Tag Archives: productivity

Imaginary Numbers for Imaginary Growth

I’m sorry but it’s time to type out, yet once more, how we calculate the annual growth rate for the real GDP, and no, there’s no imaginary quarterly or annualized growth rate for the real GDP.  Now that we’ve reviewed, the financial inanity of the current administration is highlighted by policies which are in direct variance with the stated goal of increased economic growth of 3%.

There are two numbers we absolutely need in order to have economic growth: Labor force increases; and, Labor Productivity increases.  The labor force is obvious, how many people of working age are in the workforce. Productivity pertains to how much can be produced by those workers.  For more information see this article from the St. Louis FED.  Suffice it to say that if the labor force growth is 0.5% and the productivity growth rate is o.5% then the economic growth rate will be 1%.

There are a couple of bits of Reality we need to introduce at this point in time: (1) The baby boom is over. (2) We are poised to severely limit our immigration.

As of 2015, the number of baby boomers ranges from 74.9 million to 82.3 million, depending on whether the generation begins with the birth year 1943 or 1946.” [CNN] No matter which year one assumes for the beginning, it was over by 1964-65.  Growth in the labor force has not, and may rationally not, increase at levels seen when the Boomers hit the job market. And, now they are exiting.  Those born in 1965 are now 52, with about 13 years left before retirement; those born during or before 1952 are presumably retired already. So, what is happening now?

“The US fertility rate has been in a steady decline since the post-World War II baby boom. Back at its height in 1957, the fertility rate was 122.9 births per 1,000 women. The latest quarterly CDC data also indicate the larger pattern of women having babies later in life. As birth rates increased among women in their 30s and 40s, the rate among teenagers and women in their 20s dropped.” [CNN]
The current rate is 59.8. There are factors associated with lower birth rates; for example, in developed nations urbanization is a factor — children aren’t a major need for their work in agricultural pursuits.  Another factor is the cost of raising the children, it’s more expensive to raise children in a developed country where those children don’t enter the labor force until they are in their late teens or twenties.  Further, the urbanization trend continues apace in the US. [Census] [Slate] More urbanization, more education, and we can’t reasonable expect a repetition of the Boom in the foreseeable future.
So, if we aren’t increasing our labor force via the old birth-rate route, then the other way is immigration, and this warning from the Los Angeles Times:

“Trump in his first weeks in office has launched the most dramatic effort in decades to reduce the country’s foreign-born population and set in motion what could become a generational shift in the ethnic makeup of the U.S. Trump and top aides have become increasingly public about their underlying pursuit, pointing to Europe as an example of what they believe is a dangerous path that Western nations have taken. Trump believes European governments have foolishly allowed Muslims with extreme views to settle in their countries, sowing seeds for unrest and recruitment by terrorist groups.”

This seems a polite way to say that the Trump administration would like very much to limit immigration to white Western Europeans. If we don’t allow immigration from Mexico and Central American nations, and we severely limit immigration from predominantly Muslim nations, then what’s left?

And, in terms of increasing the labor force, here’s where the policy and the reality clash. If we want an increase in the birth rate in order to increase our labor force, then the women having those babies are more likely to be foreign born immigrants to the US. [Pew]  We don’t get to have it both ways — limiting immigration both limits the number of people available for immediate employment, and the number of little people who will grow up to be a portion of our labor force. Once more with feeling, if we limit immigration we necessarily limit our economic growth.

One of the amazing things about conservative/trumpism ideology is the notion that elements diametrically opposed to one another may somehow be massaged by empty rhetoric into actuality.  Somehow, we are supposed to believe that we can have 3% economic growth while limiting our immigration unrealistically, and while continuing the urbanization of the country. Only in the fever swamp of right wing ethnocentric white supremacist thinking is this going to “happen.” And, the happen part is in quotation marks because this is Neverland.

So, no — we don’t get the deficit reduced by cutting taxes on corporations, millionaires, and billionaires. No, we don’t get a balanced budget by cutting non-defense discretionary spending, and NO we don’t get 3% economic growth by unrealistically impeding immigration.  2 + 2 does not equal 7.

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Filed under Economy, Immigration, Politics, Republicans

The Quick Easy Fix Jumped The Lazy Grey Shark

Life would be lovely if we had Quick Fixes for Every Problem.  Flat tires would instantly repair themselves and major economic issues would disappear immediately.  If there were Quick Fixes the Las Vegas housing market wouldn’t be reporting a 30 year low in new home sales.  [LVinc] However, there aren’t many Quick Fixes in the world, and restoring the housing market isn’t like taking an aspirin for a minor headache.

The kernel of the problem is here: “During the current recession, Las Vegas new home sales have tumbled because of high unemployment, which is now at 12.5 percent, and lower prices driven by competition with foreclosed homes.” [LVinc]  Key elements: Recession, Unemployment, and Saturated Market.  Let’s look at the recession part for now.

