IT Addicts Hold Key to Productivity Paradox

The "productivity paradox" has become a hot topic among economic researchers, again, as they struggle to understand why, in our increasingly digitized world, reported productivity growth is so slow.

The slump in non-farm business productivity growth actually preceded the Great Recession, averaging 1.4 percent since 2004. That's almost a full percentage point below the long-term average of 2.3 percent and pales in comparison to the 3 percent growth in the two decades following World War II and from 1995 to 2003. Today's output per hour worked is even slower than the 1.5 percent average that prevailed from 1973 to 1995.

Many economists think productivity growth is being understated. They point to record profit margins, which are generally associated with rising productivity. They claim the same understatement is plaguing real GDP, a result of faulty quality adjustments for the prices of information technology. (If a new PC model provides more functionality for the same price as last year's, the quality adjusted price would be lower and real GDP higher.)

What if technology is a double-edged sword, opening new doors but trapping us in an endless feedback loop of instant gratification?  Neuroscientists have been documenting the role of dopamine, a neurotrasmitter that stimulates pleasure-seeking behavior and plays a key role in addiction, in keeping us connected 24/7.

"The devices designed to become productivity tools can, in fact, enslave us and become decidedly counterproductive, even deadly," according to a New York Times article about the death and destruction wrought by a man who was texting while driving.

Consider some other recent findings from the field of neuroscience. We may think we can multitask, but our brains aren't wired for it. Multitasking, it turns out, makes us demonstrably less efficient. It may seem as if we're juggling a lot of balls in the air simultaneously, but we're really "more like a bad amateur plate spinner," according to neuroscientist Daniel Levitin.

What's more, the cognitive losses from multitasking are greater than those from smoking pot.

If you think this behavior is limited to twenty-somethings, take a stroll down Main Street USA and observe the masses of people with their heads bent forward, tapping away on their electronic devices, oblivious to people and traffic. Somehow I doubt their urgent need to communicate is business-related.

Then there's the wide gap between what is cool and what is productivity-enhancing. In discussing the productivity paradox, the Wall Street Journal's Jon Hilsrenrath writes that the camera on his new Iphone "can capture my dog catching a ball in slow motion, which is very cool and something I've never been able to do before."

Cool? Maybe. Productivity-enhancing? Unless Hilsenrath is thinking of relinquishing the Fed beat to concentrate on canine photography, those slow-mo-dog-catching-ball videos aren't enhancing his productivity one iota. In fact, all those cool-but-useless iPhone apps sap our productivity because we spend so much time fiddling with them.

Even if the Bureau of Labor Statistics isn't properly adjusting the price of Hilsenrath's new IPhone for its increased efficiency, there is an offsetting problem with the data. Hours worked, the official BLS measure used as a proxy for labor input in calculating productivity, is not the same as hours spent working. Let's say you spend 5 percent of your 34.5 hour workweek checking your emails, updating your Facebook page, posting photos on Instagram or engaging in meaningless banter on Twitter. You may be at work for 34.5 hours but only 33.8 of them are devoted to real work. Even the BLS' annual Time Use Survey doesn't attempt to break out how we spend our time at work. Throw in the evidence from neuroscience researchers, and we may be even less productive than the data suggest.

Economists like to use a measure called total factor productivity to measure the effects of innovation on the economy. (TFP is the residual part of productivity that can't be accounted for by capital investment or improved worker skills.) It turns out that the recent slowdown in TFP is "concentrated in industries that produce IT or that use IT intensively," according to John Fernald, economist at the San Francisco Fed, whose research is focused on productivity. "By the mid-2000s, the low-hanging fruit of IT-based innovation had been plucked," Fernald writes in a recent Economic Letter, calling recent gains from IT "more incremental than transformative."

Why is the rate of productivity growth so important? Because an economy's potential growth is circumscribed by the growth in productivity and in hours worked (the number of people times the number of hours). Because the U.S. has an aging population that is fast becoming a drain on government coffers instead of a contributor to them. And because productivity, or the ability to produce more with less, is the route to a higher standard of living.

There may be no such thing as a free lunch, as Milton Friedman famously quipped, but productivity growth is the closest thing we have to a cheap snack.

Caroline Baum is a contributor to e21. You can follow her on Twitter here.

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