About that TFP stagnation...

Via Tyler Cowen, I see that David Beckworth has posted a graph of U.S. total factor productivity (TFP) from 1947 to 2010, using data from John Fernald at the SF Fed (who BTW is a co-author of my advisor, Miles Kimball). Total factor productivity, recall, is the part of production that can't be explained in terms of inputs of capital, labor, and other known factors of production; TFP is often called "technology", though it probably includes a few other things.

Anyway, here is Beckworth's graph:

Assuming that TFP = technology, this graph definitely seems to support Tyler Cowen's hypothesis of a "Great Stagnation" in technological progress around 1973.

However, just for fun, I decided to update the graph. John Fernald, ever the careful empiricist, breaks his TFP series down into two sectors: TFP in the production of durable goods (cars, buildings, TVs, machinery) and TFP in the production of nondurable goods (clothing, food, services).

Here's what it looks like when we graph both of those on the same graph:

Wow! If you look only at the durables sector, there was no Great Stagnation at all - in fact, quite the reverse, since durables TFP has been growing more strongly post-1993 than it ever did in the post-WW2 boom! Consider this: In the 26 years from '47 to '73, durables TFP nearly doubled, but in the 15 years from '94-'09, durables TFP more than doubled.

Yes, 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.

Like David Beckworth, I am also more convinced of a Great Stagnation than I was before I looked at Fernald's data. But I think Cowen's hypothesis needs a bit of updating. It is only the nondurables sector that has stagnated, and it happened in the early 60s. Why did it happen? My first guess was agriculture, but nope, it's not that. Did the years after WW2 simply see an unprecedented one-off boom in nondurables production, with a return to normalcy in the 60s?

Anyway, figuring out what really happened to technology in the 60s will take far more data-gathering and careful analysis than I can put into this blog post. A detailed historical breakdown of TFP by industry would probably be the place to start. But in the meantime, I think we should look at the "Great Stagnation" as a more subtle phenomenon than simply the exhaustion of the "low-hanging fruit" of nature. Our technologies for producing durable goods are improving faster than ever.

Update: Thanks to commenter Andy for pointing out that services are also included in nondurables. 

Update 2: Slow service-sector TFP growth  appears to have been a big factor in the 70s and 80s, but not since the early 90s. Also, commenter Mark reports that utilities and mining (nondurables) have experienced drops in TFP since the 90s, while agriculture, trade, and transportation have seen strong productivity gains in that time frame. Hmm...

Update 3: Tyler Cowen responds, saying: "note the importance of sectoral shifts into lower-growing sectors". First of all, such a shift may be happening, but it is not apparent in Fernald's data set; the GDP share of the durables sector, in which TFP growth continues apace, has held steady at 20%. Also, note that a shift into sectors with slower TFP growth does not necessarily indicate that technological innovation is slowing down...imagine an economy in which we get infinitely better at producing right shoes, but no better at producing left shoes, and you'll see what I'm talking about.