Discussion: e Reallocation Myth∗

Œis is a very interesting and provocative paper on an important topic. Growth in advanced economies of the world have seŠled into a tepid pace of 1%-2% a year associated with a decline in total factor and labor productivity over the past decade. It is imperative to understand the sources of low productivity growth and to evaluate what policies can rejuvenate growth. Œe potential growth rate of the economy has implications for measures of output gaps and real rates and therefore has implications for monetary policy. Chang-Tai and Pete in their ambitious paper take up this challenging task for the U.S. economy. Before proceeding to describe their contributions it is useful to take a quick look at the trends in U.S. productivity over the last 30 plus years. Figure 1 from Fernald (2015) highlights three important features: First, the recent decline in TFP that starts in 2003 precedes the great recession. Second, the low TFP growth in the recent decade (2003-2013) of 0.6% per annum is a decline only relative to the previous decade of 1995-2003 when TFP grew at a 1.7% annual rate, and in fact is normal when compared to the two decades preceding the technology boom when TFP grew at 0.7%. Consequently, the interesting question could just as well be what drove the extraordinary growth in productivity from 1995-2003, as opposed to what explains its decline. As emphasized by Fernald (2015) the high growth in the middle years is driven by information technology (IT) intensive sectors, both IT using and IT producing sectors. Œe potential culprits for slowing TFP growth in the recent decade relative to the previous decade include 1) worsening measurement of TFP: Recent work by Syverson (2017) and Aghion, Bergeaud, Boppart, Klenow, and Li (2017) do not €nd evidence that worsening measurement is a signi€cant factor in explaining slowing TFP growth; 2) lack of ideas: this line of argument has been pursued by Gordon (2016), Bloom, Jones, Van Reenen, and Webb (2017), among others; 3) loss of dynamism, associated with rising frictions to creative destruction and reallocation of