Productivity in Canada (and elsewhere)

Here is Stephen Gordon:

increased productivity – as it is usually measured – is not a sufficient condition for higher standards of living. It’s not even necessary. For instance, the post-2001 fall in Canadian productivity is simply a mathematical artifact of an income-increasing sectoral reallocation of capital and labour.

And Tyler Cowen comments on the great graph:

Falling TFP in mining reflects Canada’s move from “suck it up with a straw” oil to complex, high cost extraction tar sands projects and the like.  They have moved down this curve a long, long way.

Yet Canada still prospers: someone is willing to pay for all the time and trouble they put into extraction, because the other natural resource options are costlier at the relevant margin.  Another way to make the point is that this graph, and the embedded story of productivity, is very bad news for someone, just not Canada, at least not so far.

I left a comment on MR asking whether this might be a good thing, and here’s my logic:

The cost of resources is going up because they are scarce. Since that’s happening regardless of how the resources get extracted, what’s the problem with increasing costs of extraction? They’re just moving money from the bottom line to the expense line. A socialist dream: surely this is ‘job creation’ at its best!

Now I’m not so sure. Let’s say that in the future, productivity improvements (or supply discoveries, or substitution) reduce the demand for, say, oil, casuing the price to drop. It isn’t going to be able to drop much farther than the cost of this expensive extraction though, which means that we have a new floor to the price of oil. Not good.

More importantly: do we really want primary industries sucking up more and more of our human capital? This is the opposite of innovation. Society is best off when smart people are inventing new things and eliminating inefficiencies, not creating them.

Why don’t we just make the laws more complicated so we can employ more accountants, lawyers and politicians? No thanks.

I’m reminded of the problem with innovation: who wants to be in the industry that is destroyed or automated? What do you do then?

Watch out for ideas that make it look like progress doesn’t need to be a bit painful. They’re seductive bastards.

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