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null;

The Productivity Puzzle - shall we give them the answer?

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It's a subject often discussed on ToS and I'm sure its cropped up here plenty of times.

I think we all know the answer but for some reason the ONS just don't know. Maybe someone should drop them an email and explain it to them?

From the So-Called BBC today, rather than link to the article I'll extract some key parts below. There is a nice graph showing the difference in productivity per hour and per worker.

"UK productivity shrank in the first quarter of the year and continues to lag rates achieved before the financial crisis in 2008, figures show."

"The Office for National Statistics said productivity fell by 0.4% compared to the final quarter of last year."

"A previous study by the ONS found that while more people are in employment, they have found work in parts of the economy that are just not that productive such as food and drinks services. "

 

If anyone has a good news source for this other than the So-Called BBC then please share.

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6 hours ago, Bear Hug said:

1. Benefits, particularly those which discourage working

2. Cheap European labour

3. Lots of people in higher education

4. Long commutes

5. Expensive childcare

6. Financial industry attracts brightest graduates who then don't actually produce anything useful

7. People stuck in jobs they don't like as it's expensive/risky to move

I just had to, I know it wasn't a question.

8. If your income is being bled dry servicing rent and rates this cripples your ability to invest in machinery/equipment to make yourself more efficient, you are effectively hobbling on from year to year.

9. The extended leverage model to acquisitions/takeovers - doesn't result in more investment, just more asset stripping , higher leverage, and higher proportion of profits going to service debt which is totally non-productive.

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2 hours ago, onlyme said:

8. If your income is being bled dry servicing rent and rates this cripples your ability to invest in machinery/equipment to make yourself more efficient, you are effectively hobbling on from year to year.

9. The extended leverage model to acquisitions/takeovers - doesn't result in more investment, just more asset stripping , higher leverage, and higher proportion of profits going to service debt which is totally non-productive.

10 benefits skew the wage/effort part of the labour contract and hard work on longer pays  

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8 hours ago, Bear Hug said:

1. Benefits, particularly those which discourage working

2. Cheap European labour

3. Lots of people in higher education

4. Long commutes

5. Expensive childcare

6. Financial industry attracts brightest graduates who then don't actually produce anything useful

7. People stuck in jobs they don't like as it's expensive/risky to move

I just had to, I know it wasn't a question.

No harm in spelling it out, you never know, someone from the ONS might stumble across this thread.

17 minutes ago, One percent said:

10 benefits skew the wage/effort part of the labour contract and hard work on longer pays  

Yes, for sure. When we have threads on here of people asking if they should take a promotion or not, that says a lot.

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9 minutes ago, null; said:

No harm in spelling it out, you never know, someone from the ONS might stumble across this thread.

Yes, for sure. When we have threads on here of people asking if they should take a promotion or not, that says a lot.

And then deciding that no, it’s not worth it...

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Posted (edited)

All spot on. 

Attended an IFS seminar last year with an odd scratching of heads about productivity.  Odd because it surely is obvious to any independent and free thinking economist - or I'm a rubbish one.

Everything has been done to lower labour costs, resulting in the subsitution of capital for labour (i.e. the car wssh effect).  Total GDP rises but per capita, in this UK case, does not.

I say "in this case" because this new labour is not paying its way, otherwise capita GDP would increase sufficiently to cover the increased social costs attributable to this additional labour.  The problem is social costs are not correctly accounted for in the anyways questionable GDP statistic.  This may not happen in say Germany if, due to demographics, labour is required to operate capital (machines) rather than substitute capital.  Or they have indeed been sold the UK model.

Allowing for taxation, lower per capita GDP signifies an increase in the present net national burden (social infrastructure such as police, roads, health, benefits, utilities, etc) and in the future (state pensions and the crowding out effect of private pensions).  The net burden increases because this additional labour is not paying its way.  Their marginal tax revenues are less than their true marginal social costs.  And of course, much to the proponents' delight, such social costs are hard to measure (assuming, incorrectly they ever are) but you and I feel them every day.

Furthermore, lower productivity of the type we have increases income and wealth inequality, the latter never discussed by the profession and yet key in the BoEs flaky justification for QE.

There was a deliberate policy under the Blair government and onwards to go for a low wage economy, especially via FOM.  It suited the politicians (increased fake total GDP, lower unemployment, client state, voter base, tax substitution from capital (corporate) to people (income), reduced imports of capital goods), and suited corporates (lower costs, including investment costs, higher profits but lower corporate tax).  It was supported by some fake economists.

I say "fake" economists because every progressive economist knows true GDP growth, is the only way to increase the absolute "size of the pie".  Any other talk is fake as it just involves moving income and wealth around, where one can only gain at the expense of another.  This is what we have seen here in the UK with the increased income and wealth inequality and increased direct and indirect (e.g. fees) real (allowing for inflation) taxation.  Those few accustomed to growing wealth have continued to do so but only at the expense of the many.

