Re: US productivity falls
At 11:33 AM 5/8/01 -0400, you wrote: Instead of the expected increase at a 1 percent annual rate, US productivity declined in the first quarter of this year. The preliminarly BLS results, seasonally adjusted, annual rates, were -0.4 percent in the business sector and -0.1 percent in the nonfarm business sector. This might be explained by the 5.2 percent annual rate increase in unit labor costs over the same time period. no it can't be explained that way, since unit labor costs (ULC) reflect labor productivity rather than vice-versa: ULC = (total employment costs)/(output) = (employment costs per worker)/(output per worker), where output per worker = labor productivity. Could it reflect a surge in one-time downsizing charges taken by employers? More likely, it's because output fell drastically (or output growth slowed down drastically) but instead of laying off workers in proportion to output, employers held onto overhead workers in management (line and staff employees). The overhead workers are supposed to contribute to output in the long run, but in the short run holding onto them means falling output per worker. This is a normal cyclical phenomenon (though the triumphalism of as little as a year ago would have denied the possibility of a normal cyclical phenomenon). If not, it may be a sign that a purely monetarist response may be unable to to get the US economy moving again. Since the economic crisis has entered the perception of the public earlier this year, the FOMC has reduced both the discount rate and the feds fund rate by 2 percent. Nevertheless, Fed watchers are anticipating another rate cut at the Committee's May 15 meeting. I'd say instead that the unused industrial capacity, the extremes of consumer and corporate debt (relative to assets, which have fallen in value), and the shift to pessimism are blocking monetary policy. So far, however, lower interest rates might spur growth in the housing sector. If that begins to fail, then monetary policy is pretty useless. It's true that lower interest rates can stimulate US net exports (by pushing the dollar exchange rate down), but that simply stimulates the US economy at the expense of other countries. This doesn't work if other countries' interest rates also fall -- or if there's an effort to stabilize the dollar. Worse, the policy could work _too well_: if the dollar falls drastically, that causes an inflationary shock to the US economy (rising import costs, including most raw materials), which encourages the Fed to start raising rates again. (Monetarism refers to an old-fashioned Friedmaniac philosophy of monetary policy, one that's been rejected by the vast majority of economists. (Monetarism involved the idea of controlling the money supply, not interest rates, and keeping the MS growing at a constant rate each year, no matter what happens.) However, as pen-l's Brad deLong makes clear, there's a heck of a lot of that old philosophy in what's now called Keynesianism.) It could be that the current crop of investors have become so risk adverse that they will not invest substantially even with reduced interest rates. To speak anecdotally, I'm not personally aware of any great new business plans or market opportunities. Particularly in the tech sector, there is no new killer app or new device that people simply must have. As a result, they continue to use the hardware and software they already have. This could change. The household market for PCs is pretty dead, since people don't need to replace old ones. The same applies to businesses, to a large extent, especially as the market for used PCs is swamped. In addition, it's smart to wait for PCs or MACs that have the promised new operating systems already built in, because the new OSs are very different from the old ones. It may be, however, that a Keyenesian government spending program could be required to spark the economy again. That's Dumbya's plan. Of course, he has to compensate for the regressivity of the tax cut (how it mostly helps the high end of the income distribution) by making it long-term (permanent) so that the well-to-do people who can plan ahead can rely on future tax cuts in planning consumption. The latter makes the tax cut more effective than if it were a one-shot deal. A Keyensian tax cut will probably not work if investors are so risk averse that they will not invest the money given to them by the government. They'll just pocket it. In short, the wheels are stuck in the mud, and no one is getting out to p Keynesian tax cuts -- including Dumbya's -- affect consumer spending much more than (real) investment. That in turn could create the markets that businesses require if they want to invest in new plant and equipment. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: US productivity falls
