New Use for a Bad Idea
BROCKWAY, GEORGE P.
The Dismal Science New Use for a Bad Idea By George P. Brockway In economics, no bad idea goes unused. This is perhaps to be expected in a discipline that prides itself on being the...
...Productivity is still output divided by hours worked, or x/y...
...We get similar results macroeconomically...
...The current performance of a company's sales (or any other) department can be compared with its performance in prior years, or with the performance of corresponding departments of the particular industry as a whole...
...and now a court has said that creationism isn't science...
...Econometrics —playing with statistics—is the beginning, not the end, of economics...
...We let them beat us in Vietnam...
...It's hard to tell what the country stands for anymore...
...This is what Reaganomics (or, if you will, Volckerism) is all about, and the Atari Democrats have been gulled into going along with it...
...His manager yanked him because (aside from drawing a walk or being hit by a pitch, neither of which would count as a time at bat) his productivity could only go down...
...All they need to know on earth is that a tax cut is beauty, and beauty is a tax cut, especially a tax cut for millionaires...
...Conclusion: Look out...
...The new scheme goes like this: (1) Production is produced by workers exercising their productivity...
...Even monetarism, despite its name, is scornful of the stuff we pay our bills with, which it speaks of as "nominal" money, and insists that what it calls "real" money is what matters, although no such thing exists...
...you can increase their value either by increasing the nominator or by decreasing the denominator (2/3 and 1/2 are both greater than 1/3...
...Banks routinely analyze their customers' profit and loss statements in this way, and trade associations frequently do the same for their members...
...Common laborers, not Protestant financiers, are now the austere actors on our economic stage...
...My productivity could only go down," he lamented as he gave his clubs to his caddy and took up water polo to sublimate his aggressions...
...Well, I've already asked you...
...yet the productivity index treats it as the only one...
...Years ago a chapter in a tome on book publishing started this way: "There are two simple principles by which the business thinking of a publishing house should be guided...
...I regret to have to add that the Democratic Party Platform Committee listened solemnly to this kind of stuff...
...They are: (1) Reducing costs by $ 1,000 has roughly the same effect on the profit and loss statement as increasing sales by $25,000...
...Well, I ask you...
...But the value of my work as CEO really and truly was vastly greater than the value of my salesmanship, and you may believe I was paid more for it, too...
...A young slugger lived up to his promise by hitting a grand slam home run his first time at bat in the majors...
...Productivity being a protean idea, each column is concerned with a different use of the index...
...General equilibrium analysis, the most fashionable economic theory at the bulk of élite American universities, can find no place for money in its doctrine...
...Output is divided by input to determine how many units of input achieve a unit of output...
...Regardless of the shell we chose, we got a pea...
...Karl Marx faced a similar problem when he was wrestling with his theory of surplus value...
...I objected that the symbol stood for a fallacy, and that his equations were therefore fallacious...
...On May 28,1984, "The Productivity Scam" appeared...
...A couple of other examples may clinch the case...
...The result is an index number that can be compared with other numbers similarly derived...
...After all, there are only so many hours in a day...
...Every job in every department is ultimately at risk...
...Since, as we shall see, the new use is in the very highest reaches of national policymaking, it is in an especially bad place for a bad idea...
...But the cost of capital—the money spent for interest by nonfinancial, nonagricultural businesses —has increased roughly five and a half times in the past 40 years, partly because the Federal Reserve has increased interest rates, and partly because today American business relies much more on borrowed money than it used to...
...Even at that level, if we could find the wit and will to employ these people on this basis, we could increase our gross domestic product by 1.2 per cent, or about $ 130 billion a year...
...First, microeconomically: Think of a journeyman plumber whose output is x, whose hours worked isy, and whose productivity is therefore x/y...
...It is a tragedy of almost universal scope...
...investigative journalism got out of hand over Watergate...
...The share of nonmanagerial labor is being reduced...
...John Maynard Keynes also felt a need to devise a homogeneous unit of labor...
...With many hundredsof doctoral candidates looking for original dissertation subjects, and many thousands of tenure-track assistant professors looking for profound article topics, nothing that looks like an idea can be allowed to waste its fragrance on the desert air...
