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A Bit of Good News About US Productivity Growth
There’s a lot good to report about the American economy, now well into its record 11th year of expansion. Unemployment is low, and real wages are rising. And as I recently wrote in my The Week column, “Look, if you’re a president who promised to make America great again, and the unemployment rate falls to its lowest level since the early 1950s, it arguably looks like you’re making American great again.” Indeed, Goldman Sachs is predicting the unemployment rate to will “fall to levels last seen during the Korean War, bringing a further pickup in wage growth to 3.5 percent.”
But one worrisome weak point continues to be uninspiring productivity growth. Productivity has risen at a so-so 1.4 percent annual rate over the past two years, up from an abysmal average of just 0.6 percent in the 2011-2016 period. Faster productivity growth boosts overall GDP growth and means faster wage growth, as well. That said, productivity growth may be stronger than the data suggest. This from Capital Economics:
Published in EconomicsRecent payroll employment growth is likely to be revised down in the annual revision early next year, which is unquestionably a negative. But the flip-side is that productivity growth must have been stronger than the current data suggest. …If the acceleration productivity growth continues, the economy’s sustainable growth rate could be higher than most currently assume. By keeping unit labour cost growth in check, stronger productivity would also make it even more likely that the economy will benefit from an extended period of loose Fed policy.
I do wonder how meaningful these numbers actually are. They are calculated in per-hour terms, and there are a lot of jobs where “hours” is not easily measured and may not be a very good metric.
Not positive about this, but I *think* that for people who are not hourly employees, an 8-hour work day and a 40-hour work week are assumed. This is far from accurate for most professional and management jobs.
Does anyone have any solid info on how this calculation actually works?
Good. When the majority of Americans begin to ask that simple question, and think about the answer using the common sense God gave them instead of mindlessly accepting these mystical announcements from the palace oracles of the collectivist State, then restoration of the republic will be ready to start.
We have crude numbers and we can’t catch up with everything, but we should be suffering a little from productivity changes. We’re trying to deal with China who is an existential threat, the greatest we have faced alone, probably ever, and that means we’re hitting them and having to do things ourselves. Frankly I’d feel better if we closed down our imports from China even more. We need to remember that we didn’t have any trade with China during all of the meaningful post war period, most of the time after the cold war and we were not allowing the economy to be as free as it ought to be. The US economy is bigger than the world economy was during all of that period allowing us as much economy of scale as we could want. We need strong competition or our own the big guys will screw us, but we can do without China. We need to fix that relationship. We opened too fast and too much for China, naively thinking they’d join us, but that’s not their game. We should have known it but we didn’t so now we must fix that. If it lowers our productivity it will be picked up by the Indians, all of South East Asia and others. We need the real competition and while it would be good to have the Chinese playing the way we play, we have to fix what we did and it won’t be without adjustments.
I’ve often seen people argue that we need extensive imports from China in order to make possible a good standard of living for the middle class…even Art Laffer, who is generally a smart guy, said: ““China is a huge plus to the U.S. because without China there is no Walmart, and without Walmart there is no middle class or lower class prosperity in America.”
I think this assertion is quite incorrect–see my post Even Smart People Get it Wrong Sometimes.
In a real, necessarily imperfect republic, the question “how well is the economy doing?” is the question of how well the people’s wants are being satisfied, relative to how well they could be, if everyone’s rights were respected to the greatest extent possible–that is, if Government were doing its job of protecting those rights, while respecting them as much as practical given the necessarily coercive nature of its means.
The administrative State’s poll-takers and national accountants cannot begin to give us the answer with their virtually meaningless statistical aggregates.
The answer given by the modern professional State “economists”, and reported by their well-meaning but witless and rather smug court jesters–the “second-hand dealers in ideas”–is an intellectual-sounding “science-y math-y” answer only a servile, gullible electorate, untrained in critical thinking skills, could accept. We accept it only because we are a servile, gullible, electorate, untrained in critical thinking skills.
May the Lord bring back the thinkers and popularizers of real, rational economics, like Say, Bastiat, Menger, Boehm-Bawerk, Mises, Hayek, Milton Friedman, and Henry Hazlitt.
May he give us ears to listen to those we have today, like Walter Williams and Thomas Sowell.
The implication is that the numbers are meaningful.
The problem with modern “macroeconomics” is not with the precision of the measurements they have declared to be meaningful. It is that the measurements themselves are meaningless.
It might be better to not have GDP numbers that feed so much Macro economic nonsense, but the numbers aren’t meaningless, they’re just crude, out of date and easily misused, but as long as all nations make similar errors isn’t useful to know relative wealth, and the size of internal and external deficits how different policy prescriptions impact the real economies? The number guys try, it’s very difficult, will always be out of date but isn’t it useful to know how we and different countries are doing? The problem is that we use them for macro economic policy prescriptions, that’s why we created them in the first place and if we can’t stop using them that way we’d be better off without them.
Below is a graph of hourly manufacturing pay adjusted for inflation and productivity. The decline seems to have paused, but it is too soon to see a turnaround. A tighter employment market for a long period will be required to significantly improve productivity and incomes. The open borders and exporting of manufacturing of the past two decades have put a lot of downward pressure on productivity adjusted pay.
Just a coincidence that this interval also corresponds with record increases in the national debt? I’m betting the economy stops expanding before the debt does. What do we do then?
Good catch. I misspoke. I certainly don’t think that they are meaningless.
There’s an additional error that you don’t mention.
During a boom, the economy is doing badly* (all else equal), but GDP is relatively high, convincing people that it is doing well.
During the bust, the economy is doing well* (all else equal), but GDP is lower, convincing people that it is doing poorly.
The result of these misapprehensions is permanent political pressure for interventions that repeatedly create impoverishing depressions.
*Because of artificially suppressed interest rates, scarce resources are being consumed by the production of what will prove, when information flows (prices for goods and credit) finally reach their destination, to be useless capital goods and jobs.
**Scarce resources are being reallocated from wasteful purposes to the production of consumption goods, plus capital goods and jobs that will be used to create consumption goods in the future.
Note:
Here is a brief explanation from Mises on why booms are bad for the economy and busts are good: