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Technology, Productivity and the Internet

April 6, 2023 | Posted in: Insights, Investing, Wealth Strategies

I have written a number of blogs regarding the mystery as to why large investments in technology have not resulted in accelerated growth in output per hour worked, also known as productivity. Economist Paul Krugman published an opinion piece in the New York Times on April 4th that focused on the profound impact of the internet on every facet of life with the exception of the economy. He included the following chart which displays the twenty-five-year growth rate in labor productivity, and you will note that the advent of the internet in the 1990s had little discernable impact.

Perhaps the benefit is being realized in the productivity of capital rather than labor. Well, the following chart shows the growth in all factors which includes both labor and capital. Note that there is no obvious impact from technology investments in general, and the internet specifically. So, what is going on here? One oft-used explanation is that we will ultimately see the impact of technology, it has just been slow in coming. Another is that economic statistics do not accurately capture the impact of social media, quick access to a massive amount of information, advanced communication, and other benefits of the internet. Krugman does not deny the benefits of the internet. However, he asks the interesting question as to whether it is actually as impactful as previous technological leaps such as the railroad, electricity, television, and so on.