IF AMERICA'S potential rate of economic growth is slowing, it is almost certainly not slowing as much as the most dour of pessimists, like Robert Gordon, say it is. Yesterday, I took a look at Mr Gordon's most recent paper, which reckons that underlying growth in potential output is perhaps no more than 1.6%—which stands in stark contrast to the stance of other forecasters who generally project growth in potential of 2% or more and growth in actual GDP over the next few years of 3% or more.

In his analysis, Mr Gordon uses a unique measure of productivity growth: output per hour across the whole of the economy and not just in the private sector. To calculate that he uses an unpublished data series collected by the Bureau of Labour Statistics, for aggregate hours worked across the entire economy. I hadn't been able to get my hands on it when I published yesterday's post, but the BLS very kindly sent the series along late yesterday. I have since done a bit more number crunching.

The thrust of the argument in yesterday's post stands: recent productivity growth isn't that bad, and is certainly better than Mr Gordon's estimates, until one gets to 2014. And the weak productivity performance through the first half of this year is due to a sharp uptick in total hours worked. (Replicating the scatterplot from yesterday's post with the new data once again yields a pleasingly tight fit with a sharply negative slope.)

But there are a few more things worth mentioning about the productivity numbers which, with new data in hand, can be calculated back to the early 1950s. Here's a chart:

I would just bring a few things to your attention. First, while it is possible to slice the data as Mr Gordon does—such that there is a sharp delineation between the eras of rapid and slow productivity growth in 1972, and a clearly anomalous surge during the "slow" era between 1996-2004—it's not clear that that's the only or even the most obvious story to tell about this data. One might instead argue that there is a gradual downward trend in the first half of the postwar era, with occasional interruptions, which reaches a nadir in the late 1970s, followed by a gradual upward trend in the second half of the postwar trend, with occasional interruptions. Second, there is clearly a very tight correlation between growth in hours and growth in GDP (there's a correlation coefficient of 0.78).

Third, you may note a change in the relationship between productivity and hours. Through the first half of the series there's a weak positive relationship between the two: hours are strongly procyclical while productivity is very weakly procyclical. In the 1980s, this changed. The relationship became much stronger. It also became negative. Hours remained strongly procyclical while productivity became strongly countercyclical.

That last observation is not original to me; it is something macroeconomists have noticed and puzzled over. One explanation, which I wrote about back in February, is that the swingeing disinflation of the 1980s made it much harder to reduce real wages in response to a drop in labour demand. In the 1970s, when inflation was running near double digits, cutting real wages was as easy as slowing the rate of nominal wage growth. Real wage growth may be the same when one gets a 2% raise amid 7% inflation and when one gets a 3% pay cut amid 2% inflation, but the former is empirically much easier to impose on workers. The ability to slash real wages meant that firms could respond to weak demand by easing off on production and socking workers with a corresponding reduction in real pay. As a result, productivity would fall in recessions.

When the Fed squeezed inflation out of the economy in the 1980s, by contrast, that system no longer worked. Now when demand falls and firms have to scale back production, they can't afford to hang on to workers they don't need, because they can't cut their pay. With inflation at or below 2% the only way to get big wage cuts is to reduce the numbers on the cheques. Some firms manage to do that, but the data show an enormous discontinuity in the distribution of wage changes at zero.

As a result, firms end up sacking lots of workers. Many of the workers who are retained will nonetheless have real wages that are stuck "too high", and evidence suggests that firms address this problem by attempting to get more effort from existing employees. That leads to rising productivity.

And because the more productive retained labour is able to meet more of the demand when the economy starts to recover, recoveries are increasingly "jobless", and economies tend to accumulate a stock of "pent up wage deflation", as Janet Yellen described the dynamic in August. It takes a prolonged period of dismal nominal wage growth, relative to growth in prices and aggregate demand, to make unemployed or underemployed labour attractive to firms. After a while, of course, the pool of cheap labour begins to look enticing. Firms then use much more of it, productivity sags, and on the cycle goes.

To sum everything up: over the last generation productivity and labour inputs have moved inversely, and changes in real wages are the lever that determines which is ascendant.

As I argued back in February, this dynamic puts central banks in a difficult spot. (Or rather, central banks that target low rates of inflation have put themselves in a difficult spot.) The Fed is always going to be excessively worried about looming inflation, because whenever the recovery starts to take off it observes rapid hiring and falling productivity, which suggests the economy is barrelling toward supply constraints. But it isn't, because productivity is responding to rather than determining the level of wages.

The only way to get tight labour markets and fast productivity growth in a low-inflation-targeting world is to get lucky, and to find oneself in a robust phase of job growth just as a wave of global disinflation hits. Then you get low inflation and rising real wages. The former keeps monetary tightening in check while the latter encourages an investment and productivity boom. You get, in other words, the late 1990s.

Maybe America will luck out again. There is a stiff disinflationary breeze blowing in from Europe and from several large emerging markets. That is helping Ms Yellen fend off the hawks at the Fed even as hiring picks up. If the Fed could just keep itself from stomping on the recovery over the next few years, the good times just might get rolling once again.