Is Productivity Growth Becoming Irrelevant?

By Adair Turner, Chairman of the Institute for New Economic Thinking. Prior to joining the Institute in 2013, he chaired the UK Financial Services Authority (2008-2013) and played a leading role in the redesign of the global banking and shadow banking regulation as Chairman of the International Financial Stability Board’s major policy committee. Originally published at the Institute for New Economic Thinking.

As the Nobel laureate economist Robert Solow noted in 1987, computers are “everywhere but in the productivity statistics.” Since then, the so-called productivity paradox has become ever more striking. Automation has eliminated many jobs. Robots and artificial intelligence now seem to promise (or threaten) yet more radical change. Yet productivity growth has slowed across the advanced economies; in Britain, labor is no more productive today than it was in 2007.

Some economists see low business investment, poor skills, outdated infrastructure, or excessive regulation holding back potential growth. Others note wide disparities in productivity between leaders and laggards among industrial manufacturers. Still others question whether information technology is really so distinctively powerful.

But the explanation may lie deeper still. As we get richer, measured productivity may inevitably slow, and measured GDP per capita may tell us ever less about trends in human welfare.

Our standard mental model of productivity growth reflects the transition from agriculture to industry. We start with 100 farmers producing 100 units of food: technological progress enables 50 to produce the same amount, and the other 50 to move to factories that produce washing machines or cars or whatever. Overall productivity doubles, and can double again, as both agriculture and manufacturing become still more productive, with some workers then shifting to restaurants or health-care services. We assume an endlessly repeatable process.

But two other developments are possible. Suppose the more productive farmers have no desire for washing machines or cars, but instead employ the 50 surplus workers either as low-paid domestic servants or higher-paid artists, providing face-to-face and difficult-to-automate services. Then, as the late William Baumol, a professor at Princeton University, argued in 1966, overall productivity growth will slowly decline to zero, even if productivity growth within agriculture never slows.

Or suppose that 25 of the surplus farmers become criminals, and the other 25 police. Then the benefit to human welfare is nil, even though measured productivity rises if public services are valued, as per standard convention, at input cost.

The growth of difficult-to-automate service activities may explain some of the productivity slowdown. Britain’s flat productivity reflects a combination of rapid automation in some sectors and rapid growth of low-productivity, low-wage jobs – such as Deliveroo drivers riding around on plain old-fashioned bicycles. In the United States, the Bureau of Labor Statistics reports that eight of the ten fastest-growing job categories are low-wage services such as personal care and home health aides.

The growth of “zero-sum” activities may, however, be even more important. Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competition for the available economic pie. Such activities have become ubiquitous: legal services, policing, and prisons; cybercrime and the army of experts defending organizations against it; financial regulators trying to stop mis-selling and the growing ranks of compliance officers employed in response; the huge resources devoted to US election campaigns; real-estate services that facilitate the exchange of already-existing assets; and much financial trading.

Much design, branding, and advertising activity is also essentially zero-sum. It is certainly good that new fashions can continually compete for our attention; choice and human creativity are valuable per se. But we have no reason to believe that 2050’s designs and brands will make us any happier than those of 2017.

Such zero-sum activities have always been significant. But they grow in importance as we approach satiation in many basic goods and services. In the US, “financial and business services” now account for 18% of employment, up from 13.2% in 1992.

The impact on measured GDP and productivity reflects national accounting conventions. If people devote more of their income to competing for scarce housing, driving up property prices and rents, GDP and “productivity” increase, because housing rent is included in GDP, even if the aggregate supply of housing services is unchanged. Since 1985, the share of rents in the UK economy has doubled, from 6% of GDP to 12%.

Likewise, more and better-paid divorce lawyers increase GDP, because end consumers pay them. But more and better-paid commercial lawyers don’t raise output, because companies’ legal expenditures are an intermediate cost. Measured productivity slows as intermediate zero-sum activities proliferate, while other zero-sum activities swell GDP but deliver no welfare benefit.

Potentially offsetting this effect, information technology may improve human welfare in ways not captured in measured output. Billions of hours of consumer time previously spent filling in forms, making telephone calls, and queuing are eliminated by Internet-based shopping and search services. Valuable information and entertainment services are provided for free.

Contrary to what some right-wing economists argue, such free services cannot make increasing income inequality irrelevant. If rents and commuting costs are driven up by intense competition for attractively located property, you can’t pay for them out of freely arising “consumer surplus.” But the essential insight is still important: much that delivers human welfare benefits is not reflected in GDP.

Indeed, measured GDP and gains in human welfare eventually may become entirely divorced. Imagine in 2100 a world in which solar-powered robots, manufactured by robots and controlled by artificial intelligence systems, deliver most of the goods and services that support human welfare. All that activity would account for a trivial proportion of measured GDP, simply because it would be so cheap.

Conversely, almost all measured GDP would reflect zero-sum and/or impossible-to-automate activities – housing rents, sports prizes, artistic performance fees, brand royalties, and administrative, legal, and political system costs. Measured productivity growth would be close to nil, but also irrelevant to improvement in human welfare.

We are far from there yet. But the trend in that direction may well help explain the recent productivity slowdown. The computers are not in the productivity statistics precisely because they are so powerful.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

100 comments

    1. BillC

      Because GDP is orthogonal to Gross National Happiness, as the last 10 years amply demonstrates. The economic statistics that would correlate with that and remain meaningful across long-term changes in structure of the economy, employment, and household composition would be MEDIAN household income (adjusted by an honest inflation rate), average household size, and national GINI coefficient. Wonder why those are not what the various national political authorities crow about?

    2. flora

      Indeed. Why do we have in the US falling longevity in the white working-age population; why do we have so many deaths from despair; why do we have an opioid epidemic? Is there a correlation between a falling GDP and increasing misery?

