Is technology a productivity engine? Debate rages on

ONE of the key debates about economics is whether new technology is making us more productive. This is very important, since productivity has been the key to the vast increases in human living standards in developed countries during the past two centuries. There was a scare from the early 1970s through the early 1990s, when productivity slowed dramatically, only to zoom ahead in the late 1990s and early 2000s.

Now the numbers are slowing again, and economists are worried. How does the tech industry fit into all this as the economy returns to something resembling normality? In terms of productivity, is technology our salvation, or a false hope? On one side of the debate, we have John Fernald of the Federal Reserve Bank of San Francisco, an expert on measuring technological productivity. On the other, we have the economics research team of Goldman Sachs, one of the most respected in the private sector. The quality of our future could hinge on which one of these heavyweights is right.

Traditionally, when economists wanted to figure out how productive technology makes our economy, they just netted out the contributions of "factors of production" such as labour and capital, and whatever is left over - called total factor productivity - was regarded as technology's contribution. Mr Fernald realised this was an oversimplification, since it didn't take into account other factors - such as how intensively capital was used.