The Productivity Slowdown: Is Oil the Culprit?

One of the most controversial topics debated in the United States today is the dramatic fall in productivity growth in recent years. This slowdown has been held accountable for falling personal incomes, higher inflation and unemployment rates, and a falling dollar. Slower productivity growth seems to be the disease for which advocates of the “reindustrialization” panacea have been searching. Hardly a single major news publication has failed to give cover space to the issue. Increasing attention is being devoted to the importance of correcting the productivity problem, yet no consensus has been reached as to the reason for the slowdown in productivity. It will be the contention here that most of the productivity slowdown in the mid-1970s was due to the quintupling of oil prices in 1973-75. As such, this Commentary is in basic agreement with the work done by researchers at the Federal Reserve Bank of St. Louis. This is in contrast to the views of most other authors.