Ernie Tedeschi - What the Productivity Numbers Say About AI

We can see a productivity surge in the data, and my guest today goes through all the potential drivers, of which they are a lot. Ernie Tedeschi is the chief economist at Stripe and former chief economist at the Council of Economic Advisors. He's in a unique position to speak on the recent changes in productivity and why that's related to every facet of our lives, not just new technologies. Here's our talk.

Okay, welcome to the Economics of Work. I'm excited to welcome Ernie

Tedeschi, Chief Economist at Stripe, former Chief Economist at the Council of Economic Advisors, and former Head of Economics at Yale Budget Lab, and generally someone who brings a lot of analytical rigor to big, important macro questions. Ernie, welcome to the show.

Thanks for having me, Ben.

Okay, so big question. We can see AI everywhere. Can we see it in the productivity statistics?

Yeah, it's a great question. So we've seen a surge in productivity in the United States. I say surge. If before 2023, we were running at maybe 1.5% annual growth, now it seems like we're running more like 2.5% annual growth. So an extra point or so in productivity growth, which... Like if you're a macro economist listening, you know that that's that's a that's a major upside to productivity.

I mean, yeah. I mean, if we think about like the macro implications of that, you know, for deficits, for whatever, you know, for for like everything we want

to do, that gets us very far. That's right. Even if it doesn't solve the problem entirely. Look, an extra percentage point of productivity growth, if it were sustained over time, would help so much with the challenges that we have on the fiscal side. It would boost incomes over time. It would be great. And that's not implausible, by the way, that we get that for some amount of time. Here's what's interesting, though, is that the story that we tell ourselves about how AI is going to affect productivity is a bottoms up story. AI is going to boost, you know, task level productivity. I'm going to be able to write this memo, generate this image, write the code, you know, 20, 30, 40 percent faster. And then you, I mean, think about the aggregation of tasks like productivity. put together all of those tasks that are now much more productive, put together all the workers, right? That should sum up to stronger productivity growth. That's the part that we don't see in the statistics. And here I want to emphasize, Ben, we need to put a little bit more of a grain of salt with what I'm about to say than the earlier part about labor productivity. But measures that try to get at the pure technological part of productivity growth, what economists call total factor productivity, are actually quite weak right now. In fact, one of the most widely followed and cited ones from the San Francisco Federal Reserve is growing at basically 0%. And that's completely inconsistent with a task level, worker level AI productivity boom happening right now. Again, you can't directly observe that part. You have to model it. So we need to keep an open mind about where things might evolve. But that's what we're seeing in the data right now. So the way to resolve those two things, like strong