The Washington PostDemocracy Dies in Darkness

We were promised jetpacks and flying cars, and all we got was this lousy chart

New research investigates just how much Silicon Valley is contributing to the economy. (iStock)

Witness the marvels of modern technology: Never before in human history have we been able to play with dozens of virtual stray cats, to paste images of our own faces into photographs of celebrities, or to instantly send the word "Yo" -- and nothing else -- in a message to a friend. Only today, in this brave new world, can we idle away the hours smashing colored pieces of digital candy until our minds go numb.

If this is our technological future, economists aren't sure that it adds up to much.

In the past, engineers, inventors and tinkerers were in the vanguard of the economy, finding ways to increase Americans' material well being by reducing the cost and improving the quality of goods while developing entirely new products. Today, however, meaningful technological progress in the United States has slowed, according to recent research. This unexpected shift has meant higher prices and lower wages for all of us.

The economy's new frontier is in Silicon Valley, where -- to be sure -- technologists have made some extraordinary contributions to our well being. Yet the data show that previous generations of engineers and entrepreneurs did more for the American standard of living -- the people who invented light bulbs, airplanes, refrigerators and more. The American economy isn't moving forward the way it used to. Had previous trends continued, the country would have produced an additional $3 trillion in 2015.

Take computers and peripheral devices, such as mice, printers and external hard drives. For decades, even if the prices of these items remained high from one year to the next, they steadily improved in quality.

Yet adjusting prices for quality, those improvements haven't continued through the past few years, according to a paper that will be presented this week at the Brookings Institution in Washington, D.C.

"We're all aware of how many more things we can do on our phones than we could do even a couple of years ago. There's lots of innovation being done in terms of cloud computing and driverless cars," said John Fernald, one of the authors of the paper and an economist at the Federal Reserve Bank of San Francisco. "Overall, it ends up being reasonably modest, relative to what we might have hoped."

Toilets and televisions

The question for economists is how much American workers are able to produce in the time they spend on the job, given the equipment and the resources their employers provide.

When researchers and scientists develop ways of making things more efficiently, or when they come up with entirely new products, workers can do more with less. Ultimately, how much workers can produce is part of what determines how well off the people in a society are -- how much money they make on the job, and the cost of what they can buy with their wages.

For about a century, technology's advance allowed workers to become steadily more productive. Electricity and plumbing allowed Americans to adopt all kinds of new appliances, such as radios, televisions, toilets and laundry machines. Modern chemistry created the pharmaceutical and plastic industries. These inventions saved people time both at home and at work.

Most of these new technologies had been widely adopted by about 1970 or so, and productivity did not improve as quickly as it had in the past. Information technology remained one sector in which firms and employees were making advances.

At the end of the 20th century, there was another brief moment of progress. Wholesalers and retailers, for example, became much more efficient as the distribution of consumer products reorganized around online commerce. Today, though, it seems that the economic gains from personal computers, cell phones and the Internet are in the past.

"We're still waiting," Fernald said. "We're waiting for the next big thing, the next big idea."

You get what you pay for

Some economists have suggested that the economy is still becoming more productive, but that official statistics collected by federal agencies don't properly account for the gains.

To determine whether workers are becoming more efficient, government statisticians have to adjust for the fact that the quality of products is improving over time, even if the price is not. This is a much more difficult problem for a complex device such as a computer than it is for, say, a bushel of corn. Statisticians have to keep changing their methods in response to completely new kinds of devices from Silicon Valley.

It's a hard job, but it isn't any harder now than it was during the technology boom 20 years ago. In constructing their own index for the value of the technology sector's output that corrected for some documented inaccuracies in the official data, Fernald and his colleagues -- the Federal Reserve's David Byrne and Marshall Reinsdorf of the International Monetary Fund -- found that the rate at which workers are becoming more productive across the economy has slowed even more than official estimates reveal.

Some gains from the information technology aren't being properly recorded, the economists found, but that has always been a problem. In fact, as U.S. customers rely more heavily on imported technology, the problem matters less now than it was during the 20th century.

"I would like to be able to say that the slowdown was an illusion," Fernald said, "but unfortunately it seems to be real."

Some proponents of the industry argue that federal bookkeepers are missing not improvements in the quality of what workers in the technology sector produce, but all the time their products save for users outside of work.

Messaging makes planning meetings with friends much simpler. With services like Yelp, it doesn't take a lot of research to find a place to eat. We can play all kinds of games wherever we go. Arguably, technology is improving the quality and efficiency of our social and private lives. Most users don't pay anything for these benefits, so they don't show up in official statistics.

If they did, they might be worth a lot of money. Erik Brynjolfsson and JooHee Oh of the Massachusetts Institute of Technology have calculated that given the amount of time Americans spend online when they could be doing other things, the free services available over the Internet could be worth tens of billions of dollars a year to them.

That estimate is flattering to the technology sector, but it's little consolation to those who live and work in the rest of America's vast economy. All those free services don't come close to making up for the $3 trillion that Fernald and his colleagues estimate the economy has lost due to the fact that Americans are becoming more productive at a slower pace.

"You add up all that stuff, and it just doesn't account for a lot of economic activity," said Chad Syverson, an economist at the University of Chicago who has also studied productivity. "There are so many other parts of the economy that aren't directly or even indirectly affected by the tech sector."

Jetpacks and flying cars

Economists are still debating what has caused the decline in productivity. Syverson points out that the gains from electrification and related technologies in the early 20th century took several decades to materialize. Maybe the future will bring jetpacks and flying cars after all.

Smithsonian Magazine's "The Future is Here" festival featured a man whizzing around the Ronald Reagan building in a jetpack, thanks to special clearance from the FAA and the Secret Service. (Video: Smithsonian Magazine)

Technological progress "can come in waves," Syverson said. "We know it has in the past. That makes me hopeful a second wave is coming."

He pointed to research by the Organization for Economic Cooperation and Development showing that many firms at the frontier of technology are still making rapid progress. If so, then it seems that the rest of the economy hasn't yet taken advantage of those discoveries as well as it has in the past, but that could change.

Others, like Northwestern University's Robert Gordon, have argued that researchers and engineers have already done the most they'll ever be able to do to improve people's lives, and that there will never again be inventions as important as the telephone or the internal combustion engine.

Not everyone shares this dismal view. Jared Bernstein, the former chief economist to Vice President Biden, argues that there are still things society can do to improve productivity over the long term. Investing in early education and infrastructure, he said, would probably help future workers achieve more.

"Productivity growth is at least in part a casualty of our dysfunctional politics and unresponsive economic policy," Bernstein said.

In the meantime, we'll just have to be content playing with our virtual cats.

Find out what a 'tech bro' is. (Video: Jhaan Elker, Daron Taylor, Thomas LeGro, Gillian Brockell/The Washington Post)
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