In the mid-nineties, Alan Greenspan recognized the productivity upturn before most other economists, but this insight is often described in a way that makes no sense. According to the NYT, Greenspan recognized that the economy “could grow faster [than] generally thought because productivity was climbing much faster than the official statistics implied.” This assertion makes no sense because if the official statistics understated productivity growth, then they also understated economic growth. This means that if productivity was growing faster than the official statistics implied then the economy was also growing faster than the official statistics implied. That would mean that Greenspan agreed with the consensus view about the where the economy stood relative to its growth potential, the only disagreement was over measurement. It is also worth noting that the real issue was over how low the unemployment rate could fall without leading to accelerated inflation, not over growth rates. The ruling doctrine at the time was the non-accelerating inflation rate of unemployment or NAIRU theory. This was widely believed to be 6.0 percent in the mid-nineties.
--Dean Baker
