FOREIGN AFFAIRS MAGAZINE (February 25, 2025):
For the United States, these are trying times. Americans are overcome with an unshakable sense of economic malaise. The top-line indicators are good: unemployment is low, inflation is declining, and the country remains the richest in the world. Yet in poll after poll, most Americans say they are unhappy with the state of the economy today and its prospects for tomorrow. Only a quarter consider the economy good or excellent. Nearly 80 percent say they are not confident that their children will live better than they do.
In the mid-1970s, U.S. productivity growth collapsed.
Analysts have spent years discussing the country’s particular challenges. They have talked about its aging population, which is widening federal budget deficits as entitlement spending collides with an antipathy to tax increases. They have looked at the growing threat of climate change, which requires an overhaul of the U.S. energy sector. They have noted the widening wealth and income gaps in our changing economy. And they have fretted over foreign autocrats who are menacing U.S. security.
Innovation has driven most of the United States’ productivity growth.
But the public debate too often overlooks a common factor behind all these challenges, one that will shape whether the United States can address them: labor productivity. Commonly measured as the amount of goods and services generated per worker, productivity is the central determinant of a nation’s average standard of living and its overall economic success. Growth over time in productivity is why Americans today can consume more goods and services than their grandparents—even as they work fewer hours. Productivity growth fuels rising wages and profits, which generates more fiscal revenue, allowing Washington to build formidable defense capabilities. And productivity growth bolsters the country’s soft power, demonstrating the strengths of a democratic, market-oriented society.
MATTHEW J. SLAUGHTER is Paul Danos Dean and Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth College. From 2005 to 2007, he served on the White House Council of Economic Advisers.
DAVID WESSEL is Senior Fellow in Economic Studies at the Brookings Institution and director of its Hutchins Center on Fiscal and Monetary Policy.