Wednesday, May 23, 2012

Productivity and Austerity

Two words that should mean the same thing actually signify completely different things when applied to the private and public sectors, respectively. The two words are productivity and austerity.

It's universally recognized by economists that increased private sector productivity brings prosperity. Why don't we accept the simple but rejected idea that increased public sector productivity would help cause prosperity as well?

In simple terms, when we produce more for the same effort or as much for less effort, we get more output in relation to input. That's a good thing. Think of crop yields per acre, pages read or output per hour of work, as examples of productivity.

And if we can accomplish the objective by stopping the performance of work that no longer needs doing, that's a great thing. We get the desired result by subtracting the unnecessary effort.

But even if we can't stop doing what we're doing because the work needs to be done, we can always improve how the necessary work is done. That's the habit of continuing improvement, and ongoing improvement is a good thing. Less input for the same output, in other words.

In the private sector, sustained productivity improvement is essential to sustained success. Sales per employee, production per employee and inventory in relation to sales are common measurements of work place productivity.

Thus, more output for the same input or the same output for less input is how productivity is defined. (One example in the private sector would be that a ton of steel used to take ten man hours and now takes two man hours to produce. Contrast that with the fact that teachers in the public sector have smaller class sizes than they did years ago.)

Productivity is what makes an individual, company or nation prosperous.

There are two fundamental ways to improve-- (1) continuously and (2) discontinuously. Examples of continuous improvement would be making small ongoing changes to achieve marginal gains in output per hour of work. Discontinuous or disruptive change brings about quantum leaps in output per unit of input. Think automation or other technological changes.

We can achieve continuous improvement by eliminating wasted effort, for instance. Think of competitive swimming. The one who appears to be exerting less effort usually wins the race. Stated another way, perfection results from the process of subtraction, aka wasted input or effort.

Discontinuous improvement or disruptive change often, but not always, results from technological advancements. Kindle book readers in lieu of a visit to the local book store, Amazon shopping "trips" in place of driving to Circuit City or Best Buy, searches on Bing or Google for information instead of a physical trip to the library and other similar time saving productivity enhancements are great examples of quantum leaps in productivity. Time is constant, so the more we can do in any unit of time, the more productive we become.

From the Good Word to the Bad Word

In the public sector, we speak negatively when we use the word austerity. We don't call improvements in output for the same or less input productivity enhancements.

Classroom sizes in the public school have become smaller over the years. We now have fewer students per class than we did fifty years ago. Whereas steel production has improved by roughly five times, classroom size has gone the other way. Ever think about why teachers couldn't use technology to increase students per teacher to 150 or more?  Or why we need so much non-classroom overhead or administrators per teacher?

Or should we even ask these questions? And if we did, what would be the answers?  Would government officials welcome the productivity improvements? Would the public sector unions?  Of course not.

But why do We the People not take action or at least start asking these productivity related questions? It's a bang for the buck issue and if it applies to the private sector, why not apply it to the public sector as well?

We not only don't tell the truth. We call less government spending growth austerity. We don't call it what it is---increased spending.  Let's look at California.

 Notable & Quotable puts it well when describing Governor Jerry Brown and California's situation:

"Jerry Brown is a bad guesser. On Monday he said the budget deficit will be $15.7 billion, 70 percent higher than his guess in January when he said it would be $9.2 billion. Wrong again. On Friday the independent Legislative Analyst said it will be $17 billion. Who knows what it will be by the time you read this? Certainly not Brown. . . .

Brown wants voters to believe the government is impoverished, that colleges are about to crumble, teachers will queue up in soup lines . . . .

The fact is, California's state budget spends $30 billion more than was spent on all state government functions in 2007-08, at the peak of the pre-recession bubble. That's a 15-percent increase. Are you spending 15 percent more than you spent in 2007-08?

Indeed, Brown proposes increasing spending for K-12 schools from $29.3 billion in last year's budget to $34.0 billion by the end of 2013. That's austerity necessitated by poverty?"

Now we'll move to Maryland and O'Malley's Tutorial  which is subtitled "Maryland's Governor offers a lesson in progressive taxation."

"Governor Martin O'Malley is the gift that keeps on taking. Even as he grabs ever more from Maryland taxpayers, he's providing useful instruction in the real purpose and pattern of progressive taxation, which is that sooner or later it comes after the middle class.

Last week the legislature in Annapolis enacted another huge tax increase, this time hitting anyone earning more than $100,000 ($150,000 for couples). This isn't a tax on the 1%. It's a tax on the top 14%. . . .

The alternative would be to reduce state spending to match current revenues, especially in a state where spending has grown to $35 billion from $28 billion since 2007. But most Democrats and their union allies denounced an alternative plan to avoid the tax hike and allow spending to grow by $700 million, or 2%, as a "doomsday budget." The tax bill ties the new revenues to a pay raise for public-employee unions. Mr. O'Malley says government services are "severely undercapitalized," as if Maryland households aren't.

The progressive tax ratchet—the racket—is to pretend government can squeeze more money from the rich than is possible, then spend the imaginary windfall, then when deficits persist claim there's no choice but to raise taxes on the upper middle class and eventually on everyone who has income to tax. This is why Californians making as little as $48,000 pay a tax rate of 9.3%.

Our condolences to Maryland residents who are getting soaked again, but thanks to Mr. O'Malley for this tutorial in progressive government. In a second term, rest assured President Obama will do the same."


Taxes and taxpayers allow governments not to implement productivity improvements. Governments call productivity austerity and ask for more taxes from the taxpayer base.

That's how government grows and grows and grows and grows.

In simple language, private sector productivity pays for public sector waste and growth.

However, the plain truth is that it's productivity that makes a nation prosperous.

And it's government spending growth that makes a prosperous nation a poor one.

There will never enough money to be raised in taxes to satisfy the insatiable appetite of government spenders of OPM. Even with an unlimited expense account, they'll find a way to exceed it. And then ask for more money from the citizen taxpayers.

Summing Up ... Good News Ahead but How Far Ahead is the Question

Sooner or later the word productivity will replace the word austerity among government officials.

Then productivity measures will begin to tell the truth about our lack of either (1) continuous or (2) discontinuous improvement in getting the (3) necessary work of the public sector done.

When We the People insist that it's our money and that it must spent wisely, government officials will do so.

Then they'll work diligently to get us the biggest possible bang for our bucks.

Thereafter it will be time to talk about tax increases, if any.

Until We the People take charge, our tax payments will never be sufficient to balance the budget, let alone reduce the national debt.

Therefore, we can expect that economic growth will remain anemic.

As a result, unemployment, debt and deficits will remain unnecessarily high for many years and for no good reason either.

Thanks. Bob.

No comments:

Post a Comment