🚀 Faster, Please! — The Podcast #10

Welcome to part two of my conversation with Michael Mandel, vice president and chief economist at the Progressive Policy Institute. In the last episode of Faster, Please! — The Podcast, we considered the capital investments and job-creating power of America's major tech companies. In this episode, we discuss the Biden administration's CHIPS and Science Act, industrial policy, and whether we should expect an uptick in US productivity growth. In This Episode: * Innovation and industrial policy (1:14) * Looking at productivity numbers (4:14) * How technology affects jobs (7:19) * The future of productivity (12:38) * Investing in bioscience and materials science (15:00) * Policy for societal resilience (19:29) Below is an edited transcript of our conversation. Innovation and industrial policy What do you make of this recent CHIPS and Science Act and perhaps a move in the United States toward what some people call industrial policy—a phrase that can mean a lot of things. I think in this case it means subsidizing sectors that government thinks are important, especially in competition with some other countries. I have to say, quite honestly, that I took my eye off the semiconductor industry for a couple of years because I assumed we were in good shape. And then when I looked over, I said, “Wait a second, something happened here. All of a sudden, we're not in good shape anymore.” I support investment in this sector. I don't consider this to be classic industrial policy at this point. I just consider this to be doing what we've done in the past. We did this with memory chips: There was government intervention with SEMATECH. You sort of say, “Here's a sector, we need to fix it. Let's just go ahead and spend some money here.” We haven't gotten to the point of being strategic yet. This was not really a strategic investment. We're just saying, “Let's throw money at this problem.” We know that at the margin, throwing money at this problem is going to get us further along than we need to be. Do I think that more of this is needed? The country you didn’t mention, of course, was China. I do think China's innovation policy is a really interesting question because we haven't had an experience with authoritarian countries that were successfully innovative. For a lot of reasons, because it seems that capitalism works better to produce good innovation. If it turns out that authoritarian innovation works, many countries around the world will want to imitate that model because it's much more comfortable for governments to run innovation from the top. The only reason why they allow innovation to bubble up from the bottom is because doing it the other way doesn't work. What I would expect to see in the US is a combination of the two, a lot that is bubble up from the bottom. We will be faced with technological and social and environmental challenges that we can't imagine. And we have to have invested the money in the new technologies before we get there. We don't know what the problems are going to be. We don't know what the technologies are going to be. We discovered this in the pandemic, where it turned out that mRNA technology, which was sitting on the shelf for 20 years, was a solution to a problem that we didn't even know it was a solution to. But if we hadn't been investing in it so it wasn’t there, it wouldn't have been available as quickly as it was. Looking at productivity numbers Statistically, we had this productivity boom during the pandemic, at least in 2020, 2021. And people read about a lot of technologies happening: maybe AI spreading, mRNA, CRISPR, rockets. The first half of this year, statistically, was not so good with productivity. These numbers tend to jump around a lot. What's the reality going forward? As you know, productivity numbers, especially total factor productivity numbers, are useless over any period less than 10 years. We mentioned earlier the shift of hours from the household sector to the market sector as part of e-commerce. Remember: Hours in the household sector are not measured as part of the productivity basis. If you actually include them, it significantly adds to the productivity growth in this period. Because what's happened is, if we take the total amount of hours being put into consumer distribution, which is both the market hours and the non-market hours, market hours has gone up, which is what shows up in the official productivity numbers. If you look at retailing, you don't actually see very much productivity gain because, in fact, the hours have gone up a lot. But they're not counting the fallen hours in the household sector. What has happened is when you count the fall of hours in the household sector, productivity growth—I haven't done these calculations recently, but it goes up a lot: quarter percentage point a year, half a percentage point a year. It’s actually a significant increase. In the sector or economy-wide? Economy-wide. Because it's a lot of hours. The degree to which telehealth, for example, removes the necessity of people to drive to the doctor's office, if we are not including those hours in our calculation of productivity growth, we're missing the big effect. And you can go through the economy like that: places where there were movements outside of the hours in the market, in the household sector, just not being counted. That even leaves out increases in output in the info sector that's not being measured. I need to go back to something else that you said, which was the productivity boom that we saw in the past: My belief is that a lot of that was mismeasured, too. But over-measured. When? What period? I'm talking about the early 2000s. There was the apparent boom from 2000-2007, increase in productivity. How technology affects jobs We had the ‘90s boom, and then we had the pop of the internet stock bubble. But, statistically, we still saw a lot of productivity growth after that. My belief, looking at the numbers, is that a lot of that is mismeasurement of a shift in purchasing from US manufacturing firms to, say, overseas manufacturing firms, which were being picked up as a productivity gain rather than a price drop. Now we're getting to really abstruse stuff, but it doesn't really matter. That doesn't make me feel good, because I like seeing years of high productivity growth and we haven’t seen as many as I would like since 1973. I understand, but that actually explains why it is that people are so pissed. Because in the ‘90s we had high productivity growth driving high wage growth. That’s right. And then you did not have high wage growth after that … Retailing was in some sense a bellwether industry. Originally McKinsey was writing reports about retailing being a high-productivity industry. And then they realized it was a low-productivity industry. And in fact, real wages stayed low for many years and did not start increasing until Amazon and the other e-commerce companies came in and started taking away the really low-wage jobs which were moving out of retail, into e-commerce and fulfillment as much higher-wage jobs. What I look for is wage growth. If I'm not seeing real wage growth, I assume that I'm not seeing productivity gains, because I'm seeing real wage growth in the areas that I think real productivity gains are happening—whether or not they're being measured or not. Do I think it's going to spread to the rest of the economy? I do. We know what it looks like. The question is, are we ready for this? Are we ready for telehealth? Let’s just stick with telehealth for a second. You could eliminate big chunks of healthcare workers and costs on the consumer side by shifting as much as you could to telehealth. That becomes a byproduct of the money that's invested in broadband and 5G. And then the question is, are you measuring this correctly? And are you doing what you need to do to make this work? And the case of telehealth, of course, is a licensing pr… This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit fasterplease.substack.com/subscribe