      Or, is the author hinting that if one including computers and automation in the calculated stats then the GDP measure as rising? So best not to give too much weight to the GDP numbers?

      I’m confused by this post. But, then, I am a bear of very little brain.

      1. Carla

        I fear that we’re dying from despair because without work, without a daily struggle to survive (which for some fortunate few, is a struggle to prosper), Americans lose the organizing principle of our lives. There are other ways to live, and some could be much better, but we don’t know about them. And nobody is talking about this. Perhaps people are afraid to talk about it.

      2. Ben

        Don’t be confused. Turner is a total knob.

        If I see Turner cite 2007 in the UK as a valid point from which to measure *anything* I’m going to scream. The guy is a waste of space.

      3. Mel

        With the story about the 100 farmers, where 50 go to work in factories, he’s outlining a foundational myth. It’s the story we tell about industrial development that describes how it worked. When we tell the myth these days, we say 2 farmers, and 98 factory workers, and 49 of them quit to work in high tech. And just like in the old version, life will get better because of brand new industries and products and ways to enjoy life.
        But maybe something different is happening.
        Maybe 50 of the original 100 farmers quit to become commodities traders. There are no new things to enjoy. (Yes there are: movies with Michael Douglas, and Leonard diCaprio, and books about making money in the market.) The farmers may be worse off, because the traders get the money first, and decide how much/little is left over for the farmers. Echoes of Thorstein Veblen there.
        But since the GDP is measured by counting money, GDP can soar.

        1. Ben

          The more efficient we become the more surplus there is and the less we notice rentiers. Imagine if you are on subsistence wages and a rentier comes to ask for 20% of your labour. You punch him in the face.

          Yet we’ve had 20% (and then some) productivity growth and they have soaked it up via land speculation via fiat issuance.

          Like boiling frogs.

          1. John

            The world is so awash with surplus capital that we have no room to invest it. So we play around with it on the stock market and it multiplies. Look at the growth of the money supply and the financial sector. We now have way more capital than we could ever possibly invest in the real economy, so we continue to pump it through the global financial sector, and even more capital is generated, only further exacerbating the problem. There’s no solution to this problem (other than World War III).

            1. ben

              This is by design. That is how you appropriate wealth creation. You issue fiat ahead of the rate of wealth creation.

    3. Anonymous

      Does money buy happiness? Yes, and no. If you’ve got enough to put a roof over your head, pay all the bills without worry and save a little on the side, you have all the money you need to make you happy. When income is pushed above the $75k/year level, additional increases in income yield little additional happiness.

      1. Carla

        Gail Sheehy wrote about this in her book “Passages” back in the 70s. Only at that time, she found that happiness had an income floor of $20 K a year.

        1. skippy

          There is a flaw in this perspective…. its market based…

          Disheveled… numerology based models have a Bernays lag time imo…

          1. ambrit

            Interesting. We have an aggregate income that would make a Third World family very “happy.” We however, are not happy. Our “needed resources” to live what is locally considered a “happy life” exceed our personal resources. Location, location, location.
            Also, hmmm….. Could we ‘blame’ the “numerologically” based economics on the Kabbalah? Instead of assigning numerological values to letters of an alphabet, we assign mystical values, eg. quality of life etc. to numbers! (For some definition of ‘Mystic.’)
            Wait! I think I’ve been beaten to the punch…..

      2. animalogic

        That is quite correct. Study after study has been done that show happiness doesn’t increase much over a certain figure ($100,000 ??)
        That makes a kind of sense: making over 100,000 often takes a lot of time & energy — which may have cost on one’s relationships (which we know are VERY important to happiness)
        Also, for those fixated on money & power – these things become ends in themselves. How much do such people actually value happiness ?

    4. craazyman

      Because the robots aren’t working hard enough!

      That’s the problem. We need to build some robot jails and lock them up if they slack off. Put the fear of God into them. No more foo-foo spineless self-effacing effette white wine and brie cheese with celery in healthy humus dip metrosexual slobering over all the oh-so-cool tech woo woo. Time to Man Up!

      My computer should be scared of me, no the other way around. And if it crashes or freezes trying to update its software — like yesterday when it couldn’t run a simple windows update — then it’s off to the robot jail.

      1. craazyboy

        A Scotsman should see the problem.

        Say, you recognize the need to associate with a power group, and you happen to be a Scotsman. You realize it’s not very manly wearing a Kilt to work, or even Studio 54 for a well deserved night out on the town.

        You know this is necessary because Manly Men get paid much more, and NYC is expensive. You don’t want to be womanly, and have to ride the bus 2 hours from Longa Island, or even some God forsaken place like Staten Island!

        So say you are all set up in the bachelor pad, and then you decide to try the local gay bar in Queens for a change and see how the other half lives? Maybe impress them with your new Kilt, even tho it looks exactly the same as your old one?

        You March right in, airily goose steeping past the bouncer (ha! fruitcake!) and drop a $20 tip on the ground. The cold air caressing your Haggies does you good and your senses come alive. You hear the music blaring, and disco lights flashing – The BeeGees!! (fruitier than fruit-of-loom pink panties!)

        The realization hits you like a brick in the face. These are NOT True Scotsmen!

        1. craazyman

          I was watching a Springsteen interview on Youtube and it was hilarious — he wrote “Tenth Avenue Freeze Out” and he said — and this was just a few years ago, the interview — he said HE DOESN’T EVEN KNOW WHAT IT MEANS!!!

          He was messing around on the piano in the interview and played a few chords I guess and said: “Tenth Avenue Freezeout. I never knew what that was.” He started laughing and said “It just came to me. I don’t know what it means.”

          He wrote it and he doesn’t even know!!

          See, a robot can’t do that. QED

          All this nonsense about robots taking over. They won’t even know how to get out of jail once we put them all in there. And then somebody will write songs about the robot jails.

