Is productivity the victim of its own success?

by jseliger • 10 years ago

78 57 10 years ago

Animats• 10 years ago

Not one word about demand.

Most of the US population is out of buying power. The savings rate is near zero. More than half the population couldn't come up with $400 in an emergency. The US economy is demand-limited, not production-limited

eru14• 10 years ago

Not enough demand shouldn't be a problem: the central bank can just print money.

(I write "shouldn't" not "isn't" for good reason.)

x5n12• 10 years ago

The central bank is printing tons of money and continuously pumping it into the economy. Americans don't feel the effects of that as everyone uses American dollars. So it's almost as if the central bank is creating gold, which is suppose to be a finite quantity. It does nothing.

At the end of the day corporations must borrow that money and corporations are sitting on tons of their own money, they don't want more money to hire employees. They don't know what to do with the money they have. They can make goods, but no one will buy them at the levels of profit they need. So they just sit on the money.

When the fact is the economy is efficient and they should be making goods even if they are not profitable, i.e. at cost... just to create employment, give people money, with which they can buy things. But that's not how the profit motive works. The management consultants and management theory have pushed this idea in their heads, and they are sticking to it, that they need to create profit always. Shareholders demand it! But profit is hard to come buy these days. So they sit around and do nothing instead. Jobs don't get created, people are starved for money and that vicious cycle ensues and consumption goes down.

Scarblac• 10 years ago

They do that, but it doesn't end up with consumers.

FiatLuxDave• 10 years ago

They've been doing that since 2009 (and arguably before).

The problem is that the money is distributed through the broken financial system which isn't distributing the money through the entire economy efficiently. This is why we currently have local inflation in San Fransisco and New York, and local deflation in Mississippi and Nebraska.

To use a hydraulic analogy, the central bankers have two things: control of a spigot, and an average water pressure gauge. The gauge shows decent water pressure throughout the pipes. But some parts of the system have very high water pressure, and in other parts the pipes are almost dry. Someone needs to solve the real problem, which is that the pipes are blocked.

Personally, I think the issue has been caused at least in part by the confluence of two factors: consolidation in the retail banking industry, and the growth of venture capital (which tends to predominantly fund ventures in geographically limited areas). This is why people with just an app idea could get plenty of funding in certain regions, but getting a small business loan in fly-over country requires showing 5 years of profitability. The risk profile of funding is very geographically distorted, with most of the country dealing with risk-averse funding and too many risk-takers concentrated in certain cities.

riot5042• 10 years ago

I can't tell if this serious or not, but central banks printing money is terrible and the root of the problem.

eru14• 10 years ago

There's lots of little and big reforms possible to help the productivity of the economy. Of course, most of them are politically infeasible in most countries.

I wonder about the long term effect of these reforms. I am afraid there will be mostly one-off linear factors, and not contributing much to higher future growth.

(My argument rests on the observation that eg the poster child Singapore is rich, but not pulling ahead more-and-more.)

ktRolster2• 10 years ago

There are so many potential places to find more productivity in our society, automation, AI, self-driving cars, and that's just the big, obvious stuff.

eru14• 10 years ago

Yes, so the question is: why doesn't it show up in the statistics? (Please read the article..)

ktRolster2• 10 years ago

It will when AI is invented.

SFJulie• 10 years ago

So basically you have money, you build a plant and you an produce goods with a marginal cost of 0 and just get rich because you had access to capital mostly by birth.

Hug, it will not help most citizens to access the production sphere.

It will not help fair competition, hence innovations. It is just about who has the most capital. Are we back in XVIIth century were lords owns the lands and the production?

Does it strikes no one that most of western so called democracy were built to fight exactly this situation and the social inequalities raising from this case?

Especially when all countries are trying to make it impossible for citizens to produce on their own in their private habitation.

Regulations are creating an economy where the poorest cannot neither sell their workforce by lack of demande, nor produce by themselves, nor offer services.

amelius• 10 years ago

Does it strikes no one that most of western so called democracy were built to fight exactly this situation and the social inequalities raising from this case?

