Compared with its own lacklustre performance from 1970 to 1995, the US has indeed experienced a sharp rise in trend productivity growth. Boosting labour productivity merely by buying more equipment has its limits, though. Especially for investors worried about potential returns, the proper way to measure progress is total factor productivity – how much more an economy produces with the same amount of all inputs, including capital. On that measure, US productivity trends over the past decade were solid but unspectacular by international standards.

Partly, that is because the US already had a huge capital stock to begin with. Adjusting for capital spending also reduces some of the distortions that stem from how GDP is calculated in different countries. The comparative generosity of US statisticians in crediting quality improvements, together with their tendency to overestimate output initially, has played a large role in America’s apparent success. Properly measured, Europe’s growth shortfall in GDP per capita since the late 1990s looks more apparent than real.

That said, the US economy did benefit from information technology well before others. Some of the capital misspent in the dotcom days even resulted in successful ventures that would have struggled to get financing in saner times. The subsequent US housing boom is unlikely to have similarly benign consequences.

Overall, the US record so far actually raises questions about the impact of IT. To be comparable to, say, electricity in boosting aggregate productivity growth for decades to come, it would yet need to transform many services, where advances are often harder to come by. Given that workforce growth also looks set to slow to about 0.5 per cent a year, equity markets still pencilling in US trend GDP growth of above 3 per cent may be in for a big disappointment.

Meanwhile, the benefits of IT were always bound to spread to at least some other countries. The past year has provided further signs that this has started to happen, especially in parts of Europe. Admittedly, productivity trends remain tentative, partly because of cyclical distortions. At least compared with the US, however, Europe still looks promising for anyone counting on financial assets to provide for retirement.

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