Productivity growth—the rate at which we increase production with a given amount of work and resources—is critical to our national economic prosperity and competitiveness, and a factor tied closely to the pace of real investment. Investments in equipment and innovation lead to productivity growth, and productivity growth leads to long-run increases in our standard of living.
As the U.S. economy continues to pull out of the Great Recession, a number of trends point to clear signs of trouble for present and future U.S. competitiveness. First, investment continues at a slow pace, barely keeping up with capital depreciation. Second, the effects of slow investment can be seen in lagging productivity growth, which is below average for this point in a business cycle. Third, the U.S. high-tech trade deficit is widening once again.
Yet a number of ingredients for faster productivity growth in the future do show promise. This is true for private sector-led research-and-development spending, the number of newly trained Ph.Ds now being minted at our universities, and signs of recovery in the venture capital sector providing critical investment to early-stage innovation, especially for clean energy technologies.
There are substantial challenges ahead to U.S. economic prosperity. Policymakers must give more attention to strengthening the factors that could lead to future productivity growth and rising living standards.
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