The Great Debate©: Is Productivity Driving the Economy or Is It Something Else?

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Editor’s note: A recent GEI News article presented a research paper from the Altanta Fed, written by Andrew Flowers, a senior economic research analyst in the Atlanta Fed’s research department.  In that paper Flowers discussed the debate between those who argue that technology is permanently displacing humans from employment (i.e., “the robots will take over everything”) and the counter argument that a new range of human activity will create employment needed to interact optimally with the automated world of the future.

The Productivity Paradox: Is Technology Failing or Fueling Growth?

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The Productivity Paradox:

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Response to the Productivity Paradox

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The opinions of both economists cited in the Atlanta Fed article by Andrew Flowers are wrong.  Take a look at the 5 major recessions we’ve had since 1980 (this commonly used graph created by Bill McBride at Calculated Risk was recently used in Professor Stephanie Kelton’s excellent article, Five Ways to Improve Your Odds of Succeeding in the Labor Market):

Every recession has taken longer to recover from than the previous ones, with the current “recovery” (too strong a word, actually) being the longest, by far. (The correct way to look at the 1980 and 1981 double dip is possibly as a single long recession).

This is no accident. It is the result of deliberate policies, begun slightly under Carter, accelerated greatly under Reagan, Bush I, Clinton and Bush II, and now Obama, that favor the rent-seeking class over the productive class.  The former is by definition parasitic.  It feeds off the surplus in the productive sector.

If the productive sector is starved by disproportionately high taxes – with the inescapable payroll tax, loopholes at the upper end and the 15% capital gains tax and carried interest tax for billionaire hedge fund managers, middle class taxes rates now higher than upper class rates plus low investment in things like infrastructure, off-shoring of both jobs/businesses and assets, diminished educational standards/results, etc. -  production must slow.

Average federal tax rate for taxpayers with positive AGI*
Minimum income Average federal tax rate
Total* N/A 11.06%
Top 1% $343,927 24.01%
Top 5% $154,643 20.26%
Top 10% $112,124 18.05%
Top 25% $66,193 14.68%
Top 50% $32,396 12.5%
*All taxpayers with positive AGI in 2009, the latest year for which statistics are available.
Source: IRS

Of course, the developing world, esp. China, is going in the opposite direction.

The article’s argument that technology is displacing workers is a bogus one. Germany and China have high technology too (Foxconn and BMW, respectively, to cite just two of many examples), but also decent levels of employment. Singapore is one of the most technologically advanced nations on Earth, with a higher standard of living than ours, by far, and has an unemployment rate under 2%.

Similarly, the argument that aging demographics cause high unemployment is belied by Japan’s 4% unemployment rate. In fact, it should be pretty obvious that a shrinking labor force is easier to employ, not harder. In fact, declining jobs and production is just the result of discredited Austerian (not Austrian) programs to reduce the money supply.

Furthermore, there are always and everywhere, millions of jobs to be done, and millions of people who want to do them.  Capability on the street to execute the work needed is another story.  Education is another word for training, and companies do far less of that than they used to, while expecting employees to train themselves more and pay for it too.  And then these same companies complain hypocritically about the lack of trained workers.  Just how far would Henry Ford’s vision have carried him in the early 2oth century if he had sat back and complained about untrained workers?

It is the allocation of resources, particularly money – which IS NOT WEALTH – that is responsible for our decline.  Monopolies on Land and other natural resources, add greatly to the problem.

No fix will work without addressing these imbalances.  The productivity discussion is just a smoke screen which obscures deeper structural flaws.

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