Society worships technology and innovation as modernity’s saviors, but the evidence says otherwise. Productivity gains are better explained by increases in world oil supply than by clever humans and our inventions.
The benefits of technology and innovation are overhyped. Over the last 75 years, U.S. productivity growth has rarely exceeded the long-term average by even 1% (Figure 1). That’s not very impressive. Since the Great Financial Crisis, it’s fallen below that mark.
Figure 1. The benefits of technology and innovation are greatly inflated in the popular imagination. Productivity has never approached 1% more than the long-term average in the U.S. Productivity growth has been less than average since the Great Financial Crisis. Source: U.S. BLS,University of Groningen, EIA, OWID & Labyrinth Consulting Services, Inc. Click on the image to enlarge.
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I know—it’s not the mainstream story, but it’s true. Gains in semiconductors and electronics skew the narrative, while struggling sectors like apparel and coal drag down total productivity. All 89 sectors matter, and they all count in the final numbers.
The real story is the link between productivity and oil supply growth. U.S. productivity changes track closely with global oil supply, leaving little room for technology and innovation as the main drivers (Figure 2).
Figure 2. Changes in world oil supply adequately explain U.S. productivity changes without technology and innovation as primary factors. Source: U.S. BLS, University of Groningen, EIA, OWID & Labyrinth Consulting Services, Inc.
Click on the image to enlarge.
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Energy is the economy. Oil has powered 75 years of productivity gains and improved living standards. So why credit technology and innovation when none of it happens without oil? It’s time to rethink what really drives productivity.
But here’s the real issue: the impact of oil and productivity on economic growth is fading. If that’s true, how do the IMF and World Bank justify their projections of 2.5% to 3.2% annual GDP growth over the next 25 years?
Maybe it’s time to rethink those assumptions too.
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ABOUT THE AUTHOR
Art Berman is Director of Labyrinth Consulting Services, Sugar Land, Texas, and a world-renowned energy consultant with expertise based on over 40 years of experience working as a petroleum geologist. Visit his website, Shattering Energy Myths: One Fact at a Time, and learn more about Art here.
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