Jason Furman on Productivity, Competition, and Growth

Episode Summary

Executive Summary: Jason Furman argues U.S. productivity weakness reflects a mix of structural forces and policy failures: monopoly power, weak investment incentives, low business dynamism, and constrained labor mobility. He favors more immigration, R&D, pro-investment tax reform, and higher-ed investment, while urging caution on protectionism, digital regulation, and fiscal alarmism.

Main Topics: Investment slowdown and market power (Priority: 5/5): Furman links sluggish business investment partly to intangibles, but also to rising concentration and monopoly power that reduce incentives to invest, especially in sectors like health care. Productivity growth and long-run economic outlook (Priority: 5/5): He rejects extreme pessimism, arguing that trend growth will likely resemble the historical average rather than the unusually weak recent decade, though not far exceed it. Policy levers for raising productivity (Priority: 5/5): He prioritizes immigration, federal R&D, investment-friendly tax reform, R&D credits, and higher education as the best ways to lift productivity. Labor market adjustment after shocks (Priority: 4/5): Furman says slow recoveries reflect reduced labor-market fluidity, long-term unemployment, participation drops, and barriers like housing costs, licensing, and healthcare lock-in. Trade, China shock, and manufacturing (Priority: 4/5): He views China shock research as important for labor-market policy but less so for trade policy, and he downplays manufacturing as a policy target relative to services. Tech regulation, privacy, and antitrust (Priority: 5/5): He distinguishes between Amazon and dominant platforms like Google/Facebook, favoring antitrust scrutiny, cautious privacy regulation, and skepticism toward digital taxes and rigid portability rules. Fiscal policy, low rates, and debt (Priority: 4/5): Furman argues low rates expand fiscal space but do not create a free lunch; borrowing can be sustainable up to a point, yet current trajectory could imply very high debt ratios.

Key Arguments: U.S. investment weakness is partly structural because an intangible economy requires less physical capital than old heavy industry, but concentration and monopoly power still depress investment. Market power is most clearly seen in health care through higher prices; in hospitals, mergers often deliver few efficiency gains beyond wage suppression. Aggregate measures of market power are imperfect but still useful because they predict markups, profitability, and rising capital returns. Productivity slowdowns should be viewed relative to unusually strong postwar decades; current trend growth may simply be closer to 1.5% than to the exceptional 1950s-60s pace. Immigration is Furman’s top productivity policy because it increases innovation, entrepreneurship, and even native patenting. Housing shortages in productive cities are a major drag on national productivity because artificial supply constraints prevent people from moving to high-value places. Trade shocks reveal weak adjustment mechanisms—retraining, mobility, insurance, and labor-market matching—more than they change the core case for free trade. Labor markets recover slowly after large shocks across many OECD countries; prolonged unemployment is not uniquely an American anomaly. National security claims are often used as protectionist cover; semiconductors are one area where he thinks fears are overstated. He is more worried about Google/Facebook-style merger-built monopolies than about Amazon, which he sees as more contestable and consumer-beneficial. Privacy rules can help, but they can also entrench incumbents if compliance is too burdensome for smaller firms. Low interest rates justify more borrowing than many people assume, but rising rates remain a real tail risk; debt dynamics still matter over time.

Data Points: Current account deficit: around 3% of GDP - Furman says this is near the edge of comfort but not yet far beyond it. Primary deficit: about 4% of GDP - Under the current trajectory, he says this would imply debt asymptoting near 400% of GDP. Steady-state debt ratio: about 400% of GDP - His illustration of where persistent primary deficits could lead. Productivity growth in recent period: more like 1% lately - He describes current productivity growth as weaker than the long-run historical average. Likely productivity trend: around 1.5% if lucky - His estimate of broad U.S. productivity growth in the current era. GDP growth forecast based on last 50 years: around 2% or a little below - If average productivity of the past 50 years continues, he expects roughly 2% GDP growth. Fastest unemployment decline in OECD study: 0.7 percentage points per year - Alan Krueger’s comparison of recoveries after sharp unemployment increases. State of federal R&D spending: fallen as a share of GDP since the 1960s - He cites this decline when arguing for more public R&D. China shock effect on policy: not quantified here; cited as large labor-market disruption - Used to motivate better adjustment policies rather than anti-trade policy. Potential debt growth path: to 400% of GDP steady state - Furman’s warning about current fiscal trajectory if unchanged.

Pivotal Quotes: "I think I'm an economic realist." — Jason Furman: On whether sluggish investment and weak productivity make him pessimistic about long-run growth. "More immigration of talented people that will add to innovation here in the United States that would bring their ideas with them that would start businesses." — Jason Furman: His top recommendation for boosting productivity. "I think those are areas where, first of all, there's a whole set of social concerns and democratic concerns are probably much more important than anything in terms of competition." — Jason Furman: On Google and Facebook’s market power and why his concern extends beyond prices.

Implications: Furman’s framework points to a pro-growth agenda built on talent inflows, R&D, housing supply, and competition policy, while warning against protectionism and simplistic fiscal or privacy fixes. Listeners should see productivity as policy-sensitive but not easily transformed overnight.