          1. craazyboy

            Well, sex robots are a no-brainer! They will be so much better than females. It has to happen, soon. They will be nicer, too. And a lot cheaper – after Moore’s Law kicks in, of course.

            In the beginning they’ll be expensive, but I figure I’ll save the bucks. I’ve got Mexico to take care off. Hahahaha. Remember the Jon Levitz skit about doing all of China? That’s the ticket! hahaha.

            Just got a really cool guitar effects pedals combo for $70! 3 pedals, 1 is a wah-wah, so you can sound like early Clapton.

            This thing is amazing. 80 preset effects. They all combine delay, distortion, echo, phase shifting, amplitude and tempo, Some will replay notes w/ a short delay. One plays them back in reverse! Then you can mix your own!

            I can make any rock, blues or jazz guitar noise you have ever heard, and then some.

            This is getting fun.

                  1. craazyboy

                    Version 1 sex robots will be like 15 year old girls. They won’t have a clue. They don’t even know what a proper ball sucking is like!

                    They’ll think you’re asking to get you’re nuts screwed. (a Meta that misses the mark, slightly low.)

                    Ya gotta find 20 year olds! They know everything! And all the Spanish dirty words too!

                    Then they’ll ask for a glass of white Penzoil, 2016, used once. Thinkin’ they sound trendy.

                    1. craazyman

                      I wanna know if love is wild babe
                      I wanna know if love is real
                      Whoa-whoa-ooh-oohh
                      Ohhh, can you show me?
                      Whoa whooa-oo-oohha-ha-Ha!

                      da na nanana da nananana
                      da na nanana da nananana
                      da da dana dana danananana wooooooo o wooooo

            1. craazyman

              whoa how confused was the awkward young man.

              He was so confused he took a sex robot out on a date! whoa!!

              Whoa, he was so confused he tried to get her drunk! hahahaa

              Oh man, he was so confused he bought her flowers. hahahahaha

              He was so confused he didn’t know she’d be willing to spend the night! Whoa. That’s confused. He was so confused he thought he had to take her out to brunch the next day. Oh my god how confused was this guy? He was so confused he tried to see if she was on Tinder! Oh man. He was so confused that when she said “No.” he stopped! hahahahahah (sorry if that wasn’t PC. We’re talking about a robot). LOL

              1. ambrit

                Hmmm…. And how is that much different from a “pre-programmed” wetware human ‘companion?’
                The definition of PC is so mutable and plastic that I ‘tweak’ it for each different venue I’m “experiencing.” (I would ‘twerk’ it but some would become outraged at my appropriation of that from the rap/hiphop scene.) I lived in New Orleans for some time, but I’m melanin ‘challenged.’
                See how much fun PC can be?
                The basic premise of PC is that everyone is going to be outraged at something, sometime. So, the root of PC is anger. Well, get angry then. The suppression of anger leads to neurosis. Hence, anti-PC is a mental health therapy.
                Q.E.D.

                1. polecat

                  I’m sorry ambrit, but maybe y’all (you, crazys’ boy and man) need to get a room, perhaps by the hour … or something …
                  It’s more TMI then my tablet can deal with, and is becoming too radioactively hot to handle!
                  Och !

                  1. ambrit

                    Good catch polecat. I don’t know if the ‘craazys’ would agree to live streaming that meeting, or congress, if you will.
                    The PC debate is really ‘radioactive.’ The premise being that the status quo maintains some semblance of legitimacy through control of the public discourse. Start questioning the ‘ground rules’ of the public discourse and you are indirectly challenging the “Powers” who claim suzerainty.
                    Finally, you have a point as to the limits of discussion on an economics blog. It is time to drop some graphite rods into this mataphorical reactor.
                    A question; what does TMI stand for?

                    1. ambrit

                      Thanks UserFriendly. Acronyms are their own worst enemy. They can also be used as ‘markers’ for ones’ status in a group: Insider, (knows all the right gobbledegooks,) or Outsider (can you believe that OOAK!)
                      @polecat; I’d invite you down, with the craazys of course, to N’Awlins for Decadence Fest, but, well, it’s quite a, er, radioactive scene.
                      See, although it might be a bit too much: http://www.southerndecadence.net/
                      We still love you. Be sweet!

                    2. polecat

                      Holds up ‘3’ fingers
                      Stretches arms a ‘mile’ wide
                      No mans’ an ‘island’

                      …. also what UserFriendly said

              2. craazyboy

                That’s the Amazon Discount Starter Sex Model.

                She records video of the entire encounter, too. Then uploads it to Jeff Bezos, personally!

    5. Bob

      For me, I would have a hard time being happy on an empty stomach and rough sleeping, but, hey, look those productivity numbers!

  1. David Creamon

    A problem with economists (besides the fact that their whole profession is bunkum) is that they don’t know how to think about problems. Producing less washing machines and more art is not “zero-sum”. Less manufacturing industry is good for the planet. Art is good for people’s spirit. We are still at the point where we always were, where we have to ask ourselves “how do we organise our societies to best meet our planet’s and our people’s needs?” However, we now have a couple of centuries of empirical data that show us that Capitalism has been a disaster. Imagine that, that an economic system based on greed would lead to ruination for all. Who could have possibly thought of that? Well, besides Adam Smith and every other thinker who ever lived…

    The sooner that economists are recognised as being bad mathematicians and moral imbeciles, the better. Then we can give them crayons and lock them up and get back to dealing with reality.

    1. DS

      “we now have a couple of centuries of empirical data that show us that Capitalism has been a disaster”
      Wich data ?

      1. Jeremy Grimm

        Take a drive outside whatever neighborhood you live in and look out the windows.

    2. Lee

      Agree.Our goals should be toward saving a planet we are currently hell bent on killing and saving people who are being vulturized in the name of corporate profit. And to do that we must wrest our government from the corporate coup that has been underway for ummm 40 or so years culminating in what we now see. Naomi Kline’s new book is insightful. .

