You don’t have to be an economist to know that it’s important that productivity increases, year after year. We know it’s so important because politicians tell us it is, regardless of which side they sit.
But why is ever increasing productivity so important? If national productivity was sufficient to feed, house and care for the whole population last year, why does productivity need to increase this year?
Well, yes, if the population increases, then productivity will need to increase to maintain the same standards. But as the population increases, the workforce also naturally increases and so productivity naturally increases as a result.
So, again, why is it important for productivity to increase?
Because of income from capital. The wealthiest members of society don’t have to work because they can use their wealth to earn money for them. They can live from the income generated by their wealth or the capital that they own.
However, this income increases the total amount of capital. That should seem great if you’re wealthy and own a lot of this capital. But the problem is, as capital grows, the rate of return, or the income the capital generates, falls. That being the result of more capital fighting for the same investment opportunities. While the rate of return may never hit zero, as some have argued, it will still fall lower than the wealthy want.
Fortunately, this disaster can be countered by increasing productivity and the population. As productivity increases, investment opportunities increase. While population increases ensure competition for employment keeps wages low and simultaneously stimulates market demand.
This is why increasing productivity is important. It ensures that the wealthy can continue to earn even more wealth while doing nothing. While it’s good for them, increasing productivity does nothing for most Americans.
US productivity more than doubled between 1989 and 2025 as most Americans worked harder, so the wealthiest could continue earning money for doing nothing. And during that same time, the wealthiest 10% of Americans saw their share of all US wealth increase from 60.8% to 68.3%, while the poorest 50% of Americans saw their share drop from an already low 3.5% to just 2.5%.
So, if productivity growth only benefits the wealthy, why should you care about it?
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