Continued World Productivity Rate Growth Questionable? Please!

The Financial Times reports that worldwide economic growth is unlikely to maintain the momentum that has allowed it to grow at the "highest sustained rate since the early 1970s". Productivity in the United States at least has been driven by increased returns to almost all sectors of the economy as a result of information technology. This technological growth is actually preferable to the one-time growth that occurred in the 1970s due to the entry of women into the labor force because it is likely to continue, even if at a diminished rate, after the initial spurt of growth.

The IMF thinks lack of progress on multilateral trade liberalization, the costs of addressing global warming, and aging populations will all weigh down growth. Which while absolutely true, completely misses the point.

Economic growth in the United States is coming almost entirely from the service sector. The material well being of most Americans is unlikely to increase dramatically in terms of the amount of stuff, but it continues to advance in terms of the quality of the goods we own. Back in 2001, Apple was still primarily a computer company and everyone still listened to Cd's. Now 100 million Ipods later, people have negligibly more music devices, but their new music options are light-years ahead.

GDP, while still immensely important to economic analysts, is an anachronism. Our most basic economic statistic was developed to determine the United States' capacity to improve its industrial production for WWII. But now that the Cold War is over, the best measure of our well-being is not how many computers we produce, but how much number crunching they are capable of doing. Economists have trouble quantifying how much better televisions have gotten since plasma and LCD screens, but nothing is capable of measuring the improvement in our lives caused by something completely new - our ability to seamlessly communicate information over the Internet at almost no cost.

Right now the Internet's market capitalization is closely tied to the porn industry and advertisers. But just like television is mostly about what happens between commercials, the Internet is so much more than a new way to sell diapers.

The service economy is most perfectly leveraged over the Internet. One guy in his basement can create a great new piece of software and instantly send it out to millions of people across the globe. And if his video editing skills are any good, he could change the course of history by affecting the ongoing presidential campaign.

The world is unlikely to continue to grow in the same way that it grew in the past, but no serious person is going to be willing to go back once they experience a qualitatively better economy.