      1. Carla

        “And to do that we must wrest our government from the corporate coup that has been underway for ummm 40 or so years culminating in what we now see. Naomi Kline’s new book is insightful.”

        With regard to this, I suggest also historian Nancy MacLean’s new book, “Democracy in Chains”.

    3. Moneta

      For the top 15-20%, capitalism is still fine… in their minds the complainers are just lazy or making bad decisions.

      1. Lambert Strether Post author

        > For the top 15-20%, capitalism is still fine

        You’d think that the wealthy parents buying their kids houses, because the kids can’t afford them, would have a dim inkling something was up.

        1. ambrit

          Aristocrats have always “assisted” their progeny. The olde line Aristos didn’t fall for the meritocrat bunkum. They knew the value of “Old Money.” Why else did they work so hard in marrying off their sons and daughters to other Aristos or wealthy scions of les Nouveau Riches? Roughly speaking; Illusion is all.
          Henry James’ story, “The Real Thing” presents this dynamic perfectly. Indeed, most of James fiction work illuminates this.

        2. VietnamVet

          Built into the genome. It assures their genes are passed on to the Grandkids. The drive to be powerful and wealthy. The Genghis Khan effect.

  2. Normal

    “Such zero-sum activities have always been significant. But they grow in importance as we approach satiation in many basic goods and services.”

    This seems to be the kernel of truth in this article, and food for much thought.

  3. Clive

    Systemic complexity is one factor I’d single out for reducing productivity. I’ll cite my TBTF, but I doubt very much it is unique or even the most extreme example.

    When our IT systems were developed and started to make serious productivity improvements (reducing or eliminating large amounts of labour in the operation of business processes — ledger entries, checks and card payments, statements and billing to give some typical applications) c. 30 years ago, they had two advantages compared with today. Firstly, they could pick low hanging fruit — automating the most labour-intensive and widely used processes. And secondly, they simply had to replace clerks, bookkeeping, moving paper vouchers around and postage (etc.)

    But today, if you want to improve a now automated business process still further you have two problems to contend with. One is that you’re making an at-best iterative and marginal improvement. Often, the only reason you are doing it is because whoever designed and maintains the hardware or software your system needs has realised that they have you over a barrel and is engaged in rent seeking. Remember that removing rent seeking doesn’t bring an improvement in productivity, but merely gives you an improvement in your cost base — the two things are not the same.

    Secondly, if you are changing a system, that system is likely to now not be a stand-alone thing, but part of a complex interdependent environment which cannot be updated simply or easily. You need a lot of labour to understand and modify a bespoke system. It is not a production line but rather a craft industry. Craft products are not amenable to division of labour or mechanisation. Therefore the more craft products you have — and I’m making the argument that we are increasing rather than decreasing the number of craft products which society now relies on — the more a drag on productivity you end up with.

    1. PlutoniumKun

      Thanks Clive, I think thats a key insight. My organisation is now going through the dreaded e-business upgrade at an enormous cost (as a small organisation, the relative cost of the system is much higher than other similar organisations as the costs are never really down-scalable). The question frequently asked by us minions is ‘what problem is this solving? Are the gains really worth the huge hole in the budget this is costing?’

      Needless to say, we don’t get an answer, its just ‘oh, you can’t function these days unless everything is online’. Anecdotally, organisations that have gone through the same process as us say that all the supposed gains are wiped out by the increase in administrative burden on frontline staff – quite simply, there are far more online forms to fill in for every task than there ever were in the paper days.

      I’ve no doubt that most of the productivity gains that automated or online systems give are already baked in with almost all sectors. More and more investment is needed for tighter marginal gains.

      1. fajensen

        The question frequently asked by us minions is ‘what problem is this solving? Are the gains really worth the huge hole in the budget this is costing?

        From close observation from an unsafe distance at “my organisation”: The problems solved, as I see it, is that the muppet running the “change process” and who has so far blown about 3 million EUR on The One True PLM system that does not work and “integrations” binding the systems that once did work to the albatross … needs, nah, have to have, a nice house right next to a lake and title, CTO.

        The con-slut-ants have “needs” too, albeit somewhat baser ones, and the management needs to keep the machine rolling so the eventual inquest happens after they have left for a better place via Golden Parachute or Golden Uplift.

        With enough thrust, anything will fly. The forces are surely aligned here.

      2. animalogic

        It’s worth remembering that many “managers” don’t even consider “productivity” when making changes. What they are thinking of is “POLICY” enhancement. An ever tightening web of rules etc which clearly demonstrate CENTRAL control.

  4. Nell

    I wonder if Adair Turner realizes that the points he raises about future productivity undermine the life-blood of capitalism? I need to go back and read this more carefully, but this was my first impression. An insider sounds the death knell for capitalist modes of production and capital accummulation.

  5. William Beyer

    In 1995, the Atlantic published “If the GDP is Up, Why is America Down?” by Clifford Cobb, Ted Halstead, and Jonathan Rowe, shredding the notion that GDP was any kind of a measure of progress. This guy apparently has never read anything on the topic of productivity, either.

  6. Livius Drusus

    The biggest factor behind slowing productivity growth is the availability of cheap labor. The changes in structural economic factors since the 1970s have all contributed to this. Government tolerance of higher unemployment, laws that weaken labor unions, central banking policy that holds down wage growth by increasing interest rates whenever job and wage growth are strong, failing to adequately raise the minimum wage, “race to the bottom” trade agreements and the loosening of immigration restrictions have all contributed to making labor cheaper. This has lowered productivity growth. When labor is weak and cheap business owners won’t invest in technology as readily. Why invest in expensive machines when labor is cheap and has little bargaining power? This is why we still have plenty of low-wage, low-productivity jobs despite advances in information technology.

