Wednesday, March 31, 2010

Productivity Plunges

April 1, 2011 New York, NY

A Bloomberg poll of leading US economists found that 79% were “shocked” or “dismayed” by the recently-readjusted Bureau of Labor Statistics data showing that labor productivity in the United States plunged by 13.8% in 2010. Asked how they felt about the corresponding sharp decline in U3 unemployment – from 10.1% to 6.3% - 31% of these economists said improved employment numbers were “welcome”, but 88% considered the correlation (between falling productivity and falling unemployment) “counterintuitive” or “irrelevant”. All agreed that the top priority must be to return to increased productivity and healthy economic growth as rapidly as possible.

In addition to the improved employment situation there were other signs of progress last year. The US trade deficit fell by 18.4% in 2010 as demand for petroleum products and imported consumer goods “fell off a cliff”. Consumption of energy overall, demand for minerals and metals, and purchases of snack food products all showed steep declines, and total vehicle-miles-traveled dropped an astonishing 13.4%. Household debt fell by 15.8% as consumers saved more and spent less.

Climate scientists were delighted to announce that US emissions of greenhouse gasses in 2010 went down by 12.6% - a result which bolsters Stanford University Professor Clausius Carnot’s contention that nuclear and renewable energy sources can provide much larger percentages of US electricity usage when electricity consumption declines. Professor Carnot has generated much controversy – and elicited more than a little scorn from the Wall Street Journal editorial board – for his radical theory that climate change is being driven by “an excess of economic metabolism”.

The good news extends to health as well. “People are happier when they have useful work to do”, noted Dr. Howard Frumkin of the Centers for Disease Control in Atlanta. “Moreover, with the steep reductions in automobile usage and petroleum consumption, more and more people are employing their legs and arms to do physical work. When it becomes normal for people to walk or bike to the grocery store and other nearby destinations, this definitely hurts the auto industry, the oil industry, the roadbuilders, and so on. Hell, it even hurts the health-care industry, because obesity is the primary engine of growth for the medical sector of our economy. So we have this weird situation where the economy is shrinking but people are better off. We’re in uncharted waters.”

But none of America’s most prominent economic thinkers is willing to concede that a mere year’s worth of evidence might disprove long-established economic theory. Thomas Friedman of the New York Times notes, “Everyone knows that the only way to grow the economy is to increase labor productivity – to grow output of goods and services per hour of human labor. And everyone knows that the only way to maintain healthy levels of employment is to increase consumption sufficiently to offset the decreases in employment per unit of output. This is Econ 101, for God’s sake.”

“So even if we presume Earth is flat, how could less employment for fossil fuels and less employment for machines translate into more employment for human beings? This sounds like the ravings of the Luddites; like Marx and his ridiculous ‘crisis of surplus labor’. Well, we are a lot smarter now; smart enough to know that such ideas are pure bunk.”

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