...It must be confessed that executives sometimes make unreasonable use of the comparisons...
...Some add technology, and Adam Smith wrote of a propensity to barter...
...Take the 5.4 million or so people counted by the Bureau of Labor Statistics as unemployed...
...After finding jobs for the 4 per cent of our civilian workforce that is now unemployed, our productivity becomes 1.012x/1.04y, a fall of 2.7 per cent...
...A single index number, of course, is almost useless...
...The other day I read a paper by a friend of mine that was decorated by several equations in which a symbol for productivity occurred...
...But the ethical objections to downsizing shouldn't allow us to decide that there are not solid, hard-nosed, business-is-the-only-thing objections to the national productivity index...
...Many years later I became a moderately successful CEO of a small company and worked doggedly at that...
...the share of managerial labor is being increased...
...A sales department may be faulted for a falling sales index, while the sales force argues that the quality of the product has declined, or that the advertising has been inadequate, or that the sales representatives suffer from stress caused by driving poorly equipped automobiles...
...The firstpea,"whichalwaysrurns up on metropolitan bars and suburban bridge tables," was that "it just seems people aren't willing to work the way we did when we were young...
...2) You have to spend a dollar to make a dollar...
...3) The productivity index, fallacies and errors and all, increases about 1.5 per cent a year...
...Ideas are hard to come by in the best of times...
...Those whom the late Robert Lekachman, a wise and witty contributor to this journal, dubbed Atari Democrats called themselves New Democrats...
...In addition, there are the diurnal needs of business-page journalists and bond salesmen...
...5) The economy has been expanding at better than that rate in every year except one in the last eight...
...Consider some examples of how the index works...
...True to its metaphor of a shell game, the earliest column said that in the new game each of the three shells had a "pea" undent...
...It doesn't matter...
...It has malignly affected the lives of millions of men and women, the fortunes of thousands of enterprises, and the economies of nations...
...He laughed...
...Unfortunately, a large majority of the members of the American Economic Association do believe in the theory...
...So you can increase a productivity index number either by increasing "dollars of output" or by decreasing "hours worked...
...The productivity index is thus one of the most powerful ideas of our time...
...Rumbles from the executive floor suggest that the sales reps are too well paid, or that there are too many of them, or that some territories are not worth covering...
...It must be overheating...
...Being still a rational person, you might think such a tidy sum would increase our productivity, but again you would be sadly mistaken...
...Not to mention the problems of New Leader columnists...
...The low one was 2.4 per cent in 1993...
...Then there was the unsung predecessor of Tiger Woods who hit a hole in one on the first hole of a club tournament, but retired when his drive on the second hole stopped rolling two feet short of the cup...
...but much can be learned from comparisons, and they are of great and daily use in business management...
...Suppose by taking on a plumber's helper (a human being) he increases his output 20 per cent...
...You're expected to do it...
...The basic idea of the index is sound enough...
...The talk was all about downsizing, a nasty and disgraceful business practice that continues to this day...
...I regret further to have to admit that tire economics profession is careless about such nonsense...
...Being a rational person, you might conclude that such an increase in output would result in a substantial increase in productivity, but you would be sadly mistaken...
...By May 1984, the productivity focus had narrowed, with this conclusion: "The uproar about labor productivity is a scam to distract attention from a massive shift in the distribution of the goods of the economy...
...A quasi-constant of the economy is that the cost of labor currently runs about 60 per cent of GDP...
...This shift in roles may be good or bad or indifferent, but the productivity index, no matter how constructed, will at best only call our attention to the fact that a shift has occurred...
...This is perhaps to be expected in a discipline that prides itself on being the science of the efficient allocation of scarce resources...
...There is another problem with the denominator...
...The minimum wage (currently $5.15 an hour) may be taken as a homogeneous unit of labor...
...It was a stroke of genius, even though the Federal Reserve Board had already pioneered the implausible idea of using high productivity (according to the index) as an excuse for trying to reduce production...
...I'm sorry again, but I can't say, at least with a straight face, why we should reduce production...
...We learned in school that the factors of production are land, labor and capital...
