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Noah Smith

Maybe We Have the Economic-Growth Equation Backward

The assumption that raising productivity is the key to higher GDP looks like it needs a rethink. 

Maybe not so crazy after all.

Maybe not so crazy after all.

Photographer: Jeff J Mitchell/Getty Images North America

Productivity drives all long-term increases in economic output. And although rising inequality and other forces have caused wages to increase more slowly than productivity, wages won’t grow in the long term unless the economy becomes more efficient at turning inputs into economic value. More fundamentally, gains in the economy’s productive power make the world seem less like a zero-sum game, where the only way to get rich is to beggar one’s neighbor.

Starting in about 2005, something ominous happened to the global economy -- productivity growth began to stagnate: