Productivity measures questioned for cross-country comparisons

The Story

An economic blogger has argued that standard productivity measures are being used inappropriately for comparing living standards between the United States and Europe. The author explicitly stated they are not claiming European productivity is mismeasured or that it matches U.S. growth. Instead, they contend that the data does not support the cross-country welfare conclusions many economists draw from it. The author noted that European productivity growth is acknowledged to be lower than U.S. growth, but that this comparison may not be a good indicator of economic trends. The post also raised policy implications tied to U.S. innovation driving global living standards, including tax rates, labor union privileges, and pharmaceutical pricing. The author referenced unnamed criticism from “Aghion et al” and asserted that their discussion missed the central question being raised.

Key Facts

• The author is not arguing that European productivity is mismeasured or that European productivity growth matches or exceeds U.S. growth.
• The author believes standard productivity measures do not have the implications for cross-country comparisons of living standards that many economists think they have.
• The author says people are using data unsuited for the comparisons they are making, but this does not mean the data is wrong.
• The author is “fully aware” that European productivity growth is lower than in the U.S.
• The post questions whether the standard comparison of U.S. and European productivity growth rates is a good indicator of what is actually happening in the two economies.
• The author speculates about policy implications: if U.S. innovation drives global living standards, that could be an argument for modest capital taxes, weak labor union privileges, and high U.S. pharma prices.
• The author references Aghion et al as having a discussion that centers on arguing European productivity growth is lower, which the author finds puzzling because that is not their actual issue.

Conflicting Reports

The source article describes a disagreement: the author claims that Aghion et al misunderstood the author’s argument and centered their discussion on a point the author was not trying to make.

Still Unclear

The article does not explain whether the author’s critique of productivity data is widely accepted among economists or what specific changes to measurement the author recommends.

Misconceptions

The article addresses a misconception that standard productivity measures have direct implications for cross-country comparisons of living standards and economic welfare.

Key Figures

• Aghion et al (referenced as a group of economists)
• Paul Krugman (referenced in a policy speculation)

Sources: marginalrevolution.com