RecessionTechnically speaking the Recession is over.  The NBER made the Recession official in December 2007.  [WSJ] And, according to NBER, which makes such official calculations for us, the Recession was  over in June 2009. [NBER] So, why do economic writers and other journalists still say things like “in the current recession,” or “in these tough economic times?”

The answer is that official calculations and conclusions are drawn from broad measures of economic activity [NBER] which indicate an increase in economic activity.  So, once things get moving upward again — the Recession is officially over.  Notice that this has nothing to do with making up for losses. According to the NBER the recession is over when the economy starts expanding again, NOT when individuals and businesses have recouped their losses.

Therefore, while the recession is officially over, it doesn’t feel that way because, as Warren Buffett put it in late 2010, “On any commonsense definition, the average American is below where he was before, or his family, in terms of real income, GDP,” (gross domestic product) Buffett said on CNBC. “We’re still in a recession. And we’re not gonna be out of it for awhile, but we will get out of it.” [SeekingAlpha]

It’s January 2012 and the “average American” still hasn’t recouped the losses of 2007-2009, which tells us a couple of things.  It tells us that the collapse of the housing bubble and the Great Recession were drastic economic events, and it tells us that we have systemic problems that aren’t going to go away with incantations of politico-economic piety.

The following chart from the Federal Reserve [CNNMoney] shows what happened to household wealth during the collapse:

Obviously, the blue line isn’t back where it started in the 1st Quarter of 2007.  “U.S. household wealth fell by about $16.4 trillion of net worth from its peak in spring 2007, about six months before the start of the recession, to when things hit bottom in the first quarter of 2009, according to figures from the Federal Reserve.” [CNNMoney] (emphasis added)  Even climbing back up didn’t fix everything, because as of June 2011 we were still $7.7 trillion below where we were in June 2007. *

Income distribution trends aren’t helping.  The rich and the well educated, have been able to shrug off the effects of the decline in household wealth, and are leading the recovery such as it is.  For the American Middle Class the story is unfortunately different:

“Arguably, the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing-out of the middle class. Median incomes declined outright from 1999 to 2009. For most of the aughts, that trend was masked by the housing bubble, which allowed working-class and middle-class families to raise their standard of living despite income stagnation or downward job mobility. But that fig leaf has since blown away. And the recession has pressed hard on the broad center of American society.”  [Atlantic]

The trends in income inequality do make a difference, because as wealth is siphoned upwards, the portion of the population which once drove “consumer spending” and hence the consumer economy, doesn’t have the clout it had in 2007.  [Reuters/Salmon]

If we believed most of the classical economists who predicted that with the expansion of the economy beginning in June 2009 the median household income would have at least started to revert to the mean we would have been as wrong as they were.  It didn’t.  Instead, “it fell off a cliff.” [Salmon] Why?

(1) The loss of that much household wealth put the brakes on consumer spending.  The contraction in consumer spending reduced demand for goods and services, and the contraction in demand further restricted employment opportunities.

(2) The trend in American employment from manufacturing and other sectors into the less well paying service sector has been documented since at least June 2008.  The Population Bulletin (pdf)

Their chart shows the increase in the percentage of the work force in the service sector (generally less well paying) since the 1950s.

(3) We’ve been watching the wrong numbers.  It’s popular in some circles to keep an eye on Productivity statistics as a measurement of economic health.  What’s “productivity?”

“An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in revenues and other GDP components such as business inventories. Productivity measures may be examined collectively (across the whole economy) or viewed industry by industry to examine trends in labor growth, wage levels and technological improvement.”  [Investopedia]

In simpler terms “productivity” is all about doing more with less, the standard definition of efficiency.  That would be less capital and less labor.  Translation: Higher productivity numbers usually mean a corporation has fewer people who are now working harder to produce an increasing amount of stuff.   This has great meaning for investors, who will be impressed by the increasing productivity of the Great American Widget Company’s operations.  It is not so impressive to those who might have thought of working for the Great American Widget Co.

The real question is how did we come to believe that our overall economy was in good shape because the productivity numbers were increasing?  Productivity numbers are important to investors, and the investor-class (i.e. the Financialists) have been promoting their perspective in business news for the last three decades.

When the hole into which we have fallen is sharp and steep, like the loss of at least $16.4 Trillion in household wealth, and employment trends have been steadily increasing in less well paying jobs, and income distribution trends have eroded the spending capacity of middle income Americans, and we’ve been fooling ourselves that increasing productivity equates to economic health in the real economy, then the probability of a Quick Fix in an economy controlled by  Financialist Sharks is low indeed.

* For a more specific look at the loss in household wealth during the Recession see the Federal Reserve’s publication (pdf) “Surveying the Aftermath of the Storm: Changes in Family Finances 2007-2009,” March 2011.

The ILO’s report (pdf) on “Global Employment Trends: 2011” adds information on the uneven employment trends in the global economy.  See also: “Can the Middle Class Be Saved?” The Atlantic, September 2011.

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Filed under Economy, Nevada economy, recession