    1. Scott

      I agree with much of what you say, but I dislike using phrases like “structural economic factors,” because using the phrase allows many to assume that there are people behind the change. As the following sentence states, many of these actions are the result of deliberate actions of the federal government, as well as those in other countries.

      1. Livius Drusus

        Yeah that is a good point. Almost all of the negative changes in the economy over the last 40 or so years have been deliberate policy choices. There was nothing “natural” about them at all.

    2. Blue Pilgrim

      ‘Cheap labor’ is people who don’t make enough money to buy the stuff produced, which dampens motives for production.

      Latch on to Korzybski, general semantics, and how higher levels of abstraction fail to reflect reality, or people’s satisfaction and sense of value. GDP means nothing to me when I can’t afford a couple of pounds of fish or to go to the doctor. The measure of the real economy is not the well off but the common person and the poor — the working or ‘would like to be working’ classes. The real economy or real productivity cannot be measured in money or other such abstractions.

      A picture of a hamburger is not a hamburger, regardless of how well the advertisement is made. As Lee Stranahan has said on Fault Lines radio show, health insurance is not health care. A good grade in school does not necessarily mean knowledge or competence. We need to ‘get real’.

    3. John Wright

      The thrust of Walter Scheidel’s “The Great Leveler” book on the history of inequality seems to be that only significant events such as plagues, large wars, revolutions or sudden catastrophes (The Great Depression + WWII ) actually cause inequality to be lessened in their wake.

      Sometimes this is via the crude method of shrinking the number of available workers available for hire (large wars and plagues)..

      I’m part way through the book, and Scheidel was careful to indicate that he does not assert that inequality actually caused any of the events, and through most of history inequality steadily got worse.

      Maybe this implies that TPTB, through much of history, are always upping their game via institutional control as they try to grab more wealth.

      As far as cheaper labor or increasing the supply of labor, economists already have “The lump of labor fallacy” at the ready, which apparently suggests that more labor creates its own compensating demand, so not to worry.

  7. lyman alpha blob

    IT is often credited with improving productivity but there is a law of diminishing returns. I find that “improvements” in IT are often just foisting the work of one person onto another.

    Take the burgeoning new automated payments systems industry as an example. A given company receives invoices in many different formats from their vendors. The payments companies seek to standardize invoices so they are all formatted the same way and can be paid automatically. Traditionally a company would have their own AP department set up the invoices they receive for payment from various AR departments. The new payments companies now often require that a a given company’s vendors use on online platform when submitting involves. This requires the AR department of the vendor to open an online account, and then not only submit the invoice through the platform but also input the data from the invoice into an online form. Great for a company’s AP department – they can reduce their workforce because they have passed all the AP data entry work over to their vendor’s AR department for free! Of course much to the chagrin of those who work in AR, as their workload has correspondingly increased. And most companies also have their own AR department. With more and more companies doing this, the end result is greater productivity for AP and a huge pain in the ass for AR and no net productivity gain (or perhaps even a productivity loss once the extra IT people needed to implement and monitor the automated system are taken into account).

    But some AP middle manager somewhere got a big bonus because they shaved a few employees from their department.

    1. Clive

      That’s another good point and augments the ones PlutoniumKun and I mention above. So much of what passes for modern management activity is merely squeezing the cost balloon. Yes, you can almost always squish a bit of cost out of one part of it. If you can hoodwink the investment oversight committee that you’ve made a cost saving then you can get a bonus (or at least get to keep your job). Today’s Modern Looting.

      But if you’re merely adding to the cost pressure elsewhere, not only is it a zero sum gain, all that cost-of-change is, well, unproductive.

      1. lyman alpha blob

        Yes what you discuss is pretty much what’s happening at our company right now. And as PK mentions, it seems we are doing all these IT upgrades because everybody else is doing it and according to management, supposedly we wouldn’t be able to function without all these bespoke systems that nobody in our IT department seems to be able to operate. As they quit in disgust, I find I wind up training the new IT people in how systems are supposed to work, which doesn’t exactly help the productivity of the accounting department.

        I agree that the big gains were made decades ago – Excel for example really did improve things and make a lot of people’s jobs easier. A lot that goes on now is just reinventing the wheel.

        Went out for dinner at a little Italian restaurant a couple nights ago that I’d never tried before. When the bill came it was handwritten on one of those old fashioned green and white tickets with no IT necessary in producing it whatsoever and yet somehow the food was still delicious ;)

        1. fajensen

          When the bill came it was handwritten on one of those old fashioned green and white tickets with no IT necessary in producing it whatsoever and yet somehow the food was still delicious ;)

          Good Italian food is very Easy to prepare, very Analogue. Simple, A property I like very much.

          I find that the slightly hard part about Italian cooking is that there are only 3-5 ingredients in each dish, consequently each ingredient has to be very fresh and/or of a high quality, otherwise the one poor ingredient will drag down the whole assembly.

          This is good because the “fresh”-, “high quality”- requirement is, in my opinion, why Italian food is supposedly healthy, because it is not like there isn’t a lot of fat, cheese, wine and other “bad” things in it (I don’t believe that fat … e.t.c. is necessarily bad, we have been eating fats … e.t.c. for thousands of years so we must have evolved enzymes for all of it now. I think It’s the new things one has to watch – those food items and additives that has only been available for a few generations, no “immunity” to those).

          If anyone want to try Italian Cooking, I can highly recommend “Antonio Carluccio’s Simple Cooking”, Antonio Carluccio, ISBN 978-1-84949-127-3.

          His recipes are ludicrously simple, which makes them surprisingly tasty, because one does not really think such a simple recipe will even “work”, and yet it does.

