. "Nondurable" TFP growth came to a halt when Transportation and Trade joined these sectors in stagnating after 1973.

    With respect to the resurgence in TFP growth in 1995-2005, again the details matter.

    No subsector of nondurable manufacturing experienced above average TFP growth during 1995-2005. Within the nonmanufacturing sector there is a great variation in performance. Mining, Utilities and Construction have all seen declines in TFP. On the other hand there has been above average growth in Agriculture, Trade, Transportation and Information.

    In the durable manufacturing sector there are ten subsectors. Electrical Equipment, Appliances and Components has actually seen a decline in TFP. Only two subsectors of durable manufacturing have seen above average TFP growth: Computers and Electronic Equipment, and Miscellaneous. In fact Computers and Electronic Equipment has seen a six fold increase in TFP between 1993 and 2007.

    It would be tempting to say most TFP growth during 1995-2005 was the result of durable manufacturing TFP but upon examining the details we see this is not at all the case. A better generalization is to say that TFP growth during this period is related to the ICT revolution.

    Virtually all of the above average performance in durable manufacturing is due to the manufacture of computers and electronic equipment. And most of the "nondurable" sectors that had above performance in 1995-2005 are so due to the ICT revolution. In particular, Bart van Ark has shown that computers have led to a big increase in TFP in "distribution" which is reflected in the Trade and Transportation sectors. In fact the improvement in "distribution" TFP during this period dwarfs the contribution of computers and electronic equipment manufacturing to the surge in TFP growth in 1995-2005.

    One last note. It is rare (exceptional) in the historical record to find an age when improvements in TFP were dominated by manufacturing. The TFP growth during the Gilded Age came about in Trade, Transportation and Communications (railroads and the telegraph). The TFP growth during the Great Depression came mainly in Transportation (the U.S. Route System and the five fold increase in the share by the interstate trucking industry). The only time manufacturing dominated TFP growth was during the 1920s (the final burst in the electrification of factories). The most recent period really does not add to this exception.