For the past five decades, Moore’s law has been the key tailwind propelling the United States and global economies. Through recessions and political turmoil, Moore’s law — the rough doubling of computer cost-performance every two years — hummed along in the background, with amazing regularity, giving us the PC, the internet, and the smartphone and enabling the poverty-crushing phenomenon of globalization.
In recent years, however, many technologists have said Moore’s law is coming to an end. Some economists have offered an even broader assessment: The entire information age is winding down, and even at its best, it just isn’t as powerful as previous economic eras, such as the era of electrification.
These are big questions. But at least one piece of new research suggests that Moore’s law is still humming and that the information age has miles to go. Technology skeptics often point to an apparent sharp deceleration in the price declines of microprocessors, the silicon chips that power PCs and cloud servers, as evidence of an innovation slowdown. According to the government’s producer price index, the price of microprocessors, which used to drop around 50 percent per year in line with Moore’s law, only fell 6 percent per year between 2009 and 2013. Bye-bye, Moore’s law.
Well, not so fast. In two new papers, David Byrne of the Federal Reserve, AEI’s Stephen Oliner, and Daniel Sichel of Wellesley College show why these price indices are almost certainly too pessimistic. Further, they show why a more accurate price index not only suggests Moore’s law continues, but that we can also expect more powerful economic gains from information technology in the coming decades.
Instead of that official 6 percent annual decline in recent years, Byrne, Oliner, and Sichel show microprocessor prices actually fell closer to 42 percent per year. They find similar mismeasurements in other high-tech goods as well. Welcome back, Mr. Moore.
The broader implications are really important. The underestimation of high-tech price declines implies a much faster rate of productivity growth in the digital sectors — but also an even deeper productivity slowdown in the physical industries. The economists’ findings thus “deepen the productivity puzzle.” They conclude (0):
“If the pace of innovation in the high-tech sectors has been more rapid than indicated by official statistics, then it is perhaps even more puzzling that overall labor productivity growth has been so sluggish in recent years. Second, we believe narratives about the prospects for growth have been improperly darkened by the view that innovation, even in the tech sector, has been weak. According to official statistics, prices of tech products have barely been falling in recent years. And, that slow rate of price decline in the tech sector has implied, via the dual approach to productivity measurement, a slow rate of MFP growth. This has led, in turn, to inferences that the pace of innovation in the tech sector has faltered. Finally, a faster rate of innovation in the tech sector implies, via a multi-sector growth model, a faster steady-state rate of growth in labor productivity even with the slower rate of MFP growth outside the tech sector. Accordingly, we argue that the pattern of MFP growth across industries may presage a second wave of productivity advance supported by the digital economy.”
The information economy lives on.