...Atari was at one time the leading producer of electronic games, and was early seduced abroad by the promise of cheap labor...
...The third antiproductivity-index piece had to wait until April 5-19, 1993, and the fourth is here and now...
...Nine years later (April 5-19, 1993), the focus had narrowed again...
...I was a lousy salesman, though I worked doggedly at it for almost five unproductive and depressing years...
...2) The population of workers increases about 1 per cent a year...
...The February 8,1982, column in this space was titled "Productivity: The New Shell Game...
...Fractions, of course, are not unequivocal...
...Under the third shell was the "archaic industry pea...
...To be sure, labor may be the largest factor...
...But why bother...
...He finally declared victory and wrote: "We therefore save ourselves a superfluous operation, and simplify our analysis, by the assumption, that the labor of the workman employed by the capitalist is unskilled average labor...
...His next time up, there were only two men on base...
...This is the way that downsizing begins...
...and the share of those who do no labor, who merely have money, is being increased most of all...
...In any case, labor is merely one of the factors of production...
...In other words, the productivity "peas" were Reaganomic explanations of the recession then stagnating...
...I doubt that the Republicans bothered their heads about it...
...I'm sorry, but I can't say who invented the new use...
...According to the formula, his productivity becomes 1.2x/2.0v, or 0.6x/y, and thus has fallen 40 per cent...
...Our productivity is down because we don't invest enough, because we don't save enough, because we tax business too much...
...What became of it, deponent knoweth not...
...4) Put them together, and you get 2.5 per cent a year as the rate at which a well-mannered economy should expand...
...There are about 10 million more who aren't counted because they have a part-time job, or are too discouraged to continue looking for work, or are too turned off ever to have seriously entertained lawful employment...
...It is with mixed feelings that I report on a quite new use that has been thought up for this fallacious procedure...
...If this was a valid assumption in his day (and it probably wasn't), it certainly is not in ours...
...It's no wonder that productivity is down and we have to have this recession to get us back on the track...
...The thing about "hours worked" is that Gertrude Stein couldn't have said "hour is an hour is an hour" because they aren't...
...He wrote: "Insofar as different grades and kinds of labor and salaried assistance enjoy a more or less fixed relative remuneration, the quantity of employment can be sufficiently defined for our purpose by taking an hour's employment of ordinary labor as our unit and weighting an hour's employment of special labor in proportion to its remuneration, i.e., an hour of special labor remunerated at double ordinary rates will count as two units...
...The index numbers are simple fractions: national output for a certain period in dollars (because we can't add shoes and ships and sealing wax) divided by the hours worked by everyone engaged in production, whether paid or not...
...So if we really believe in the conventional theory of productivity, we must deny help to our plumber and jobs to the unemployed...
...Unless you naturally think like an economist, you may wonder why the denominator of the productivity fraction is "hours worked" rather than "dollars paid for labor...
...A subject that has met all the above needs for at least the past quarter century is the productivity index...
...Let's accept (for argument only) that the conservative press is correct in saying the 4 per cent of our civilian workforce officially designated unemployed are so careless, stupid, uneducated, arrogant, sickly, or pregnant that they're unlikely, if employed, to produce on the average more than a third as much as an equal number of those who are currently employed...
...Downsizing tends to forget the second principle, and also the greater principle that the human beings who are so easily hired and fired are not a means to an end but are ends in themselves...
...Next was the "America has gone soft pea...
...I put in approximately the same number of hours a day as a salesman as I did as a CEO...
...Adding those different hours together in the denominator is less sensible than adding apples and oranges...
...It is merely a multiple of a homogeneous unit we already had ($1.00) and tells us nothing new...
...As we shall see, the hours present a special problem...
...The deep secret is that economists, like well-bred characters in an early 19th-century English novel, are with a few exceptions embarrassed by talk about money...
...and regardless of the pea we got, we lost...
...It will neither judge the desirability of the shift nor tell us what to do about it...
...Everybody does it," he said...
...All that said, we come to the new use of the productivity index mentioned at the start...
...If you've read much medieval philosophy, you may find such talk familiar...
Vol. 83 • September 2000 • No. 4
