Nobel prize winner says the U.S. needs a 1950s-style productivity boom

A Nobel Prize-winning economist says the U.S. must return to productivity and economic growth that it experienced in mid-20th Century to increase public spirit. 

Edmund S. Phelps (director of Columbia University’s Center on Capitalism and Society) said Wednesday that “we badly need to get to economic growth.” 

He stated, “By this I don’t refer to an artificial temporary boom and a slower decline into lower employment. But I think we have to really get productivity growth that’s comparable to what it was back in the 50s or 60s.” 

Phelps won the Nobel in Economics Sciences 2006 for his economic sciences. workThe Phillips Curve is being challenged. This view was popularized in the 50s and 60s as a result of the belief that the price paid for lower unemployment was an increase in inflation. 

Phelps included the inflation expectations factor into the Phillips Curve. This shows that unemployment is determined more by labor market functioning than inflation figures. Therefore, a stabilization strategy can only reduce short-term fluctuations in unemployment.  

Listeners might wonder if they have had enough after all these centuries of fast growth. What’s all the hype about economic growth when we’re not really starving? Phelps said it to “SquawkBox Europa.”

But I believe it is important to people’s morale when they return from work with higher pay. This boosts their morale and it makes them less concerned about the performance of others,” he said. 

When everyone is doing the same thing, and you are in virtual stagnation with productivity, then it’s important to increase our growth rate. 

After a decrease of 1.6% during the first quarter, the U.S. GDP declined 0.9% in Q2. analysts sayThe economy may not be in recession yet, but it is possible to avoid one. 

Both quarters saw a decrease in productivity, which is the output of nonfarm employees per house. It fell by 7.4% quarter-on quarter. 

These were the lowest back to back readings recorded since records were started in 1947.

Between 1947 and 1973, productivity grew by 2.8% in the United States. It fell to 1.2% between 1973-1979. according toData from the U.S. Bureau of Labor Statistics. 

The post-war rate of productivity growth is 1.4% for 2007-2019, 2.2% in 2019-2021.

Phelps stated that the government had been running huge fiscal deficits over recent years and has seen its public debt soar to unprecedented levels. For me it is impossible to imagine that fiscal policies would be utilized at this time to increase demand.

“I believe we must have some lower demand in order to cool down the economy and reduce the unemployment rate to a manageable level.” 

The natural market forces are likely to slow down inflation over the next several years. But the Federal Reserve should be more aggressive than before and indicate a willingness for it to keep pursuing strong actions in the future.

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