Productivity Paradox

aka Solow Paradox for its Nobel Prize winning author.

TLDR;

Wikipedia - [1].

Productivity is increasing. Productivity increase is decreasing. Paradoxical, as IT - the supposed cause - is exploding with growth. Resolution lies in distinguising between single-factor productivity and Aggregate Productivity.

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.

Mainstream Explanations

• Quality improvements, which are not measured, underestimate actual growth. Bullshit. That Quake no longer has screen glitches is irrelevant to the discussion.
• IT Unproductive Hypothesis - The utility of computers: that they pale into insignificance as a source of productivity advantage when compared to atoms, such as the Industrial Revolution. Yes!
• Lag - yes, it takes time for atoms to catch up to bits, if we follow the IT Unproductive Hypothesis.

Productivity Paradox 2.0

2000-2020 was a second slowdown. From the distributive enterprise perspective, this is when people got mesmerized about software, and the atoms did not follow. The latter part of this era was the death of the pseudo Golden Age of Open Source, when it turned out that open source is just a business strategy, not a leap in consciousness.

Post 1990s Slowdown in Manufacturing

Acemoglu debunks other authors who say that Solow Paradox (productivity paradox) has been resolved for manufacturing. It hasn't, he says, try again. We should probably listen to him since he got the 2024 Nobel Prize in economics.

Clearly there are lags in adoption, such as AI translating its benefits to atoms discussed in [2]. This is consistent with the viewpoint 'that vision is not the same as execution' held by more experienced entrepreneurs regarding any visionary undertaking. The lag theory seems sound, and consistent with Acemoglu. But we need to seek deeper: what are all those factors that determine actual productivity increase or lack thereof? Someone who answers this question needs to answer how we get people to collaborate, truly, openly. That would qualify the respondent for the next trip to Stockholm.

This is important. WTF is going on that Full Printed has not arrived on earth, Zero Marginal Cost has not been achieved, the Second Industrial Divide is unknown, the Third Industrial Revolution is not nigh, and people are becoming more retarded by the minute? This gets into the Metacrisis critique, that improved technology requires improved humans to manage technology more wisely.

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. 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 [3]. See Cost of PV

If we study the history of the steam engine and electricity [4] - we can learn for 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, incumbents must be unseated, which will naturally take time. Only open source diffision can succeed in an accelerated pace that would resolve the Productivity Paradox. This is the motivation behind OSE's mission for a hydrogen filling station in every new build of the Seed Eco-Home.

The productivity paradox will be resolved in a multisectoral, interdisciplinary way - combining the fields of energy, housing, materials, transportation, agriculture, legal, educational, manufacturing, governance, and financial.

Unlike other times in history, the benefit can be more profound because the technology in question (solar, hydrogen) is fundamentally distributed, unlike oil and gas - and thus its product (manufacturing, housing, etc) will hold distributed benefit. 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 in relationship to open collaboration.