[TFP] isn’t measured directly, but calculated as a residual by taking capital and labor increases out of GDP growth.
What does it mean to take out capital increases?
I assume taking out labor increases just means adjusting for a growing population. But isn’t the reason that we get economic growth per capita at all because we build new stuff (including intangible stuff like processes and inventions) that enables us to build more stuff more efficiently? And can’t all that new stuff be thought of as capital?
Or is what’s considered “capital” only a subset of that new stuff that fits into particular categories — maybe tangible things like factories and intangible things only when someone puts an explicit price on them and they show up on a firm’s balance sheet?
If that’s the case, it seems like TFP is kind of a God-of-the-gaps quantity that is mostly a consequence of what’s categorized as capital or not. And capital + TFP is the more “real” and natural quantity.
(But that might be totally wrong, because I don’t know what I’m talking about.)
What does it mean to take out capital increases?
I assume taking out labor increases just means adjusting for a growing population. But isn’t the reason that we get economic growth per capita at all because we build new stuff (including intangible stuff like processes and inventions) that enables us to build more stuff more efficiently? And can’t all that new stuff be thought of as capital?
Or is what’s considered “capital” only a subset of that new stuff that fits into particular categories — maybe tangible things like factories and intangible things only when someone puts an explicit price on them and they show up on a firm’s balance sheet?
If that’s the case, it seems like TFP is kind of a God-of-the-gaps quantity that is mostly a consequence of what’s categorized as capital or not. And capital + TFP is the more “real” and natural quantity.
(But that might be totally wrong, because I don’t know what I’m talking about.)