Also, it suggests that, contrary to the wishes of the new economy types, that Robert Gordon was correct in insisting that much of the recent productivity growth was cyclical. Andrew Hagen wrote: Instead of the expected increase at a 1 percent annual rate, US productivity declined in the first quarter of this year. The preliminarly BLS results, seasonally adjusted, annual rates, were -0.4 percent in the business sector and -0.1 percent in the nonfarm business sector. This might be explained by the 5.2 percent annual rate increase in unit labor costs over the same time period. Could it reflect a surge in one-time downsizing charges taken by employers? If not, it may be a sign that a purely monetarist response may be unable to to get the US economy moving again. Since the economic crisis has entered the perception of the public earlier this year, the FOMC has reduced both the discount rate and the feds fund rate by 2 percent. Nevertheless, Fed watchers are anticipating another rate cut at the Committee's May 15 meeting. It could be that the current crop of investors have become so risk adverse that they will not invest substantially even with reduced interest rates. To speak anecdotally, I'm not personally aware of any great new business plans or market opportunities. Particularly in the tech sector, there is no new killer app or new device that people simply must have. As a result, they continue to use the hardware and software they already have. This could change. It may be, however, that a Keyenesian government spending program could be required to spark the economy again. A Keyensian tax cut will probably not work if investors are so risk averse that they will not invest the money given to them by the government. They'll just pocket it. In short, the wheels are stuck in the mud, and no one is getting out to p http://stats.bls.gov/news.release/prod2.nr0.htm http://dailynews.yahoo.com/h/nm/20010508/bs/economy_productivity_dc_2.ht ml Andrew Hagen [EMAIL PROTECTED] -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: Re: US productivity falls
At 09:06 AM 5/8/01 -0700, you wrote: Also, it [the decline in labor productivity] suggests that, contrary to the wishes of the new economy types, that Robert Gordon was correct in insisting that much of the recent productivity growth was cyclical. yes, but it's hard to tell from one quarter's stats. We could have had a new economy spurt of productivity growth during the period 1996 to 2000. It's also possible that notional (constant unemployment rate) labor productivity is continuing to spurt, but that the slowdown/possible recession means that the spurt isn't being realized in terms of actual productivity. There was a spurt of labor productivity growth during the 1920s that wasn't realized during the 1930s but turned out to be the beginning of a new trend (compared to the period before 1919 or so) once high aggregate demand returned with WW2 and the 1950s warfare/welfare state. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: Re: Re: US productivity falls
Jim, I agree with you. I only said suggests. Maybe I am too suggestable. On Tue, May 08, 2001 at 09:47:53AM -0700, Jim Devine wrote: At 09:06 AM 5/8/01 -0700, you wrote: Also, it [the decline in labor productivity] suggests that, contrary to the wishes of the new economy types, that Robert Gordon was correct in insisting that much of the recent productivity growth was cyclical. yes, but it's hard to tell from one quarter's stats. We could have had a new economy spurt of productivity growth during the period 1996 to 2000. It's also possible that notional (constant unemployment rate) labor productivity is continuing to spurt, but that the slowdown/possible recession means that the spurt isn't being realized in terms of actual productivity. There was a spurt of labor productivity growth during the 1920s that wasn't realized during the 1930s but turned out to be the beginning of a new trend (compared to the period before 1919 or so) once high aggregate demand returned with WW2 and the 1950s warfare/welfare state. Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: US productivity falls
Jim Devine wrote: Keynesian tax cuts -- including Dumbya's -- affect consumer spending much more than (real) investment. That in turn could create the markets that businesses require if they want to invest in new plant and equipment. What's the theory behind this--ie tax cuts affect demand more than investment? In light of the Fed study that Michael just posted an article about, would not this have to do with the target of the cuts? Christian
Re: Re: Re: US productivity falls
I wrote: Keynesian tax cuts -- including Dumbya's -- affect consumer spending much more than (real) investment. That in turn could create the markets that businesses require if they want to invest in new plant and equipment. Christian writes: What's the theory behind this--ie tax cuts affect demand more than investment? In light of the Fed study that Michael just posted an article about, would not this have to do with the target of the cuts? it's absolutely true that tax cuts that are targeted to spur business fixed investment will do so (though Bush's proposal doesn't include this). However, these types of tax cuts are notoriously weak, delivering little or no bang for the buck. The problem is that businesses typically treat corporate tax cuts and investment tax credits as rewards for something they'd do anyway. Other concerns like cash flow and expectations play a bigger role. This is more of an empirical generalization than a theory, but it seems to be true. Maybe others on pen-l could help... Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~JDevine
