Comment.

This article comments on a paper which studied the implications of pro-cyclical capital utilization rates for inference regarding cyclical movements in labor productivity and the degree of returns to scale in the U.S. This paper sets itself an ambitious task: it attempts to explain a fundamental stylized facts of modern macroeconomics using an empirical model that nests the three main explanations for this fact: technology shocks, increasing returns to scale, and unobserved input variation. This separation is not really that straightforward, since the first is an impulse and the other two are propagation mechanisms. As the paper notes, Robert Hall's early work suggested that markups and returns to scale are very large. These papers consistently find approximately constant returns and small markups. A number of papers also investigate the role of variable factor utilization in dynamic optimizing models, and generally conclude that variable utilization can explain a substantial fraction of the cyclicality of productivity. Even viewed from this background, the paper makes a number of useful contributions. Its substantive message is that using electricity consumption as a proxy for capital utilization leads to more sensible results in short-run time-series analysis, and controlling for capacity utilization changes the estimated properties of technology shocks.