The problem has been identified many times. What is left is to find a solution ...

cmdrfred2• 10 years ago

We have a solution [0]. It just has its own issues and has to be redone every 100 years or so.

[0]http://youtube.com/watch?v=exnaY0l4XsM

aianus• 10 years ago

the poorest cannot neither sell their workforce by lack of demande, nor produce by themselves, nor offer services

Not the poorest, just the most uneducated.

My parents had basically nothing when they immigrated (they sold their paid-off home representing years of savings for a sum a US worker could earn in a couple months at McDonalds) but they were both skilled engineers and were able to secure middle-class white-collar jobs in the west relatively quickly. Jobs they still have to this day.

Super_Jambo• 10 years ago

The problem is not productivity growth it's resource allocation.

Markets only optimize for good market performance. Since we do nothing to stop all the non-market game playing (mainly regulatory capture, monopolies & advertising), our markets have been optimizing for firms best able to corrupt the process.

Why make an ISP that delivers good speeds at a low cost when you can bribe local government to make you the only supplier?

Why make good smartphone hardware when you can bundle a package of hardware, software and BRANDING! And charge vastly more?

Why sell access to information people want when you can sell access to marketing information on peoples searches helping pervert the information people use for their decisions?

The people in charge are too busy enriching themselves inside the existing system and as a result some huge fraction of the population is working to directly harm the interests of everyone else.

darawk3• 10 years ago

Why make an ISP that delivers good speeds at a low cost when you can bribe local government to make you the only supplier?

Because Google Fiber will come along and eat your lunch. Hopefully anyway.

Why make good smartphone hardware when you can bundle a package of hardware, software and BRANDING! And charge vastly more?

Apple does that, and they make a fine business out of it. But Android, who doesn't, is overwhelmingly the market leader.

Why sell access to information people want when you can sell access to marketing information on peoples searches helping pervert the information people use for their decisions?

Are you implying that all advertising necessarily perverts decision making? Indeed, 'brand' advertising arguably does. But a lot of advertising is just about making people who want it aware of your product. If you have a need and I make a product that meets that need, and you see an ad for my product, we are both better off now, aren't we?

bigp3t3• 10 years ago

I think SuperJambo is referring to companies who use advertising to skew facts relating to their brand or others. In the US, for example, I understand that companies are allowed to practically slander each other publicly in advertising. It seems very hostile from an outsiders perspective.

cmdrfred2• 10 years ago

Google fiber keeps getting sued out of existence, I don't know how you can call it a free market.

http://arstechnica.com/tech-policy/2016/02/att-sues-louisvil...

cousin_it2• 10 years ago

When used to allocate production, markets maximize efficiency. But when used to allocate consumption, markets often minimize happiness. For example, if you sell a glass of water to the highest bidder, then Poor Alice who's dying of thirst will be outbid by Rich Bob who wants to water his potted plant. That's not just a theoretical example, you can name ten such situations in the real world without stopping for breath. In other words, diminishing marginal utility of money means that markets are only half of the solution, not the whole solution. It's a pretty simple idea and I'm not sure why it isn't well known.

jerf2• 10 years ago

If your anecdote were accurate, rich people would not have most of the things; they would have all the things. Your model is so incomplete that it is misleading you.

Mind you, I'm not saying you'll love everything about the market when you understand it, but that anecdote is not a useful way of thinking about the world, because the model that it implies clearly fails to accurately model the world. Which is probably why it is not "well known".

alanwatts• 10 years ago

Could you define what you mean by "markets"? It seems like a very abstract, ambiguous term

cuchoi• 10 years ago

I agree with you, but I am curious about which specific real-world examples are you thinking of. It would be great if you can describe one or two.

darawk3• 10 years ago

New services cannibalize time from old services. If I come up with a new way to use worker’s time, by necessity it must subtract from the time they spend doing something else

This is not universally true. It is possible for technology to allow one service worker to service more people simultaneously. Consider the increased productivity of tech. support workers due to the introduction of asynchronous communication like chat as opposed to voice.

eru14• 10 years ago

The article's toy model is too stark to capture this nuance.

stult• 10 years ago

Absolutely. The model is far too simplified to have any real explanatory power. The most basic premise is flawed. Goods and services aren't perfectly complementary. I might want a burger from a restaurant, but it's too expensive so I cook one at home. I might want to take a taxi, but it's too expensive so I buy a bike. I might want a lawyer, but it's too expensive so instead I buy a self-help law book. And software increasingly blurs the line between goods and services for a grower percentage of the overall economy.

dredmorbius4• 10 years ago

The model assumes that time spent on services is perfectly efficient, or rolls this into the service quality measure.

