In my recent post “2024: The Productivity Boom is Coming” I delved into the fascinating trajectory of our current economic landscape, one that defies the gloomy expectations of a 1970s-style stagnation and instead hints at a revival reminiscent of the booming 1990s. This reflection stems from a detailed observation of recent trends and a hopeful outlook towards 2024.
A Surprising Twist in Productivity Growth
As I’ve monitored the economic indicators closely, the last three quarters of 2023 have presented an unexpected turn. The United States has witnessed an almost 4% annualized growth in productivity, a feat not seen since the dynamic era of the 1990s. This surge in productivity has sparked a debate: Are we on the cusp of a new era fueled by AI and breakthroughs in healthcare, or is this merely a temporary blip?
The Specter of the 70s Versus the Promise of the 90s
The fear of revisiting the economic turmoil of the 1970s — characterized by sluggish growth and spiraling inflation — loomed large in our collective consciousness. Yet, the recent data paints a different picture, one that mirrors the optimism and growth of the 1990s. This period of prosperity was marked by significant advances in technology and productivity, setting a precedent for what we might be entering once again.
In this context, the concept of the natural rate of interest, as introduced by the Swedish economist Knut Wicksell, gains renewed relevance. This rate, which balances price stability with economic equilibrium, seems to be adjusting to a new normal. Higher underlying growth suggests an increase in the natural rate, indicating that the economy can sustain growth without the immediate need for lower interest rates.
The Implications of Sustained Productivity
The prospect of sustained productivity growth brings with it a host of positive implications. It suggests a future where higher real wage increases do not necessarily lead to higher unemployment or inflation — a stark contrast to the traditional economic models. This potential shift could redefine our approach to economic policy and labor market dynamics.
Looking Forward with Optimism
As we stand on the threshold of 2024, the signs of a productivity boom are encouraging. Despite facing challenges such as the pandemic, geopolitical tensions, and inflationary pressures, innovation and technological progress continue to propel us forward. At least this is the case in the US – and less so in Europe.
This resilience and potential for growth evoke the spirit of the 1990s, offering a vision of an economy that is not only recovering but thriving.
In my ongoing journey to decipher the complexities of the global economy, I remain committed to providing insights that bridge the gap between historical economic cycles and the potential for future prosperity. The narrative of a return to the booming 90s, against all odds, underscores a message of hope and resilience in the face of uncertainty.
