Do you remember the late 1990s? Companies were investing heavily in computers and boosting productivity at a marvelous clip. Economic growth and financial markets were so strong that the federal government started paying off the national debt.
That era of techno-optimism is long gone. For proof, look at the above chart showing a shocking decline in what government economists call “capital services” provided by computers and related equipment (such as data storage and printers). Computers’ capital services are the work computers do, which can go up either because there are more computers or because the ones we have are more powerful.
As the chart shows, from 1995 to 2000, computers’ capital services to the economy grew at an inflation-adjusted annual rate of 40.7 percent. From 2007 to 2012, they grew at an annual pace of just 6.8 percent, and for the last year of that period, 2011-12, they grew at no more than a 1 percent pace. Software’s capital services’ growth also fell, from a pace of 16.8 percent in 1995-00 to 3 percent in 2007-12.
This is bad for worker productivity because workers need the latest tools to do their jobs as efficiently as possible. As the Bureau of Labor Statistics observed when it released the latest data on April 3 (PDF), capital of all kinds—not only computers and software—available to American workers declined in 2012. Technically, the bureau measured capital services per hour of work and found a decline of 0.8 percent in 2012, following a 1.1 percent drop in 2011. “The decreases in 2011 and 2012 are the only two years of decline in the measure, which began in 1987,” the BLS said.
Morgan Stanley economist Ted Wieseman noted the capital dearth in a note last week following the announcement that labor productivity fell at an annual rate of 1.7 percent in the first quarter of 2014. “We are likely in an unprecedented fifth year of no growth in capital per worker,” Wieseman wrote. “Hollowing out of the capital stock from years of persistent underinvestment is damaging potential GDP growth.”