The Fourteenth Banker Blog

March 29, 2010

Productivity Growth, Jobs Report, and Misery

Filed under: Running Commentary — thefourteenthbanker @ 6:33 AM

According to Ben Bernake, productivity growth is the source of improvement in living standards.    That’s “Old Economy” and it is based on the illusion that monetary measures are accurate representations of living standards.     I suppose that could be somewhat true, in aggregate, if living standards were really a function of money.     Or, if money was stable.    Or, if accumulated monetary wealth represented real lasting wealth, or future productive ability of real goods, or what we can purchase in a college education for our children and grandchildren.    Perhaps if the hour of labor counted was an hour of satisfied employment with job security, a reasonable workload, a few moments for rest or reflection, a lack of harassment, no death by a thousand goals, the ratio might mean a little something more.

However, it is time to rescind that statement.     It has become perverse.    Now productivity growth means maintaining or growing output as measured in monetary terms while minimizing payroll and benefits.     Add a dollar of sales and cut pension contributions and you get productivity growth.     Raise prescription co pays and you get productivity growth.      Increase salaries in the Executive Suite, offset with decreases in the ranks by the same amount plus $1.00, and you get productivity growth.

That is not productivity growth.     Let no one say when GDP increases from its abysmal prior year levels, and employment is frozen, and real wages growth is negative, and gun shop sales are booming, that we had productivity growth.

Robert Kennedy in 1968 made these comments on what GNP (now GDP) measures.

For too long we seem to have surrendered personal excellence and community value in the mere accumulation of material things. Our gross national product now is over 800 billion dollars a year, but that gross national product, if we judge the United States of America by that, that gross national product counts air pollution, and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for people who break them. It counts the destruction of the redwoods and the loss of our natural wonder in chaotic squall. It counts Napalm, and it counts nuclear warheads, and armored cars for the police to fight the riots in our city. It counts Whitman’s rifles and Speck’s Knifes and the television programs which glorify violence in order to sell toys to our children. Yet, the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play; it does not include the beauty of our poetry of the strength of our marriages, the intelligence of our public debate for the integrity of our public officials. It measures neither our wit nor our courage neither our wisdom nor our learning, neither our compassion nor our devotion to our country it measures everything in short except that which makes life worth while.

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6 Comments »

  1. […] wealth of our society is not just the quantity of our GDP but also as The Fourteenth Banker Blog skillfully points out the quality of our GDP, a lesson that seems to be lost on Blanche […]

    Pingback by Waging War « ProgressiveLever — April 5, 2010 @ 11:55 PM | Reply

  2. Please explain how your conclusions about the meaning of productivity follow from the actual methods used to compile the official productivity data (as presented here: http://www.bls.gov/lpc/lpcmethods.pdf ).

    I find your logic confusing, to say the least. For instance: “Add a dollar of sales and cut pension contributions and you get productivity growth. Raise prescription co pays and you get productivity growth.” That not only doesn’t seem to reflect an understanding of what productivity growth really is – whether as defined by the government, or as defined by the economics teachers you probably studied with while earning your MBA – it actually seems to contradict the true definition (at least as I read it).

    Comment by Jon Jacobs — April 6, 2010 @ 2:52 PM | Reply

    • Thank you for the technical clarification. From your link: Unit labor costs relate hourly compensation of all persons to output per hour and are defined as compensation per unit of real output. Unit labor costs measure the cost of labor input required to produce one unit of output and are derived by dividing compensation in current dollars by the output index. Unit nonlabor costs include the nonlabor components of gross product originating in a given sector—consumption of fixed capital, taxes on production and imports less subsidies, net interest and miscellaneous payments, business current transfer payments, rental income of persons, and the current surplus of government enterprises—divided by the output index. So I accept your point the the technical definition of productivity, all the pages of it, may relate to output rather than output relative to cost. However, the way the terms are used in our common discourse are not the same. My point relates to the common understanding of productivity growth as a driver of personal income growth and real standards of living. At this particular point in time, productivity growth may be a good thing but it accrues disproportionately to those at the top of the food chain. In fact, for the population as a whole standards of living will be accepted as stagnant or declining in this crisis and even leading up to it.

      So what does this have to do with anything? We need more employment and personal income growth far more critically than we need padded stats on output per hour. China has good output per hour and empty cities to show for it.

      Comment by thefourteenthbanker — April 7, 2010 @ 1:01 AM | Reply

  3. […] Productivity Growth, Jobs Report, and Misery According to Ben Bernake, productivity growth is the source of improvement in living standards.    That’s “Old Economy” and it is based on the illusion that monetary measures are accurate representations of living standards.     I suppose that could be somewhat true, in aggregate, if living standards were really a function of money.     Or, if money was stable.    Or, if accumulated monetary wealth represented real lasting wealth, or future productive ability of real goods, or what we can purchase in a college education for our children and grandchildren.    Perhaps if the hour of labor counted was an hour of satisfied employment with job security, a reasonable workload, a few moments for rest or reflection, a lack of harassment, no death by a thousand goals, the ratio might mean a little something more. […]

    Pingback by Blogmondo » Blog Archive » Cap’n, She Blows – I don’ know how much more we can take! — April 6, 2010 @ 4:19 PM | Reply

  4. Personal income won’t grow automatically with productivity. Much of the data of the last 50 years is skewed by the fact that there was an unprecedented economic expansion after WWII, coupled with strong unions that won good contracts and benefits for their members. Nowadays, economic expansions tend to be pretty weak and there are no unions left to speak of. The trend is people working harder and harder, producing more and more, for less and less. Constantly cutting payroll after productivity gains is great for a single business but when every business is doing it across the entire economy, unemployment goes up and causes problems on the macro scale.

    Comment by Binh — April 13, 2010 @ 8:37 PM | Reply

  5. […] leads to the next piece and its main point, which is reminiscent of my rant of several months ago. the entire profit recovery has been predicated not on GDP growth (which […]

    Pingback by More on Regime Change « The Fourteenth Banker Blog — August 27, 2010 @ 3:49 PM | Reply


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