By James Pethokoukis

I love writing about the possibility of a New Roaring Twenties of rapid economic growth and technological progress. Driving my enthusiasm: a series of recent breakthroughs and advances in sectors such as AI, biology, energy, and space. But every step forward doesn’t need to be a leap. Every improvement doesn’t need to be a radical upgrade. We’re not going to get a CRISPR or GPT-3 every year. At least not on this side of Singularity.

That said, the pandemic has generated a number of important efficiency improvements — such as work-from-home (WFH), e-commerce, and more automation in the workplace — that’s had significant effects on the pace of worker output per hour. Productivity in the nonfarm business sector has increased at a 1.7 percent annualized pace over the past two years versus the pre-pandemic, post-financial crisis trend of about 1 percent.

And that may be understating things. A new Goldman Sachs research report notes that economic data around recessions, such as the historically sharp and deep 2020 downturn, typically get revised. That, along with hints from other data series — including the Gross Domestic Income and a proprietary GS metric based on ISM data — suggest to the bank’s economists that productivity growth has been closer to 3 percent or so over this period.

So one big question is to what extent, if at all, these productivity gains will persist in the coming few years. The bullish case here looks reasonable when the scope of the economic changes are considered. From the GS report (bod by me):

The sheer scale of pandemic-driven changes to the workforce and to company business models also argues for a large and long-lasting productivity inflection. These changes include 600 million fewer hours spent commuting every month, as well as possibly 1.4 million fewer cashiers, in-person salespeople, and office maintenance staff. Many of these workers and hours will be reallocated to more productive uses—especially at a time of labor shortages and near-record job vacancies. We also estimate around $900bn worth of home offices and $300bn of consumer IT equipment [laptops, desktops, smart phones, and tablets] is now available for business-sector use. This echoes the output and productivity boom in the ride-sharing industry during the 2010s, when Uber and Lyft successfully monetized the household capital stock of cars.

Stanford University economist Nicholas Bloom has been doing extensive research on WFH, and I had an opportunity to podcast chat with him last fall. Like GS, Bloom also thinks these new work arrangements have some staying power. From that conversation:

Working from home is going to stick, but more at the margin. Before the pandemic, roughly 15 percent of Americans ever worked from home for a full paid day, and that accounted for 5 percent of working days. During the pandemic, that exploded to 50 percent of Americans, and probably pretty much most people are probably working from home or at least have for chunks of the pandemic. It’s pretty clear post pandemic, the setup’s going to be hybrid. . . . So most employees, 80 or 90 percent of us that are currently working from home, will go back to the office, say, three days a week, and work at home two days a week. Pretty much everyone that is working from home now will be post pandemic. But rather than doing it five days a week, typically we’ll be doing it two days a week. And for most people, that’s actually a pretty happy medium.

So at least for a while, these pro-productivity trends that emerged during the pandemic may provide significant economic tailwinds. Of course, it would be great to have supercapable AI and nuclear fusion, too.

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