I can not take credit for Solow Productivity Paradox, all credit needs to go to Solow himself.
The uptick in productivity between 1995 and 2005 is mostly attributable to 2 sectors:
retail
finance
In retail, it was the era of big boxes, lead by WalMart. Basically, it was the era when big retail learned how to take advantage of big databases to better manage inventory. Sadly, this did not seem to be the beginning of a sustained period of higher productivity trends. Rather, it was a one-off innovation.
In finance, much of the uptick involved HFT. Some economists feel this contributed to the crash of 2008, so how much we should celebrate this particular uptick is open to question.
One of my thoughts is the hard return on efficiency isn't linear.
140 years ago generators were 60% efficient. 20 years later 96% efficient. That's big close to 40% better. 20 years after that 98% efficient. 4% better... Now maybe 99.5% so 1.5% better.
I feel like a lot of things they through computers at to improve productivity are kind already efficient. My mom's first washing machine washed clothes. Mine with a microcomputer also washes clothes. Parents first microwave had a power dial and a mechanical timer. You reheat food in it. Mine with a computer also reheats food.
Do you have a source for that? You're saying a productivity increase that amounted to around 20% across the entire workforce is mostly attributable to advances in HFT and logistics in the retail industry?
Even if we ignore that both of those were probably only made possibly with computers, that seems astounding considering retail and finance makes up less than 20% of the economy by GDP.
But that was written in 2009, before it was clear that productivity slowed again after 2005.
In a later post, Krugman analyzed the higher productivity of 1995 to 2005 and shows much of it was simply big box stores and HFT.
In general, the period since 1973 has been disappointing for productivity. And as yet, computers have not brought us the kind of sustained productivity growth that we saw in the early to mid 20th Century.
I can't load that page for some reason, and although I don't really like Krugman and certainly if it just comes from a blog with his opinion and vague handwaving in it I don't think it's worth much. But that surprises me that he would have changed his tune so quickly after being famously against HFT, e.g.,
> It’s hard to imagine a better illustration than high-frequency trading. The stock market is supposed to allocate capital to its most productive uses, for example by helping companies with good ideas raise money. But it’s hard to see how traders who place their orders one-thirtieth of a second faster than anyone else do anything to improve that social function.
> What about Mr. Hall? The Times report suggests that he makes money mainly by outsmarting other investors, rather than by directing resources to where they’re needed. Again, it’s hard to see the social value of what he does.
> And there’s a good case that such activities are actually harmful. For example, high-frequency trading probably degrades the stock market’s function, because it’s a kind of tax on investors who lack access to those superfast computers which means that the money Goldman spends on those computers has a negative effect on national wealth.
"he would have changed his tune so quickly after being famously against HFT"
He was still against HFT, that was part of his point. He was saying that even some of the surge of 1995-2005 might have been an illusion, because it was "only" HFT. If you feel that HFT really does raise the USA standard of living, then of course you are free to view the surge of 1995-2005 as entirely real.
At the moment Google is acting as if Krugman never mentioned HFT or retail.
Adding to the problem, the New York Times is giving 503 errors over most of Krugman’s old weblog, so perhaps the Times has given up on maintaining the old blog.
Am I allowed to make the joke that Solow’s Productivity Paradox is mostly explained by rampant link rot? But I’m only half kidding, because the rapid way technology breaks down is an obvious hindrance to productivity.
“You're saying a productivity increase that amounted to around 20% across the entire workforce is mostly attributable to advances in HFT and logistics in the retail industry?”
No one ever suggested that. It’s the excess productivity growth of 1995-2005 that is largely attributable to retail and what improvements there were in the productivity of trading financial instruments.
I'm not talking about the total increase of productivity, I'm talking about the roughly 20% it increased beyond where it would have been if the pre-95 trajectory had continued. I.e., the excess. It just doesn't seem like a plausible explanation.
EDIT: going back and looking at the actual numbers rather than eyeballing it's more like 10-12% excess. That's across the entire economy of course, so it would still be a massive increase to attribute that mostly to a subset of retail and finance sectors.
I have a research assistant I hire to deal with FRED for me, since it is really its own specialty, and at some point we will get to the productivity numbers, but I'm not going to engage them simply for a comment on Hacker News. I probably should not be writing on Hacker News, I keep thinking that I should focus my efforts elsewhere. But eventually I'll have more complete work to share with you and the world. Feel free to follow my blog, you'll see an announcement at some point in the next 6 months.
The uptick in productivity between 1995 and 2005 is mostly attributable to 2 sectors:
retail
finance
In retail, it was the era of big boxes, lead by WalMart. Basically, it was the era when big retail learned how to take advantage of big databases to better manage inventory. Sadly, this did not seem to be the beginning of a sustained period of higher productivity trends. Rather, it was a one-off innovation.
In finance, much of the uptick involved HFT. Some economists feel this contributed to the crash of 2008, so how much we should celebrate this particular uptick is open to question.