The Next President Must Avoid the Jimmy Carter Malaise
“With mediocre growth, the unemployment rate plunged roughly 3.5 percentage points. This implies that productivity growth has been negative for the last five years. … We have a serious productivity problem in this country. If the Fed thinks they have the scope to deal with this, they are kidding themselves. The good news is that R&D spending is exploding. But, if we don’t see productivity rise in the next year, the 10-year [U.S. Treasury] around 2.50 percent looks about right and that is to put it mildly, not good.” —Neil Dutta, Renaissance Macro Research
“The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.” —Jimmy Carter, the Malaise Speech, July 15, 1979
There are moments when you just stop; frozen in time, between the many screens of The Bloomberg Terminal, the zoo of incoming, exiting and canceled Surveillance guests and dealing with lukewarm coffee.
This morning I froze.
Today we got data showing the nation’s output was OK in the second quarter, and better than we thought in the first quarter.
But this good news was overwhelmed by weak adjustments going back to 2011. Summary: The back-to-2011 was ugly. This is of modest surprise to many economists but, I would suggest, of zero surprise to listeners, watchers, and readers. They are living—in real time—the American Experiment: a reality unrevised, unadjusted, and unvarnished.
This chart is a snapshot of our productivity, our efficiency, our good work from just after World War II.
There was an exceptional slope to American Exceptionalism until the mid-1970s, when things changed. We maintained our productivity growth, but less so.
Then, ’round the recent crisis, our good efforts leveled. After a modest pop, we nearly flatlined. This speaks to Mr. Dutta’s five lost years.
I did not realize how much America’s mix of capital, labor, and technological progress has changed. (Check out the complexity of productivity on Wikipedia. It barely touches the respect economists have for the mystery of comparing one output with many inputs.) Above is the four-year-and-one-quarter rate of change of nonfarm productivity. I have chosen 17 quarters because it almost fits with Dutta’s productivity slowdown. Our productivity falls off a cliff in the 1970s. Note how we advance toward zero productivity growth, the red square. Note, too, the gift that was the Internet/computer/tech boom in the early 2000s, the green arc.
Neil Dutta—a card-carrying optimist—nails the cosmic nature of productivity.
President Carter did not use the word 'malaise' in his famous speech. That moment, which for opponents and many supporters defined the Carter era, signaled the struggle as America searched for a new economy after the collapse of manufacturing and the oil crises.
Productivity will not get solved with dot-plots, press conferences, and Economic Club of New York speeches. Productivity gets “fixed” by society and technological progress. Productivity cuts both ways, and right now the one-way path is toward OK output with less labor. There is a great mystery to all this, but the clear and present danger is, if it continues, we will live with a lesser animal spirit, a diminished investment, and a Name-the-Next-President Malaise.
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