Why Productivity Will Undo Clintonomics
BROCKWAY, GEORGE P.
The Dismal Science WHY PRODUCTIVITY WILL UNDO CLINTONOMICS BY GEORGE P. BROCKWAY The flrst column in this series, almost 12 years ago, was titled "Why Speculation Will Undo Reaganomics" (NL,...
...The Dismal Science WHY PRODUCTIVITY WILL UNDO CLINTONOMICS BY GEORGE P. BROCKWAY The flrst column in this series, almost 12 years ago, was titled "Why Speculation Will Undo Reaganomics" (NL, September 7, 1981...
...Archaeologists now claim that the fabled Silk Route is two or three millennia older than Marco Polo thought...
...I was right enough in my analysis—that speculation would enrich the rich and impoverish the poor and bring on what we now call a credit crunch—but I naively could not imagine anyone being pleased with such an outcome...
...Unemployment is our problem...
...It exists, nevertheless...
...Clinton-omics may cauterize a few hundred malignant polyps at the top of our income distribution, and that will be all to the good...
...I mean what the New York Times and the Wall Street Journal and the Economist are always writing about, what Nobel laureates in economics from MIT are always talking about, what Labor Secretary Robert Reich is now planning to try to increase...
...I mean that to the extent that Clintonomics is successful in improving our productivity, it will fail to improve our standard of living...
...Well, I was wrong...
...And generalizing the observation, a nation of 100-wid-get-an-hour workers should be twice as prosperous as a nation of equal size composed of 50-widget-an-hour workers...
...Who ever did...
...It doesn't make much sense for the nation to train these people for jobs in industries that don't exist, or that we can only imagine, to satisfy the presumed demands of a hypothetical global economy...
...A better idea, because the British Isles were plagued by roving bands of homeless unemployed, would have been to employ the unem ployed as vintners (or brewers or barley-water bottlers) and let the Portuguese keep their port, along with the wool they were perfectly capable of weaving...
...The foregoing is obvious, and the mathematics is indefeasible...
...The assumption of full employment is one that economists are so comfortable with that they make it routinely, without thinking about it...
...That is certainly true...
...The other name for this result is recession, or depression...
...I now feel possessed of another prophecy...
...They defined it clearly enough as output per unit of input...
...The beauty of full employment is that if you have it, almost anything you try will work...
...Like all simple fractions, this one can be increased in the two ways we learned in grade school: by increasing the numerator (2/s is greater than 1/3), or by decreasing the denominator (1/2 is also greater than 1/3...
...Let's begin with a quotation from a back issue of the Times: "A worker who produces 100 widgets an hour is clearly more productive than a worker who produces only 50 widgets an hour...
...In the United States it is computed by the Bureau of Labor Statistics of the Department of Labor, which divides the gross domestic product of a period by the number of hours worked in the period...
...Indeed, classical economics was based on this assumption, and so is neoclassical, or the economics currently practiced by most of the profession...
...I don't mean lack of productivity...
...How is it, then, that so many intelligent, experienced, well-intentioned men and women —practically the entire membership of the American Economic Association, not to mention the with-it managements of our corporations great and small?are bemused by the productivity delusion...
...A year or so after its appointment I spent some time trying to find out what it had accomplished...
...If we followed Mexican practice and counted as employed everyone who as much as cadged a tip for opening a car door last week, our unemployment total would be as low as the 2 per cent Mexico reports...
...Since labor is by far the largest factor of input, they thought to simplify the equation by letting labor stand for all inputs...
...The fashionable word for their activity is downsizing, and the purpose is to step up productivity...
...If our aim is what all these worthies say it should be, we can achieve it by decreasing production, profits, employment and wages...
...Given a modicum of managerial skill and luck, half of the downsized corporations may actually improve their rating on the productivity scale...
...It really and truly exists, and as long as our best brains are trying desperately to reduce "hours worked," it will not go away...
...Should the first nation have only a third of its workers employed, while the second has full employment, the second will produce 50 per cent more widgets than the first and therefore will be more prosperous...
...The index goes up when production falls, provided "hours worked" falls faster...
...In the sense that we have one, however, there has almost always been one...
...And I hope I'm wrong again...
...David Ricardo thought that England should stop making wine and concentrate on wool cloth, that Portugal should do the opposite, and that the two countries should exchange surpluses...
