A Productivity Boom-in-Waiting? - Project Syndicate

A Productivity Boom-in-Waiting? - Project Syndicate: "In the US, there was zero growth in bank lending between 1933, the trough of the Depression, and 1937, the subsequent business-cycle peak. Investment suffered. Stocks of both equipment and structures were actually lower in 1941 than in 1929.

...The result was a disappointing, all-but-jobless recovery. In the US, unemployment was still 14% in 1937, four full years into the recovery, and in 1940, on the eve of the country’s entry into World War II.

But there was another side to this coin. Output expanded robustly after 1933. Between 1933 and 1937, the US economy grew by 8% a year. Between 1938 and 1941, growth averaged more than 10%.

Rapid output growth without equally rapid capital-stock or employment growth must have reflected rapid productivity growth. This is the paradox of the 1930’s. Despite being a period of chronic high unemployment, corporate bankruptcies, and continuing financial difficulties, the 1930’s recorded the fastest productivity growth of any decade in US history.

...As the economic historian Alexander Field has shown, many firms took the “down time” created by weak demand for their products to reorganize their operations. Factories that had previously used a single centralized power source installed more flexible small electric motors on the shop floor. Railways reorganized their operations to make more efficient use of both rolling stock and workers. More firms established modern personnel-management departments and in-house research labs.

...So, even if there are good reasons to expect a period of sub-par investment and employment growth, this need not translate into slow productivity or GDP growth.