Overture:


But [productivity] is also really hard to measure, particularly for service firms. (How productive were employees at Facebook, or your local bank, last quarter? Have fun trying to figure it out.)
-- Neil Irwin/2016

More times than I can count, these essays have mentioned that productivity software (word processing, spreadsheets, and word processing) has never been shown to actually improve productivity. Particularly the GUI-fied types: it's just more fun to play with the sizzle than to worry about making a really good steak.

Alas, both Dr. Gordon and the article linked to in the Irwin quote fail to pursue the nature of economic growth in the world today. For too long economic growth was deemed a result of population growth; in order to have economic growth we must have a growing population. While that was, sorta kinda, true in pre-industrial economies, it ain't so no mo.

We now live in a world constrained by diminishing natural resources and diminishing vectors of discovery in the macro-world. Cosmology continues to discover new artifacts "out there", but here on the Blue Marble we know all there is to know about how nature works. Even in my remaining lifetime (if the wife doesn't do me in prematurely) the limits of science and engineering of semi-conductors will be reached. The crash of Apple shareprice can be traced back, without too much gymnastic difficulty, to the diminishing returns of electronic tech. Reporting, for which I didn't save any links (but you can find such, I expect), from China is that the latest iPhone isn't much coveted there. That the 6S models aren't meaningfully different/better than earlier ones no longer excites even the most ardent fanbois to raise a defense.

So: the questions boil down to how to generate economic growth and how to measure it. A suggestion follows.

It's the distribution. Income distribution, that is. Economic growth in a [post-]industrial economy isn't driven by population growth. Back in the 19th (and, perhaps, early 20th) century, when production was skewed to survival necessities, then such an argument held some water. If you're a farmer growing wheat or a factory making shirts, you understand, implicitly, that one individual can consume only so much bread and have need for only so many shirts. In order to sell more wheat or shirts, you look to vigorous breeding. Failing such breeding occurring, how about importing hungry migrants? Well, the USofA did just that.

With a service skewed post-industrial economy, having yet more poor mud people doesn't help the situation. The stuff they need is mostly made in China and other Far East countries. American ownership of such production facilities improves profits, but does nothing for domestic growth.


The government has now made a significant change in the gross investment number (I), which now includes research and development (R&D) spending, art, music, film royalties, books and theatre. This change in GDP statistics has not been implemented elsewhere in the world. So the United States is the first to accomplish this rewriting of the GDP number.

Adding such fantasy sectors to GDP only serves to encourage more sizzle making rather than steak making. GDP really, really should only include the stuff that most folks consume.

More than ever before, distribution matters to support aggregate demand, since much of what is produced inside our borders is service to the moneyed class. We need to grow the moneyed, and near moneyed, class. Perpetual concentration of income and wealth does just the opposite, and constrains growth.

Growth, even following Gordon's limited view, is driven by expansion of knowledge of the physical world we live in. Art and film are nice, but don't mean much in the scheme of things. More sizzle, less steak. A Mr. Fusion would go a long way to supporting growth with a static population. One can only hope.

Cue the Flomax commercial. And a tip of the hat to Andy Sipowicz.

Views: 50

Comment by nerd cred on April 29, 2016 at 10:40pm

There's something missing in my understanding of this ... or it's just missing?

Can growth be redistributed to eliminate poverty and starvation?

Can it be lateral in an otherwise apparently stagnant economy? Is growth really necessary, is the worship of it necessarily beneficial?

I'm going to have to read this again, and your last one, too, I think. Not tonight, though. 8-)

Comment by Robert Young on April 30, 2016 at 5:27am

-- Can growth be redistributed to eliminate poverty and starvation?

of course.  (the claim is the out-sourcing has moved millions of Chinese out of poverty.  that effect, if true, has been on the backs of Americans falling into poverty, rather than the 1% relinquishing a small amount of moolah.)  growth **only** requires that aggregate demand be increasing; the growth process doesn't give a rat's ass whether aggregate demand increases on the backs of the 1% or the 99%.  we know, from history (and current experience) that the 1%, already having more moolah than they know what to do with, don't buy more stuff if they get more moolah.  we also know, from history, that the period(s) of greatest growth, in the USofA, happen when income distribution is skewed to the 99%, rather than the 1%.  the most recent, and strongest, such period was 1950 - 1970, i.e. post WWII when Our Leaders understood that The Tribe mattered more than Roark.

-- Is growth really necessary, is the worship of it necessarily beneficial?

not really, but that gives you a stagnant Dark Age.  depending on the quality of life and in the near future, it might be stagnant, but not very Dark.  as greedy, self-absorbed humans, most of us think so.  Marx argued otherwise, although sub rosa.  reading Gordon's book, one might wonder what aspects of growth/progress actually matter.  in my view there is only one:  medicine, since it's the only one that gives us more life.  in order to advance medicine, we've needed science/engineering advancement in other areas.  kind of chicken and egg to that.  on the whole, though, growth is good (to bend Gekko), since there's more stuff for the population.  the rub:  which population?  all of it, or just the anointed few?  the essays on "The Tyranny of Average Cost" make the case that in medieval times (and most pre-industrial), more production meant more hands in the process, so population growth was a needed precursor to growth.  now, with robotics and automation replacing ever more functions of humans in production, the capital cost of a widget keeps going up.  and if fewer and fewer (i.e., the 1% and .1%) can afford to buy stuff, the cost per widget goes higher than it would in the 100% buy the stuff.  for example:  a $1,000,000 machine is needed to make some widget; if it makes 1,000,000 widgets the machine cost per is $1 but if there's only demand for 10 widgets (i.e., the .1% are the only buyers) then the machine cost per is $100,000.  then, only the .001% can afford one.  the 1% and .1%, thinking that they can have this widget and keep it from the 99% have shot themselves in the foot. 

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