Yesterday, the Bureau of Economic Analysis announced that the US economy declined by 1.4
percent in 2022’s first quarter. It was the first quarter-long decline of GDP in the years since the
pandemic struck in the year 2000.
It’s a scary-looking but ultimately illegitimate number. much of it is accounted for by the effects
of trade between countries (imports as a percentage of GDP figures, increased as companies
realized that the conflict in Ukraine was on the way) and the shrinking of inventory owned by
companies when consumers purchased them. “Final exports to local consumers,” which strips
off these variables were up 0.6 percent during the quarter and 2.6 percent per year.
Whatever way you interpret the report it seemed like an opportunity to consider the long-term
future of economic growth in the US and around the world. I’m becoming quite concerned about
it in the real world! It’s because of an economics study by NYU’s Thomas Philippon with the
unassuming title “Additive Growth.”
The conclusion of Philippon’s research is as clear as it is disturbing. It is reasonable to expect
that economic growth will slow down over the long term as well as the huge leaps ahead of the
last couple of centuries could be a blip.
The conclusion isn’t certain and is in direct contradiction to decades of theories regarding how to
predict economic growth. However, Philippon provides a great deal of information to support his
argument, which is logical and the possibility of this being true ought to worry us.
The vast pile of things we’re able to do
Philippon’s research paper does not deal with economic growth as such rather, it is concerned
with a particular variable that is at the heart of explaining long-term growth called total factor
productivity or TFP – TFP
The process of defining or establishing a consensus on the concept of TFP isn’t easy.
Technically speaking, it’s a residual that is the annual growth percentage of TFP is the result
when you examine the annual growth of economic activity, and exclude the growth that is due to
the increase of the amount of labor (more hours spent) as well as capital growth (more factories
being built, more purchasing labor-saving equipment, etc.).
At present consider TFP as being a measurement of “how humans can use tools and labor to
accomplish things.” In the event that TFP is growing, it implies that we can increase the
economic output from the same resources and people that we already have.
This is what makes TFP an important “secret sauce” that drives the economic boom more
broadly. The number of labor inputs can arise naturally but individuals are only able to work a
certain number of hours and do not really wish to put in all day long. long hours. Growth in the
population helps however, it is less helpful in terms of per capita economic growth which is
arguably the most important factor.
Capital accumulation, and employing more efficient equipment and tools can be beneficial, but
there’s only so much to put into investments. The most important thing is to use your resources
more efficiently. TFP is a rough measure of how efficiently we’re using our resources. We can
be more efficient when it comes to using our resources thanks to technological advancements,
improvements in the management of the business, as well as other adjustments.
Economic growth is typically represented exponentially. Our economic output increases by a
specific percentage every year. While the percentage may vary depending on the year, it will
also increase over itself. TFP is typically modeled similarly. If you have $100 increasing two
percent every year, that’s exponential. If it’s only $2 each year, it’s linear.
What Philippon does is examine whether TFP is actually able to actually expand exponentially.
He starts by looking over two data sets that cover TFP within the US and discover, that instead
of an increase in linearity in the years since World War II: TFP is not increasing by a specific
percentage every year, but instead by a certain number (0.0245 points for those who are
interested) every year. It doesn’t grow exponentially, it simply slowly, steadily increases. You’re
receiving $2 per year instead of 2 percent of an ever-growing pile.
In extending the data until 1890, the researcher observes linear growth, with an interruption in
the growth rate: slower from 1890 until 1933 and faster after that however, it is steady and
non-expanding throughout the entire time. Then, he extends the analysis to 23 countries that
are relatively prosperous that range starting from Japan to Germany up to Spain. A linear model
is more appropriate in this case, too.
Linear growth suggests the fact, as Philippon states “new concepts add to the knowledge base;
they don’t multiply it.” It also suggests that economic growth will slow in the longer term. As
Jason Crawford, who writes about the development of technology and science in The Roots of
Progress, put it “GDP per capita is able to increase without limit but it is likely to slow as time
How doomed are we specifically?
The US as well as other countries with high levels of wealth have witnessed a documented
decrease in productivity particularly TFP growth since the year 2004. Philippon’s findings might
help clarify the reasons for this. The slowdown can only be seen when you believe that TFP is
supposed to be increasing exponentially. If you believe that it is merely linear growth, it’s not
because things have become worse in the last few years. The problem is that they weren’t that
It’s a scary conclusion, particularly because, from the perspective of historical perspective,
human progress over the last few centuries has not been extremely positive. In the 17th to 18th
century, or around that time period the human economy increased very slowly. Agriculture had a
low rate of productivity growth and there was a certain population that agricultural societies
could manage. The quality of life varied greatly depending on the number of people who were in
the area and when the population abruptly fell (as during the Black Death in Europe) the
population grew in wealth on a per-capita basis while when populations grew, it was the reverse.
This is referred to as the “Malthusian trap.”
“Until around 1800, the majority of the population were in poverty,” Joel Mokyr, an economic
historian at Northwestern, once noted. “And when I say “poor I’m referring to people who were
in the midst of starvation physically for the majority of all of their life.”
The pattern began to break down between the 17th and the 19th century, a process sometimes
called by the name of”the “Industrial Revolution” however, it encompassed a broad range of
scientific, cultural technological, economic, and technological shifts. In the short story, the rate of
growth in productivity was sustained to the highest level in the history of mankind. It also
increased, by historical standards, extremely quickly and a significantly smaller proportion of
people in 2022 is nearing hunger than in the 1800s however, the amount of people who are in
need of to eat has always been more affluent.
Philippon is the one to identify this gap in the history of humanity in his research paper which
examines TFP data in England. TFP increases are linear over the course of English history, he
argues however, it is apparent that the growth rate of growth that was linear became abruptly higher between 1650-1830. These “breakpoints” the author claims relate to the second or the
second industrial revolutions (the first one being characterized by the invention of textile
production and the development of steam power, the second through the mass production of
electric power, industrial steel, and more.) starting in England. I’m less convinced than Philippon
and the exact time that the Industrial revolution(s) is one of the most debated subjects in the
history of all time and 1650 specifically seems a little too late to be the date of the start of the
If he’s correct it implies that humanity will require another similarly significant break to stop the
pace of economic growth from slowing over time.
Philippon’s work is bracing however I’m still not satisfied. I’m in agreement with Tyler Cowen’s
concern regarding the value of looking at TFP as a genuine tangible characteristic of the
Is TFP really a measure of progress? do you mean by TFP? What exactly is it? It’s often used
as an indicator of “technological advancement,” however, it’s not really a way to reflect
technological changes; TFP can grow or shrink without technological changes as well as
technological advancements may occur without having an impact on TFP. It was the late
economics professor Moses Abramovitz who famously dubbed it the “measure of our
inadequacy about the factors that drive economic growth” in the pages of a 1956 essay.
It is important to try to decrease this ignorance, however, how significant are the changes in the
inexplicably large portion that economic expansion has? They could represent something
however it’s difficult to pinpoint the exact meaning of what they mean. TFP has proven
extremely valuable in comparing the productivity of companies, for example in order to find out
the ones that are more effective and efficient. Here, for instance, is an excellent paper about the
productivity of small-scale African farms.
However, I’m not certain TFP is able to hold the same significance in explaining the expansion
of nations over many years.
However, Philippon’s research should at most provide an innovative direction of research. One
person I trust was able to conclude that after reading the paper If it’s true, it could mean that
“Human is more likely to die.” I wouldn’t think that way. It’s a crucial question and the answer
properly is vitally important.