Mike Feroli of JP Morgan:
Productivity in the nonfarm business sector advanced at only a 0.7% annual rate in Q1, and over the past year has increased a mere 0.9%. The longer-run trend in productivity appears exceptionally weak: over the past three years productivity growth has averaged only 0.7%.
Readings that low are rarely seen outside of recessions, and there is little reason to expect productivity growth to pick up anytime soon. Business investment in high-tech capital — a prime driver of productivity growth in recent decades — has remained quite weak in the current cycle.
See the below chart on the investment data. Anyway, we are actually approaching a 10-year productivity slowdown by official numbers. Of course, those stats may be understating productivity since output figures don’t count some $300 billion a year in missing free-stuff production not counted in GDP. Still, boosting business investment would seem to be a good thing. One option is the immediate expensing of business investments. Aparna Mathur:
Expensing benefits businesses by increasing the present value of the deductions that are allowed for investment costs. Whereas under depreciation provisions, investment costs must be deducted over time, under expensing investment costs are deducted immediately. With full expensing, the value of the deduction will exactly offset the present value return on the investment over its lifetime, so the effective marginal tax rate on investment will be zero. This will cause more investment to be undertaken, an expanded capital accumulation in the economy, and in the long run greater growth.