Thursday, August 6, 2015

Our Nation's Productivity Problem, the Lack of Economic Growth and Related Sustainable Income Gains ... Productivity Isn't a Dirty Word ... It's a Vital Necessity for an Improved Overall Standard of Living

We are hearing far too little these days from the media talking heads and politicians about the huge importance of productivity in achieving consistent 3% annualized real gains in our nation's economic output.

More than anything else, productivity affects economic output, overall compensation and advances in our standard of living.

Even though the pundits and politicians don't talk about it much, the truth is a simple one: productivity, or the lack thereof, is 'the real big deal.'

So with that as background, let's consider just how much it's holding back economic growth and income gains today.

Politicians Should Pay Heed to Productivity Problem is subtitled 'Boosting hourly worker output could resuscitate weak wage growth:'

"Judging by the presidential candidates’ early speeches, the central economic issue of the 2016 campaign is already clear: the dismal performance of workers’ wages.

Families “haven’t gotten a raise in 15 years,” former Florida Gov. Jeb Bush, a Republican, said recently. In her speech last week on the economy, Democrat Hillary Clinton mentioned wages eight times. Other candidates have lavished similar attention on the plight of middle-class workers.
Far less noted is one of the most important reasons wages have performed so poorly: the sluggish growth of productivity, which is the output each worker produces.

That neglect needs to end. Though it resonates less with politicians and the public than a higher minimum wage or tax cuts, raising productivity in the long run is the most effective way to elevate standards of living. It enables more goods and services to be produced with the same number of workers.

Many on the left, such as Vermont Sen. Bernie Sanders, note that the benefits of higher productivity have flowed disproportionately in recent decades to the wealthy. Their solution is to redistribute more of those gains to workers, through direct interventions such as a higher minimum wage, or higher taxes on the wealthy.

But this too quickly dismisses the contribution of productivity. . . .

President Barack Obama’s Council of Economic Advisers . . . noted the median family’s income, adjusted for inflation, did not grow at all between 1973 and 2013. If inequality, as measured by the share of aggregate income earned by the middle 20% of families, hadn’t widened after 1973, the median family’s income would have been 18%, or $9,000 higher, by 2013. On the other hand, if productivity, which grew 2.8% per year in the prior 25 years, had maintained that pace thereafter, median incomes would have been 58%, or $30,000, higher.

So lagging productivity growth had triple the impact of widening inequality. . . .

In the late 1990s, Bill Clinton enjoyed the best of both worlds during his second term: Unemployment was low and productivity grew briskly, and as a result wages enjoyed their best spell since the 1950s, growing 3% per year – even though a booming stock market was also widening the gap between the rich and the rest.

President Obama, by contrast, has suffered through the worst of both worlds: high unemployment until last year, and the worst productivity performance of any presidency since Jimmy Carter’s. That high unemployment and lackluster productivity are key explanations for the dismal performance of real compensation. . . .

Why the dearth of attention to productivity? Politically, it’s just not very sexy. . . . But that’s not an excuse to ignore it."

Summing Up

Productivity is absolutely vital to growth in our overall standard of living. Productivity is what makes a nation rich.

Focusing on income inequality, redistribution or 'other Robin Hood' programs, on the other hand, are merely different ways of rearranging the deck chairs on the Titanic.

(1) Generating more output for the same input or (2) generating the same output for less input yields real income gains and economic growth. Coupled with an increase in working Americans, the result is how much our economy grows.

Too often we are led to believe that greater productivity means fewer jobs for Americans, but nothing could be further from the truth.

Productivity gains, just like workforce additions, result in additional output.

And with additional output we have more real wealth to share --- and not just to redistribute.

If we ever get back to encouraging private sector risk taking in a free market, our wealth problems, employment problems and debt related issues will start to disappear.

Otherwise we'll just keep treading water while listening to the politicians blame greedy private sector chieftains and income inequality as the reasons for the economic stagnation we've already endured for far too long.

That's my take.

Thanks. Bob.

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