A possible productivity problem?

Weekly Updates

Politicians love productivity. Productivity is the magic fairy dust that makes fiscal problems disappear when sprinkled over economic growth while muttering the magic words “this time it’s different.” Higher productivity equals higher growth equals higher tax revenues equals no more debt problem. Economists’ productivity relationship is different; productivity is everything we cannot explain about GDP, condensed into a single statistic.
Technology should improve a company’s productivity. Rationally, companies should invest only if they expect efficiency gains from that investment (albeit some investment may be irrational).
However, higher productivity for a company may not lead to higher economy-wide productivity. While a company may be able to produce more with fewer workers, economic productivity will depend on what happens to the displaced workers. If they move to less productive jobs, then average productivity gains in the economy are muted.
Technology may also result in standard of living increases, which are not captured by GDP. This is the “Wikipedia” issue: when productivity gains are not monetized, they do not count toward GDP and will not be part of the “unexplained” economic activity that constitutes productivity. More relevantly, if productivity gains are not monetized, they are not taxed, undermining governments’ hopes of fiscal magic.