...The new global economy is a hot ticket today...
...Given some rather special assumptions, this was a dandy idea in 1817 (and today it underlies the North American Free Trade Agreement...
...The productivity equation relates two quantities...
...In fact, this is what General Motors and IBM and other giants of our economy are doing today...
...Psychology aside, I can make a stab at explanation...
...You never heard of that committee...
...I hope I'm wrong, for I joined in the grateful cheering during the State of the Union address...
...I still have the pamphlets somewhere in this mess I call my study...
...But the economic impact of the route was slight in prehistoric times, and at present the economic impact on us of Bombay and Cairo and Mexico City does not extend much beyond our corporations exploiting their labor in order to undercut our wage rates...
...By last November, of course, a considerable majority of the voters did become displeased, if not with the enrichment of the rich and the impoverishment of the poor, at least with the stagnation that followed from the polarization of the economy...
...These dismal outcomes will no doubt be exacerbated by the eagerness of Congress, whipped to a frenzy by Citizen Ross Perot, to cut government expenditures, and by the complementary unwillingness to fund the President's already inadequate stimulus program...
...When I say productivity will undo Clintonomics, I mean just that...
...Mathematical economists tend to believe that money is not real and don't like to talk about it in public, but their simplification, as I've shown in greater detail elsewhere (see The End of Economic Man, Revised—Adv...
...And the national product and profits and employment and labor income will certainly be lower...
...As I recall them, they were paeans to efficiency and might well have been written by Frederick Winslow Taylor a hundred years earlier...
...Although I wrote as CEO of an American corporation, Simon did not answer my inquiries, nor did the White House...
...True again—with one proviso, namely that both nations have full employment...
...that is what the downsizing movement aims for...
...If you have full employment, you can (and should) invest almost without limit to upgrade your product and upgrade the workers and capital plant that produce it...
...It was an old idea when President Reagan, in his first year in office, created a 33-mem-ber National Productivity Advisory Committee headed by former Treasury Secretary William E. Simon...
...When economists started playing with productivity they changed it radically...
...It tells nothing of the size or nature of the domestic product, and nothing of the size, composition or compensation of the labor force...
...But all that aside, a mad drive for "productivity" in the face of long-lasting unemployment is fully sufficient to undo Clintonomics...
...It is a ratio, an ordinary fraction...
...But their production and profits and employment and wages will mostly be lower...
...On the other hand, the index declines when production rises, provided "hours worked" rises faster...
...Finally, Senator Daniel Patrick Moynihan was able to dig up for me three or four slim pamphlets published by a second productivity committee that had been created some months after the initial one...
...In keeping with their passion for mathematics, though, they devised an equation to determine it and an index to rank performance...
...Adding up those who are officially called unemployed, those too discouraged to look for work, those too turned-off to think of working, and those able to find only occasional part-time work, recent testimony before a Congressional committee reached the appalling total of 17.3 million men and women...
...It may find suitable work for a few thousand middle managers rendered redundant by corporate or governmental downsizing, and that will be to the good...
...Otherwise, why are we so eager to get welfare mothers to work...
...Productivity is not a new idea...
...The other name for this result is nonsense...
...Or if we followed mainstream economic practice and did not count at all the "naturally" unemployed, we could squinch our eyes shut and pretend that the problem didn't exist (see "Are You Naturally Unemployed...
...causes a serious distortion...
...The English vintners would become weavers, and so on...
...But unemployment will not be substantially reduced (except by the withdrawal of people from the official labor force), aggregate consumption will not be substantially increased, and whatever brave new hi-tech industries are created will stagnate for lack of consumers, here or abroad, able to buy their products...
...Hours worked" includes those of proprietors, unpaid family members and others "engaged" in any business...
...This had the further attraction of allowing them to quantify input in "real" rather than dollars-and-cents terms, as they would have had to do in order to add the input of labor to the inputs of land, capital, technology, and whatever other factors one might name...
...If you have millions of men and women who are unemployed or underemployed, you need to increase the number of hours worked...
...The economy is not less prosperous, nor is the nation weaker, because more people are working...
...NL, August 10-24,1992...
...Given this property of fractions, a moment's reflection will satisfy you that the productivity index is constitutionally incapable of providing an unequivocal answer to any question you may reasonably want to ask...
Vol. 76 • May 1993 • No. 5
