Duncan Foley on the growth slowdown

Via Rortybomb, there is a new paper:

Service industries such as Finance, Insurance, and Real Estate, Education and Health Services, and Professional and Business Services, for which value added is imputed from incomes, are included in Gross Domestic Product, distorting measures of recession and recovery. An alternative index, Narrow Measured Value Added, which excludes all services, has similar historic correlations with employment to GDP, and tracks employment in recent business cycles better. The U.S. economy as measured by NMVA has a lower long-term real rate of growth. Long-term macroeconomic policy requires attention to some version of the productive-unproductive labor distinction of the classical
political economists.

The short paper is interesting, and speculative, throughout.  Here is one of the reproduced graphs.  I am comfortable distinguishing “productive” from “unproductive” activities on the grounds of rent-seeking and signaling considerations, but I would not push the distinction beyond that point.  I am not sure where Foley draws the line, and he stresses in the paper that his numerical measure is not conceptually perfect but rather given by the limitations of the data.


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