          —-
          I am a very technical person by trade and I used to find everything technical / science fascinating. Now, I am beginning to get tired, I actually get a slight “do I need to vomit”-feeling in the gut over any exposure to IT, the needless complexity, the “downsourcing” (encompassing “the why waste zero cost CPU seconds on tasks we can force the user to do”-filosophy), the need to be always “on” and “available”, the need to always build a mind-model about how the hell the system is supposed to work in order to interact effectively with it, and nothing with IT really just works. For my part of the Butlerian Jihad, I am getting rid of every “intelligent” thing that require the wasting of mental resources for me to interact with it. In most cases, this means Analogue or Embedded (stupid stuff that cannot be “user-configured”), or pencil+paper.

  8. realitytrader

    I was unaware the public in developed countries had approached satiety , however defined. Even from a left perspective , one only needs to watch Ken Loach’s hagiographic film of Jeremy Corbin with an audence of Labour Party members in Sheffield to hear about the demeaning condition of being poor, full stop.

    Meaning , as opposed to greater consumption , is a literary staple . It appears among the the more self-absorbed and intellectual members of the middle classes with greater frequency ; but arises as a popular issue only among those with incomes several times or more greater than the averages in developed countries. The challenge of greater utility for consumers is likely to have a significant conventional economic component for quite some time yet.

    1. Outis Philalithopoulos

      I read this comment several times, and I have a guess as to what you’re getting at, but I’m still not entirely sure. Was a sentence left out?

      1. realitytrader

        Even in rich countries the general public wants to enjoy a higher level of goods and services consumption and they want to reach that level more quickly. A lot of the discussion in this thread is either long- familiar ground regarding difficulties in measuring economic output , navel-gazing about meaning or discussions of about the qualities of different forms of consumption which are individually interesting ; but not especially relevant to public desires for widespread higher levels of consumption.

  9. Tom Stone

    That article on the CVN 78, the “Gerald R Ford” ( First of the Ford class of CVN’s) is amazing, obscenely expensive and nothing about it performs up to even minimum standards.
    I understand that there is a tradition of naming carriers after dead Presidents, but GR Ford doesn’t deserve this.
    Hillary Clinton does, and I propose that this ship and this class be renamed in her honor.
    She might not be dead, and she might not have won the Presidency, but it’s close enough for Government work.

    1. polecat

      I’ll betcha a Susan B Anthony it trips up and sinks when it trys to glide over a big wake !

  10. LD

    The “Everyday Resistance” (TM): footdragging, dissimulation, false-compliance, pilfering, feigned ignorance, slander, arson, sabotage, and so forth.

  11. vegeholic

    Productivity, as it has been historically used, is a flawed and misleading concept. By this usage it is just a surrogate for cheap energy inputs. Give a worker a big machine and suddenly his “productivity” goes way up. Who are we kidding? The worker is no different than he ever was. Also not useful are the value laden connotations of cleverness and smarts that accompany high productivity, and dull-wittedness and backwardness that accompany low productivity. It all comes down to who has access to cheap energy.

    Now that the cheap energy sources are disappearing, predictably the productivity gains are disappearing in tandem.

  12. Norm

    It is obscene to go on about productivity and economics and gdp when the basic problem with the world is that a growing number of people live beneath minimal levels of subsistence, and even more do not have any prospect of a satisfying stable life. The response that raising gdp will be a tide that lifts all ships doesn’t work when a lot boat have holes in their hulls. I personally wouldn’t care very much about mean or medium household income if I knew everyone had at least a decent shot at a reasonable life.

    I saw two movies this weekend. One took place among marginal people in Paterson, New Jersey and the other amongst high livers in Malibu or some such place in LA. If I had to choose between between being rich in Malibu and just getting by in New Jersey, I’d choose Paterson any day, and feel pretty confident that I would be happier than a lot therapy-obsessed, drug dependent west coasters, who are certain that they’ve reached the pinnacle of existence.

    1. WobblyTelomeres

      And if your list were expanded to include, say, Montevideo, which would you choose?

        1. WobblyTelomeres

          Okay. Having never been to Montevideo (although it is on my motorcycling bucket list once I’ve touched a wheel in Ushuaia), I just discovered that google has kindly photographed the entire city, and I’ve now spent an hour wandering around the La Paz and Sucre departments.

          La Paz appears to have more mobile homes, which, being from rural Alabama, is where I would feel most comfortable.

          1. ambrit

            Looks like I’ve scored an own goal here. I was thinking of the Bolivian cities of Sucre and La Paz. Montevideo has neighbourhoods called Sucre and La Paz!!! I’ve never been there either but am becoming more intrigued every day. I really hope you get to do your cycle tour. Is there a ferry connection from Punto Arenas to Antartica? Even the South Shetland Islands would do.

            1. Arizona Slim

              You can book a tour from there. And, be forewarned, none of the Antarctica tours are cheap.

        2. Grebo

          Having visited La Paz, albeit 20 years ago, my advice is strike it from your list. Apart from anything else it is hard to breath there. And, though I didn’t visit Sucre or the other allegedly nice town Cochabamba, I did not even consider Bolivia when I was looking to emigrate.

          1. ambrit

            Thanks for the info. I sometimes feel like the James Stewart character in “It’s A Wonderful Life.” However, in my scenario, he’s living in the town of Pottersville and dodging bill collectors.

  13. Norb

    Has any economist tried to model an “ideal” economy based on human welfare for various population sizes? It seems to me the next phase in human development will have to do just that, rationally figure out, and design, social organizing structures to maximize human and environmental welfare. As the author eludes to, computers are supremely suited for that purpose. I get the feeling that those in power have already, “done the math”, and have seen the dire future in store for us all. Instead of taking a moral stand and leading to a better future, most elites have chosen to remain aloof to the broader social implications embedded in the distractive nature of our current system so have left individuals to fend for themselves. An enlightened population would have infrastructure plans ready for implementation when the political climate become conducive to their implementation. The left needs these concrete plans.

