Tuesday, October 13, 2015

Economic Growth Depends on Productivity and Workforce Growth ... Political BBB, aka 'Big Brother Bloviating,' Won't Change That

U.S. economic growth is slow and not likely to pick up significantly anytime soon.

The reasons are threefold: too much individual and government indebtedness in the U.S., ditto for the rest of the world, and too much reliance on government as the savior and protector of the 'little' people.

So if you're watching the Democratic debate this evening, do it solely for the entertainment and not for obtaining useful information. Same goes for Trump et al on the Republican side.

As you may be able to tell, I'm not a big believer in the BBB, aka 'Big Brother Bloviating,' school of governance.

Buried in the Fed minutes is another downgrade to the U.S. economy says this:

"A goal of a 4% economy? That objective, mentioned frequently in the 2016 presidential race, is getting farther away, according to the latest projections from the staff of the Federal Reserve.

Minutes of the Fed’s Sept. 16-17 policy meeting disclose the Fed staff further trimmed its assumptions for the rates of productivity and potential growth over the medium term. . . .

The Fed staff’s view was already gloomy. . . . going into the Fed’s June policy committee meeting, the U.S. central bank’s staff penciled in potential growth averaging just 1.74% over 2015-2020, according to the document now on the Fed’s website. That’s down from an average growth rate of 3.1% over the past 50 years. . . .

Potential growth in the long run is a function of two things: population growth and productivity.

Productivity is the secret sauce of the economy but it has dropped off sharply since the Great Recession.

Over the last year, productivity has increased by just 0.7%, far below the long-run average of 2.2%.

Why it is falling remains a puzzle.

With trend growth so low, the economy is in a pickle."

Summing Up

Economic growth depends on additional hours worked and individuals becoming more productive during those hours.

Government employees are always less productive than those employed by the private sector, and continuing government growth is an 'accepted' fact of American life these days.

The lack of market competition in the monopolistic public sector is the primary cause for the lack of comparable productivity in government work when compared to the competitive private sector.

The additional hours worked which contribute to greater output can be a result of either or both higher employment and more regular and overtime hours for those full or part time workers already employed.

The additional productivity can be a result of either or both more automation and improved work methods or greater effort.

The 'new normal' sucks, but don't expect to hear any serious discussion by the politicians concerning how to get economic growth back on its historical track.

They'll be too busy pandering to their base and fiddling away while the jobs and productivity don't come.

That's my take.

Thanks. Bob.

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