In reality, a potential service period can be divided into utilized and unutilized segments. The model of a CPU's run queue and time slots may be useful here.

If you're under-provisioning services, you'll stack up customers (processes) in the run queue. If yo're overprovisioning services, you'll have high idle times. Most likely you'll see a bit of both. If you have a perfect allocation system, the queue length is always one (the job running) and there's no idle time.

Technology allows you to approach that ideal. Waiting customers can be paired with idle servers. But it's not perfect, especially with services that have a physical component and travel. And you're left with the hard limit of there being only one hour per hour.

Scheduling and dispatch systems are also already aggressively persued. See Lyft.

eru14• 10 years ago

Yes, though Lyft and Uber are on the verge of replacing their labour inputs with capital. Ie self-driving cars are around the corner.

Bartweiss• 10 years ago

This is tangential, but it's an interesting choice to pick a URL which parses as "Grow The Con" just as well as "Growth Econ".

dredmorbius4• 10 years ago

Reading this post is like walking into the middle of an old family dispute and thinking you've heard all of it. This is just one wrinkle of a much larger and older discussion that's been ongoing in various forms for at least the past 240 years, going back to Adam Smith, though the modern concern with economic growth dates largely to the Great Depression and post-World War II period.

The model here is looking at the question of economic growth (which is distinct from the question of distribution, though not unrelated), and of a simplified economy in which only mutually exclusive goods and services can be offered.

The conclusion (under artificially but not un-usefully simplified terms) is that even with continued growth in efficiency of goods provision, services are ultimately constrained by the requirement of time as the ultimate input.

It's possible to quibble in various ways about the model, but it's essentially correct. A services-based economy is limited by the element of time in both production and consumption. Media already has the problem of there being only so many consumption-hours per day, and people are already consuming more than 24 hours of media per day through the mode of multitasking.

A key problem, of course, being that multi-tasking reduces the total capability to incorporate any given media stream.

Going more broadly:

There's the question of what accounts for economic growth. The traditional economic answer is "technology", though that answer itself is flawed and raises the question of what technology is, and more specifically, how different types of technology operate and act, as well as what kinds of production or services they enable, and how.

Robert J. Gordon's book, The Rise and Fall of American Growth looks at this, in detail, though imperfectly.

One of the book's better points is that the innovations of 1870 - 1950, generally, addressed very fundamental human needs: food, housing, clothing, transportation, and safety. With tremendous impacts on these: food and diet (both quantity and quality), health, work and productivity, communications, and transport.

The innovations of 1950-2015 have been far less fundamental. They've been concentrated in information and communications, which yes, have changed and improved tremendously, but they don't address needs and capabilities at the base of human wants. A term not used anywhere in Gordon's book is Maslow's Hierarchy of Needs, among several disappointing deficiencies. The 1870-1950 innovations largely addressed the base of the pyramid. The 1950-2015 innovations have largely addressed the higher elements. This isn't entirely useless, but it's not foundational. And Maslow's Hierarchy cannot be built from the top down.

The discussion's been going on for a long time. Adam Smith, Thomas Malthus, John Stuart Mill, Thorstein Veblen, Joseph Shumpeter, John Maynard Keynes, John Kenneth Galbraith, Robert Solow, and more. My sense is that mainstream economics has rather lost the thread, though it does some work of interest. Gordon's book stumbles over the truth then picks itself up and walks on. It does however point to several factors, including education, which don't account for growth. In that, it's useful.

Is productivity the victim of its own success?

Related Stories