Sentences to ponder

Over the past 5 years, productivity has risen by less than 3%.  That might not seem so bad, except I’m referring to the total increase, not the annual increase. Again, get used to 1.2% RGDP growth; it’s the new normal, the new trend line.

That is from Scott Sumner.


Investment in productive capital has declined as investment in speculative assets has soared. Cowen pointed out in the interview by the NYT last year that the rate of return on capital (r) has been declining for years (roughly the same period as inequality has been rising), which has induced owners of capital to look elsewhere for a better return, speculation being the most obvious. What can be done to increase r? What can be done to discourage speculation? More investment in productive capital rather than speculative assets means both greater gains in productivity and fewer bubbles, higher rates of economic growth, and more increases in wages. Everybody's happy! Well, maybe not Sumner.

How do you encourage investment in "productive" capital versus "speculative" capital?

Do we have a clear differentiation point between the two?

Stop thinking of labor cost as a negative that must be cut until eliminated.

How do you invest if paying labor is a bad investment? Well, you slash labor spending and use the savings to buy back shares of stock.

Then you blame Obama for the stupid regulations requiring workers be paid for working, plus the stupid regulations prohibiting borrowing money without assets and income. How can consumers buy the increased GDP if they can't borrow money for consumer spending???

Somewhere around the election of Reagan, free lunch economics took over and the connection between worker incomes and GDP was lost and it was taken as a fundamental axiom that GDP will increase faster the faster aggregate worker incomes fall.

You would expect the rate of return on productive capital to fall after a long period of relative peace and prosperity during which the cost of capital goods has been generally falling and industry has been shifting from more capital intense to less capital intense activities.

The developed world has all the productive capital we need. If you know of a need for more productive capital that can return more than the current r you can get rich on the difference between the payoff on that investment and the rate you have to pay the market for capital.

Good. It's occurred to me that NGDP shouldn't be growing. It doesn't place any value on leisure. Nothing bad about increased productivity but again the way to get that is by attacking the denominator. Lots of people should lose their jobs.

How much of the Producitivity number simply just an inverse of the job market? when were the last two big jumps in productivity?

1) 2001 - 2003 in which I believe the Michael Mandel point that it was simply off-shoring benefits. Private job market was terrible and only the public employee hires counterbalanced the fall.

2) 2009 - in which it was the corporations cut the organization to the bone and told employees 'very polite' do more.

Today, the job market is gaining so productivity is going down. Also with improving job market what we are seeing is the highest Marigal Product Employees compared to compensation are now quitting and finding a new position with higher compensation...(Who is the least productive worker?...Somebody new at a new position under six months.)

Why so much worry about decreasing productivity growth? Wouldn't we expect productivity to eventually approach an asymptote? How do we predict when it will become asymptotic?

Keynesian central planners gotta have metrics/feedback to control the general economy

they have really really done great overcoming the Great Recession

Republicans are Keynesian central planners?

Our economic system is based on the assumption of never ending productivity growth in the 1.5%-2.0% range. If you take away that assumption, everything else falls apart.


where's my basic income check?

The checks in the mail.

Two thirds of May's 280k jobs were low wage or quasi government (education/health). But hey, let's not pretend there is a quality factor associated with each job - just talky them up (and ignore population growth and immigration). FML

US population growth is roughly 3 million per year, so steady state is 250K jobs per month. Ergo, 280K is negligible job growth.

Except people are only "working age" for about 65% of their lives and the labor force participation rate is only about 65%. So, you need to multiply 3 million by .65 twice before you divide by 12. Its like 105K. That's not a perfect calculation but its better than assuming 100% of people want/need jobs.

"Except people are only “working age” for about 65% of their lives and the labor force participation rate is only about 65%. So, you need to multiply 3 million by .65 twice before you divide by 12. "

You are double counting. Labor force participation rates obviously include the aspect that people don't work their whole life.

But yes, 163K would probably be a more realistic number. So 280K represents a real uptick in jobs of about 117K.

The labor force participation rate number is for all people over the age of 16, not just the ones who fall into the range generally considered to be "working age." If I'm not mistaken, the participation rate for the 25-54 age range has usually been around 80% or a maybe little higher. I think you would have to determine how much the population in that age group grows by each year, and then multiply that by about .8 or so.

I thought they cut it off at 65, but you are right. Its everyone over 16. 16 years is 20% of US life expectancy so it should be .65*.8*250K = 130K/month

RGDP has been on a downward trend over the post-war period:

And this appears to be a general trend across economies:

The single sentence explanation is that a given dollar is more likely to be found facilitating a transaction in a low growth market as an economy grows because there are simply more ways an economy can be realized where this is true.

@ #2
The article is not about "more democratic," but more "Democracy."

The collator of that article defines "Democracy" as:

"a political system based on the idea of the empowerment of individuals"

Well, so are monarchy, dictatorship and oligarchy - just *particular* individuals.

Democracy is a process; not a condition; not a political "system."

However, the "empowerment" attributed to technologies by the article's collation does not differ much from historic experience in their effects depending upon (1) distribution and (2) the nature of the "empowerment" distributed (e.g., transportation differs from information).

Assuming the distribution is (or could be) roughly equal over more people, and the nature of the "empowerment" of roughly equivalent significance or value to all (never is), what would change in those who would use the democratic process that would cause it's broader use amongst social orders?

There may not be any, let alone strong, correlation between technology developments and the uses of a democratic process in a social order.

What else can one expect when the Fed has consistently failed to keep NGDP on its pre-2008 trend? There may well be supply side factors at work that would have make trend level NGDP growth result in higher inflation. But without trying to eliminate inadequate AD, we cannot know how important the supply side factors are and which ones are most constraining for RGDP growth.

Well, investment in regulatory compliance--like making sure we don't offend Tyler's sensitivity to the rights of the transgendered--has risen dramatically. Really, which is more important: productive capital or forcing the yahoos to honor gay marriages? We know which Tyler would chose as his priority.

Honest question: If interest rates are extremely low, shouldn't we expect low productivity to result as follow-on effect of low hurdle for investment returns? I'm curious if there might be some reverse causation (low interest rates contribute to low productivity growth, rather than spur higher return investments desired?)

I left a longer post on MI, but here is the summary;

We already have (mostly) the stuff we need, now its about quality or improving that stuff. Improvements are difficult to measure objectively, so measured growth is low.

Think back 10 years, now compare how good your TV, car, phone, hotel, internet speed, eating out etc are compared to then. You had all those things then but they were not as good.

By the way this is not the same as the low hanging fruit hypothesis, unless you believe that the Wright Brothers flyer was the last word in aeronautics and everything else is just polishing.

The benefits of improved technology are now directed at the protected classes.

Yet we have record corporate profits, record stock returns, record amounts of income gains going to the top and high amounts of corporate profits going to finance. This seems to be consistent with an economy suffering from too little demand and too much ability to squeeze wages.

As Obama promised, the US economy was fundamentally transformed . . . Get used to it.

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