Productivity Paradox

Robert Solow

Won the Nobel Prize.

Robert Solow's famous observation, often called the "productivity paradox," highlighted a disconnect between rapid technological advancements and stagnant productivity growth, famously stating, "You can see the computer age everywhere but in the productivity statistics!".

NB: productivity kept increasing, but more slowly. The INCREASE slowed down (second derivative of productivity), not the productivity per se. This is NOT about productivity declining.

Here's a more detailed explanation: The Productivity Paradox:

In the late 1980s, Solow noted that despite significant investments in technology, particularly computers, there wasn't a corresponding surge in overall productivity growth. This led to the idea that the benefits of technological progress were not being fully realized.

Solow's Growth Model: Solow's work also established the Solow Growth Model, which focuses on how economies grow over time, emphasizing the role of technological progress (or "total factor productivity") in driving long-term economic growth.

The Solow Residual: The model introduced the concept of the Solow residual, which represents the portion of economic growth that cannot be explained by increases in capital or labor inputs. This residual is often interpreted as a measure of technological innovation and efficiency gains.

Implications: Solow's work has significant implications for understanding economic growth and the role of technology. It suggests that simply investing in technology isn't enough to drive productivity growth; other factors, such as innovation, human capital, and institutional structures, are also crucial.

Modern Relevance: While the initial "productivity paradox" has been debated and reinterpreted, the core ideas of Solow's work remain relevant in understanding the dynamics of economic growth and the challenges of measuring and improving productivity in the modern economy.

OSE Interpretation

This explains the fascination with which we observe the failure of open source to move the state of the world forward, in the general sense - as counting by the further degradation of the Gini Coefficient and the IT productivity paradox [1]. There was the Golden Age of Open Source where everyone believed that the Zero Marginal Cost Society and paradise is nigh. But it didn't happen. This is visible in the lack of decrease of energy costs even through photovoltaics cost dropped from $78/watt in teh 1970s to 15 cents per watt in 2025 [2].

If we study the history of the steam engine and electricity [3] - we can learn fro the current case. Namely, it took a long time for the benefits of the tech improvements to permeate through the economy. That makes sense - in the sense that whole paradigms and industries must change, which will naturally take time. Only open source diffision can succeed in an accelerated pace. This is the motivation behind OSE's mission for a hydrogen filling station at every home.

Unlike other times in history, the benefit can be more profound becuase the technology in question (solar, hydrogen) is fundamentally distributed, unlike oil and gas. This has profound implications - in that a natural outcome could be the first ever historical and global reduction in the Cost of Living, with social services and social security provided with the Open Sector, and abundant money created with distributed open production! Implications for non-inflationary currency, end of conflicts, and general prosperity are abundant. This is not optimistic or pessimistic, but rather Affordant.