Education > innovation > productivity > higher living standards

Reading the economic news can be confusing. Is the economy in good shape or bad? One way to cut through the clutter is to focus on productivity — the goods and services Americans produce for each hour of work. Productivity growth is the key to improving the standard of living (e.g., higher wages for workers). But Wall Street Journal columnist David Wessel sees troubling signs. He cites evidence that productivity grew at a disappointing 1.5% annual rate in the past three years.

These small differences add up over time: At 1.5%, average living standards double in 47 years, nearly two generations; at 2.5%, they double in 28 years, closer to one generation.

Is this just a lull, or is it the end of the technology-fueled productivity boom of the late 1990s and early 2000s? The pessimistic view is that productivity growth is unlikely to exceed 2% in the next few years. Wessel concludes:

But the outlook for productivity ultimately depends on whether the U.S. keeps innovating, whether it keeps applying those innovations in new ways and in industries (think health care and education) that have yet to fully exploit technology, whether less-productive organizations catch up or are shoved aside by more-productive ones, and whether American politicians and the public understand the importance of repairing the education system to better equip workers.

In that light, the future looks a bit brighter than the recent numbers imply.

Looking at this analysis in a different way, we could say that: Education begets innovation which begets productivity growth which begets a higher standard of living.

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