2002 Economic Report of the President Differences Term Paper

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2002 Economic Report of the President

Differences in Structural TFP

The President's Economic Report (the "Report") claims that "structural labor productivity growth and TFP ("Total Factor Productivity") growth remained strong through 2001. This growth argues that the New Economy remains alive and well." See the Report, at 60-61.

The structural TFP growth differed between the time periods of 1973-1995 and 1995-2001. ("TFP growth" is defined as "the increase in aggregate output over and above that due to increases in capital or labor inputs." Ibid.)

There are several reasons for this difference.

First, investments in information technologies added 0.60% to the increase in structural productivity growth after 1995.

Second, "the rate of growth of TFP in computer-producing industries" rose ("as evidenced by the rapid decline in computer prices.")

Finally, the change "captures the extent to which technological change and other business and workplace improvements outside the computer-producing industries have boosted productivity growth since 1995." Ibid.

But it is unclear whether this productivity growth is sustainable.

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Widespread unemployment and dips in the labor market will continue to pull down the productivity factor.

Furthermore, emtrepreneurial activity is likely to slow down, as cautious business people opt to stay in the traditional workforce rather than venture out into a risky economy.

And as the United States prepares for War in the Middle East, trade barriers are likely to ensue and cross-border trading is likely to falter.

Because trading generally increases the productivity of the United States, a dip in trade is also likely to cause a slip in productivity.

II. Components of Actual Growth of Real GDP

There were changes in the key components of actual growth of real GDP, as shown in the Report. (Table 1-1 (p.53); Table 1-2 (p. 55); Chart….....

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