50 Things That Made The Modern Economy with Tim Harford

For investors in Boo.com, Web fan and eToy's, the bursting of the dotcom bubble came as a bit of a shock.

Companies such as these raised vast sums on the promise that the worldwide web would change everything.

Then in the spring of 2000, stock markets collapsed.

Some economists had long been skeptical about the promise of computers.

In 1987, we didn't have the web, but spreadsheets and databases were appearing in every workplace.

And having it seemed no impact whatsoever.

The leading thinker on economic growth, Robert Solo, Quipt, you can see the computer age everywhere, but in the productivity statistics.

It's not easy to track the overall economic impact of innovation, but the best measure we have is something called total factor productivity.

When it's growing, that means the economy is somehow squeezing more output out of inputs, such as machinery, human labour and education.

In the 1980s, when Robert Solo was writing, it was growing at the slowest rate for decades, slower even than during the Great Depression.

Technology seemed to be booming, but productivity was almost stagnant.

Economists called it the productivity paradox. But what might explain it?

For a hint, rewind 100 years.

Another remarkable new technology was proving disappointing. Electricity.

Some corporations were investing in electric dynamos and motors and installing them in the workplace.

Yet the surge in productivity would not come.

The potential for electricity seemed clear. Thomas Edison and Joseph Swan independently invented usable light bulbs in the late 1870s.

In 1881, Edison built electricity generating stations at Pearl Street in Manhattan and Hoban in London.

Things moved quickly. Within a year he was selling electricity as a commodity.

A year later, the first electric motors were used to drive manufacturing machinery.

And yet, by 1900, less than 5% of mechanical drive power in American factories was coming from electric motors.

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