    The overall social authority must be directing energy towards sustainable production and healthy social growth, not the enrichment of a few individuals. It seems such a easy argument to make and most people would eagerly participate if not sidetracked by sociopathic obstructionists clinging to the status quo.

    Day in and day out, 24/7/365 the mass of humanity are propagandized to the plans and aspirations of predatory capitalism. Citizens are “convinced” that they need the outputs such a system provides. Plans and illustrations of alternative workable systems are essential to changing this dynamic.

    Yanis Varoufakis has been talking recently about this Star Trek like future. Not in the sense of traveling the galaxy, but of reason and technology serving humanity instead of enslaving it. There is a stark choice between a livable future and a dystopian one.

    Networked cells of people of following the principles of sustainability offers a way forward out of our current morass. Time, energy, and money must be allocated toward envisioning this new future. A more proactive approach instead of reactive.

    The whole notion of Ca-Ching must be made abhorrent and it counterpart made visibly manifest.

    1. justanotherprogressive

      Heresy! Complete Heresy!
      You are talking about co-operation instead of competition and we can’t have that! We believe that in order for one person to win, there has to be a whole lot of losers!!! Isn’t that what “productivity” is all about?

      In reality, I am exactly with you on this…….
      Thanks for thinking about the forest instead of just what usually is done, which is spending a whole lot of time and effort dissecting one little bitty tree, and thinking if you fix that one itty bitty tree, then the forest will be OK…….

      1. Norb

        What is needed is an organized transition economy, and a clear path for those wishing to contribute to its success. The Organic movement comes to mind, as one successful experiment, even though Big Agriculture has mostly co-opted its output. The principles that drove its original formation are still alive and have impacted current society by providing an alternative method of production and continuing to exert pressure on the narrative that justifies industrial food production.

        Healthcare delivery also offers another means to drastically change the consciousness of citizens. Healthcare envisioned as a right changes completely how that service is delivered.

        Alternatives in manufacturing and industry must also follow the same path. Anti-crapification.

        I think we need to talk more about bending the extinction curve instead of the cost curve. If not the extinction curve, the suffering curve. This can only be successfully propagated if those doing the talking live in such a way that reflects their values and vision for the future. As time goes on, a major shift is inevitable. People will seek an outlet for their suffering and Neo-Feudalism will not provide it.

        There has to be a structure that guarantees justifiable outcomes. Currently, those wishing to live this way can only rely on family or local “Community” for survival. This is only the minimum requirement. There must be a powerful, uncompromising political component that takes on this task.

        Our politics can be reflected in our personal lives, but that alone is not enough.

        Just expressing these ideas drive ordinary citizens to despair. It is a minority position. People want, but are unwilling to accept the work, and sacrifice, that is needed to bring it about. In the back of their minds they still have an image of a good life expressed by excessive wealth and leisure. Getting rid of this image is half the battle, at least in America.

    2. Judith

      Kate Raworth in her book Donut Economics has been addressing some of these issues as well

  14. Keith Newman

    I would take the alleged productivity slowdown with a very large grain of salt. The difficulty of aggregating productivity numbers means comparisons most likely reflect measurement and aggregation problems.

  15. Synoia

    Let us assume the productivity growth is a typical “S” shaped curve.

    If we are at the bottom of the curve growth is slow, but increasing. We were at the bottom of this curve before 1780 ish (start of the industrial revolution). About 250 years ago.

    The middle part of the curve, which looks like a straight line, was the 1800-2000 period. The top of the curve is asymptotic to the x axis. That is: growth stops.

    Many have discussed symptoms, but where can we “improve productivity” and still maintain demand?

    I spent my career in the IT industry. No where in the mid 20th century did we even consider the longer term (for example Y2K,) or imagine that software systems are capital assets should be depreciated. I suspect much of the so called “productivity gain” was because of the failure to realize a software system is a capital asset and needs depreciating.

    Much of the cost reduction in business, the so-called productivity gain, appears to be a gain caused by pushing work onto customers (self-service). The work is now done for free by the customer.

    Was there productivity gain? If so what is the shape of the productivity “S” curve, and what is the consequence of not depreciating a large capital asses – software systems to the so-called productivity gain?

    Was all the work a productivity gain or a combination of productivity gain coupled with transfer of the work to customers? If the latter then the “productivity gain” was very overstated.

    1. craazyboy

      If you would learn to bag yer own groceries faster and faster, you would have sustainable gains!

      These economists are truly slave drivers. We’ll all get rich!!!

      A popular corollary is to throw out the food you buy. Or give it to a rich person to throw out.

      I thought of an enhancement I’m patenting – throw it out at the market before you waste a bunch of time checking out!

  16. saurabh

    I submit that property constructs (e.g. land titles) that incorrectly apportion the gains of productivity are to blame. To use your own example, where 50 farmers become wealthy, and the others criminals/cops – 50 farmers did not become more productive, 100 did. If half of them have walked away with the other half’s gains, this alone is to blame for the resulting strife.

    How we apportion productivity gain is a moral choice enshrined in our property constructs. If we are unhappy with the outcome it behooves us to change the instruments.

    1. justanotherprogressive

      You have a point. Capitalism couldn’t exist without someone claiming “private ownership” of things that actually belong to us all, like land…..

  17. ArkansasAngie

    I like utopia as much as anybody. I cringe when I think of somebody defining it.

    It’s one thing to be self-actualized and another to be a freaking fascist

  18. nihil obstetg

    The growth of “zero-sum” activities may, however, be even more important.

    Yes, they become important as social control. Servants, police, advertising managers, all important to maintain hierarchy and to supervise people’s time.

