The Solow Paradox — Technology Everywhere, Productivity Nowhere
"You can see the computer age everywhere but in the productivity statistics."
The paradox era: massive IT investment, stagnant productivity. What was happening?
IT-heavy sectors (finance, insurance, services) have poorly measured output. How do you quantify "better decisions" or "faster transactions"?
It takes 2-5 years for IT investments to materialize into productivity gains. Like electricity in the 1920s—factories needed complete redesigns.
Computers alone don't boost productivity. They require complementary investments in training, processes, and organizational restructuring.
Despite seeming ubiquitous, computers were only 2% of capital stock in the 1990s. Hard to move national statistics with a small wedge.
AI promises enormous efficiency gains, but the Solow pattern suggests we're in the "paradox phase" again. If history is a guide, measurable productivity gains may take 5-10 years.