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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

December 18, 2012 at 10:30 AM

The productivity slowdown mystery, part II

Yesterday, I tried to make a dull-as-dirt report from the Federal Reserve Bank of Chicago interesting with a detective-story parody. Most readers were having none of it, and the report indeed points out a dangerous fall-off in productivity growth in the United States and many other advanced nations.

One wrote:

Have you or the feds ever considered that the issue may not be directly economic or data driven? I suggest that working people are just plain weary, worn down by the recession, by a ridiculously long political period of an onslaught of lie after lie, and, I believe, most important of all, distrustful and resentful of their employers exploitation of them during this recession by demanding more work with fewer employees knowing full well that everyone is scared of losing their jobs. Management policies like these depress morale and result in lower productivity.

He makes a good point. The stagnation of productivity growth has complex roots, and this is probably one of them. Others examined by the Chicago Fed economists included a tail-off of investment in information and communications technology, the “exhaustion” of gains from the IT revolution, the quality of education and the workforce, declines in government infrastructure investment and a problem of measuring the services sector.

I suspect all this is at work. As the Fed report states, the 1970s saw a similar period of stagnation followed by a rebound and this might happen again. But the metrics aren’t accounting for substantial changes in the economy: The rise of finance and wasting of capital in gambling and rentier behavior (“give me more of the pie!”) rather than investing in innovation and job creation; offshoring of jobs, manufacturing and even research, and the relentless rise in inequality. All these sea-changes eventually affect productivity.

As for those of you re-arguing the New Deal: It did in fact improve employment and raise output. By 1936, GDP hit a new record, recovering 40 percent from its 1933 trough. The exception was when FDR slashed programs to balance the budget in 1937, causing a sharp recession. The New Deal did not end the Depression. It did ease suffering, embark on public works we still use (and which bolster productivity), begin a safety net and such controls as Glass-Steagall (repealed in 1999) to avert future crises. It did restore national hope and confidence that had been lost under the tragic Herbert Hoover. Whatever alt-“history” you may have learned from talk radio and Fox “News,” the New Deal saved capitalism. That’s why true leftists hate FDR more than they hate Ronald Reagan (whose hero remained Franklin Delano Roosevelt).

And Don’t Miss: Don’t believe the gasoline hype || OilPrice

Today’s Econ Haiku:

Ten years for hacker

Corzine’s skiing in Aspen

Mozilo blames you

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