  19. Nicholas Alanis

    You bring up a very insightful analysis. From looking at the CIA World Factbook most of the advanced economies in the world have the services sector contributing a significant proportion to GDP. The US services sector represented 79.5% in 2016. Is it possible that a correlation may exist between the growth of zero-sum activities and the services sector in advanced economies?

    1. John

      Very insightful question.

      The reality is that robust economic growth comes from the processes of urbanization and industrialization (this is why we had extremely low growth rates in the capitalist 16th and 17th centuries), and once a society has stopped undergoing said processes at a high rate and reaches the post-industrial phase (“service economy”), there’s nowhere for the economy to go, no room for it to grow at a fast pace (external demand and bubbles can provide temporary relief, but nothing more). So you get a country like Japan getting two and a half lost decades.

  20. John

    Productivity growth is becoming irrelevant, and it’s closely related to the causes of the current malaise.

    Since the arrival of German and Japanese industrial powerhouses to the global scene in the 1970s, the world has become mired in a crisis of overproduction/under-utilization of capacity in manufacturing. By that point, the world could produce far more than it needed, so these firms were fighting in a zero-sum game for a bigger slice of the pie. In order to undercut competitors, firms invested in productive capacity (plant equipment), only further exacerbating the problem. As a result, profit rates in the global manufacturing sector have steadily declined ever since. Profits are the lifeblood of an economy, and the only economic growth since then has been through bubbles (Japanese real estate in the ’80s, US stock market in the ’90s, US real estate in the ’00s, Euro bubbles in the ’00s) and debt.

    The law of the falling rate of profit (wiki) was discussed by thinkers like Adam Smith, John Stuart Mill, and David Ricardo, and Karl Marx believed that it would eventually cause an economic crisis that would lead to a worker’s rebellion. I wonder how low profit rates can get before that happens, how long they can continue to head towards zero.

    Whatever the case, clear that after any nation undergoes the processes of industrialization and urbanization, the economy can only grow through the blowing of bubbles. Japan has had two and a half lost decades and the US and, especially, Europe share the same future.

    If the global economy were to grow a 3% a year, the global economy would double from 2010 levels by 2060, and then double again by the end of the century. Even with China and India urbanizing and growing their industrial sectors like crazy, the global economy didn’t grow all that well in the ’90s and ’00s compared to some other periods. I don’t think Africa alone will be able to power that kind of growth. We’re stuck with secular stagnation for the foreseeable future. And it was bound to happen eventually–capitalism requires infinite growth but we live on a planet with a finite amount of space and resources (possibly heading towards total ecological collapse at some point). Of course we could have a huge world war and blow everything up, and then we’d get high growth rates once again as we rebuild our civilization. (assuming we can).

    1. Altandmain

      It seems like there is a huge aggregate demand shortfall.

      I’d argue that inequality is a big one too – median wages are stagnant since the 1970s and only the rich on top have gained. That pushes down demand.

      1. John

        I agree that there is a huge shortfall in aggregate demand, but that’s a symptom not the cause. Saying the crisis is due to a lack of demand (as Keynesians do) is like telling someone who asks why it’s raining that it’s because there’s water falling out of the sky.

        The reason for the low demand is the poorly performing real economy, where profit rates are falling. To paper over this demand shortfall, we saw a huge glut of consumer debt in the ’90s and ’00s (also to make up for China’s manufacturing boom).

        Michael Roberts often discusses his slightly different take on falling profit rates in his blog. Either way, it’s clear that they lie at the heart of our predicament.

        1. JTMcPhee

          So “we,” the mopes, need to do “something” to increase “rate of profit” which appears to me to mostly “accrue,” in the Rentier/Ownership Society, to the Owners.

          That sounds like a winner. (Not sure from your text if you are actually arguing for that as a remedy, or pointing out the futility of that kind of thinking… albeit proponents of such notions, if they have the right credentials and institutional chairs, can make themselves very popular with the holders of actual power, and very comfortable financially.)

          Maybe, since falling profits is categorized as a “law,” Congress can just pass appropriate legislation to mandate that 3% (why so low?) rate of whatever “growth” is… Thanks for recognizing that compound “growth” of whatever metric one cares to select, GDP etc., is “inconsistent” with survival of the biome we are stuck in, and with survival of “us” too…

          Hey, I read about Dyson Spheres! http://www.popularmechanics.com/space/deep-space/a11098/could-we-build-a-dyson-sphere-17110415/ THERE’s the pathway to perpetual infinite Growth! Think Musk and Putin and the Kochs have that in their long-game plans?

          1. blennylips

            Sorry. No perpetual (redundant) infinite groaf for you!

            7.5 billion humans now. At the current repro rate of about 1.11% it will take 8,604 years for humans to consume all the particles in the universe. No quarks left for toys.

            from Numberphile YT channel: How many particles in the Universe?

  21. Crosley Bendix

    Adair Turner is trying to sneek a bit of bourgeois political economy past us here:

    It is certainly good that new fashions can continually compete for our attention; choice and human creativity are valuable per se.

    I think that it is at least debateable that new fashions that many people are made to feel inferior that they can not afford are valuable “per se”.

  22. Jake

    Its not technology itself but what its being used for that matters. Maybe its because technology is being used for zero sum activities rather than positive sum which is causing this problem. And I think this is because of the underlying nature of the current economic system – capitalism for speculation. Airbnb is not being used to provide better and cheaper housing to those in need, its being used to increase speculation and rent. I.T. is not being used to simplify healthcare, its being used to complicate health insurance even more! Outsourcing is not being used to help american employees complete their work while they are sleeping or enjoying their leisure time. Its being used to completely undermine their power and replace them with substandard and cheaper asian labour. We would otherwise have by now seen automated robots building skyscrapers or doing infrastructure work or manning walmart.

    Its the USE of tech that matters, not just tech itself. Current tech is largely being used to reinforce the highly exploitative rentier status quo.

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