This last excerpt from Bob Woodward's book is centered on a logical error in basic economic accounting. It argues that Greenspan recognized that the standard productivity numbers generated by the government's statistical agencies were wrong, and that this meant the economy could actually grow faster than was generally recognized. This view makes no sense. If there is an error in measuring productivity growth, then there is also an error in measuring GDP growth of approximately the same magnitude. It is not clear whether the article is misrepresenting Greenspan's position, or whether Greenspan has made this error himself.
Productivity measures the amount of output per hour of work.
According to the article, Greenspan believed that productivity growth was actually more rapid than official data showed because of the huge investments that firms made in computers and other high tech equipment. If productivity growth was more rapid than the official data showed, according to the article, the economy could grow faster than 2.5-3.0 percent rate that most economists felt to be its maximum potential rate of growth. The flaw in this logic is that the data on productivity growth is derived from the data on economic growth. To calculate productivity growth, the Bureau of Labor Statistics uses measures of economic growth from the Commerce Department and divides this figure by its measure of hours growth. This means that any under-counting of productivity growth would not be a basis for allowing more rapid GDP growth, since GDP is already growing faster than the official numbers indicate.