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Illustration: Rebecca Zisser/Axios

One of the biggest puzzles in economics is why U.S. productivity growth is so sluggish despite low unemployment and record corporate profits — apart from a spurt during the dotcom boom, the rate has been under half the historical trend since 1970.

What's going on: A group of economists say they have an answer: we are in the middle of a gigantic but invisible technological transition. And, when it's over, productivity growth will return closer to its historical trend.

Quick take: In a presentation at the Dallas Fed on Friday, Chad Syverson, an economics professor at the University of Chicago, said technological history has been one of lag-times between the launch of new technologies and their visibility in productivity numbers. In work he did with MIT's Erik Brynjolfsson and Daniel Rock, Syverson said advances in artificial intelligence in particular simply have not worked their way through the economy and into complementary products.

He cited analogies:

  • At least half of U.S. factories remained unelectrified until 1919, three decades after the invention of the first functional AC motor.
  • It wasn’t until the 1980s, more than 25 years after the invention of the integrated circuit, that computers had penetrated U.S. businesses.
  • It took two decades for e-commerce to reach 10% penetration of retail.

Syverson and his co-authors call this "diffusion" — when a big invention like electricity and internal combustion comes into its own and spawns hundreds or thousands of devices that themselves are also huge but could not otherwise exist.

  • AI will soon diffuse, they say, and produce a second wave of productivity from computerization.

How this could make productivity growth return to its trend, Syverson said:

  • Autonomous vehicles will boost annual productivity by 0.17% for a decade by making the same number of cars move people around with many fewer drivers.
  • Call centers will operate with many fewer workers as AI is installed in their place, increasing annual productivity by a full 1% for a decade.
  • If AI reduces the number of jobs at forecast scale, certain industries will see immense productivity growth, too.

Go deeper

Democrats propose raising debt ceiling through midterms

Speaker of the House Nancy Pelosi and Senate Majority Leader Chuck Schumer. Photo: Stefani Reynolds/Bloomberg via Getty Images

House and Senate leadership announced on Monday that they plan to attach a proposal to raise the debt ceiling through Dec. 2022 to a short-term, government funding bill. The bill must pass before the end of the month or Congress risks a shutdown.

Why it matters: Democrats are taking a huge risk by trying to force through an increase of the debt limit in its must-pass funding bill. The move is wishful thinking on behalf of Democrats who are hoping they can get at least 10 centrist Republicans to balk, as well as an effort to put Republicans on record opposing it.

Biden to stress U.S. does not seek new Cold War in UN speech

Photo: Al Drago/Getty Images

President Biden will use his first address before the UN General Assembly to lay out his vision for an era of "intensive diplomacy" with allies and "vigorous competition" with great powers — without a Cold War with China.

Why it matters: Biden will take the podium in New York on Tuesday with his own international credibility in question after the chaotic withdrawal from Afghanistan. His administration also is struggling to build international momentum to fight climate change, the pandemic and rising global authoritarianism.

6 hours ago - Health

Biden administration to lift travel ban for fully vaccinated international travelers

Photo: Win McNamee/Getty Images

White House COVID-19 response coordinator Jeff Zients announced on Monday that the Biden administration will allow fully vaccinated travelers from around the world to enter the U.S. beginning in November.

Why it matters: The announcement comes as President Biden seeks commitments from countries to donate vaccines to the global COVAX initiative. He is expected to host a COVID summit on the sidelines of the UN General Assembly this week, and many of the countries attending have expressed frustration with the travel ban.

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