Arnold Kling

Productivity Growth in a Recession

Arnold Kling, Great Questions of Economics
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Brad DeLong points out a wildly unprecedented characteristic of recent macroeconomic performance.

The growth rate of output per hour between 2001 and 2002 is going to be absolutely huge.

...We know, arithmetically, where this productivity growth came from: output rose in the fall of 2001 and the winter of 2002 even as American businesses shed workers and cut back on hours.

I used to argue all the time with non-economists who would say that higher productivity costs jobs. My comeback is that higher productivity only would cost jobs if output stayed constant. But in fact, output and employment both go up when productivity rises. However, as DeLong points out, this year is going to turn out to be an exception.

Discussion Question. The current situation seems to be what Keynes would have called a shortfall in aggregate demand. Why aren't there more Keynesians calling for deficit spending?

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