It is all also symptomatic of our short term financing model - the City - as opposed to that say in Germany.  That in itself is part of a rentier system - such a rentier system, at least towards its extreme, and growing real GDP,  are incompatible.

I could go on, but suffice to say productivity and GDP are key to everything.  And I say that not from a belief in its supremacy but as the basis for the majority of debate.  I have hinted that GDP is an imperfect measure - it is indeed pretty hopeless in its concept and actual measurement.  So lets debate what it is, in this low conflict slow growth world of ours (if not everyones), and what it should be.  Social costs inclusion being one such issue.

Edited by No Duff

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Posted (edited)

All sadly spot on. 

Attended........

......I could go on, but suffice to say productivity and GDP are key to everything.  And I say that not from a belief in its supremacy but as the basis for the majority of debate. A debate that takes us from economics to politics and social issues.  The true political economy.   I have hinted that GDP is an imperfect measure - it is indeed pretty hopeless in its concept and actual measurement.  So lets debate what it is, in this low conflict slow growth world of ours (if not everyones), and what it should be.  Social costs inclusion being one such issue.

Alternatively, we use the old method and have a global war.

Edited by No Duff

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7 minutes ago, No Duff said:

All sadly spot on. 

Attended........

......I could go on, but suffice to say productivity and GDP are key to everything.  And I say that not from a belief in its supremacy but as the basis for the majority of debate. A debate that takes us from economics to politics and social issues.  The true political economy.   I have hinted that GDP is an imperfect measure - it is indeed pretty hopeless in its concept and actual measurement.  So lets debate what it is, in this low conflict slow growth world of ours (if not everyones), and what it should be.  Social costs inclusion being one such issue.

Alternatively, we use the old method and have a global war.

The problem is as I see it (or at least one of them) is that the government aim of full employment was abandoned under thatcher (sorry) in the 80s and unemployment rose significantly. They then saw this as unpalatable with the voters and so started to massage the figures (lie).  They got so hooked on this, like a bunch of crackheads, that this become modus operandi for the establishment. 

It worked quite well and has masked underlying social and economic issues for a generation or more. However, there is only so much that can be masked and we are now reaching the point whereby this is no longer a tenable position. 

However, just like crackheads, this the the only thing they know and are running ever faster down the wrong road in pursuit of their fix, rather than attempting to fix the underlying issues. 

Imho, it is beyond repair without a lot of accompanying pain.  

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Posted (edited)
5 hours ago, One percent said:

Imho, it is beyond repair without a lot of accompanying pain.  

Totally.  Payback with interest.  The political and economic systems are such that the virus must, at great pain, first burn itself out.  Plan accordingly.

Maybe one day we will have a system not based on the maximisation of an objective function incorrectly called and measured as current GDP.  Whether this is good or bad would depend on the accompanying social and political systems.

I'm not hopeful.

Edited by No Duff

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Is GDP that bad a measure? Clearly it should be GDP per capita excluding such nonsense as imputed rents as opposed to the current model of looking at the total figure but ignoring the number of people wanting a slice.

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Posted (edited)

21 years ago, labour started blabbing about the knowledge economy, shoving everyone and his dog into further education...the result, the biggest stagnation in productivity in centuries. 

 

I do, however, wonder how much of it is engineered and due to mathematically financially suicidal measures like 0.7% GDP to foreign development aid. Long run productivity growth only averages about 1% a year. Sending nearly 1% away for nothing in return each and every year is a pretty dumb thing, which would seem to engender a 'zero growth' goal (perhaps what the UN wants...they cant drag up the third world to the 1st, but they can make the 1st stagnate), which is probably why only a few countries that are population poor and resource rich like Norway do it. No country the size of the UK is mad enough to even get close. 

 

0.7% doesnt sound much to the average man on the street, when he compares it to income tax of 20 or 40%, but say to him if we got rid of foreign aid, your annual council tax bill would go down by 50%...i think he might get it really is an obscene amount of money.

Edited by PatronizingGit

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2 minutes ago, PatronizingGit said:

21 years ago, labour started blabbing about the knowledge economy, shoving everyone and his dog into further education...the result, the biggest stagnation in productivity in centuries. 

 

I do, however, wonder how much of it is engineered and due to mathematically financially suicidal measures like 0.7% GDP to foreign development aid. Long run productivity growth only averages about 1% a year. Sending nearly 1% away for nothing in return each and every year is a pretty dumb thing, which would seem to engender a 'zero growth' goal (perhaps what the UN wants...they cant drag up the third world to the 1st, but they can make the 1st stagnate), which is probably why only a few countries that are population poor and resource rich like Norway do it. No country the size of the UK is mad enough to even get close. 

 

0.7% doesnt sound much to the average man on the street, when he compares it to income tax of 20 or 40%, but say to him if we got rid of foreign aid, your annual council tax bill would go down by 50%...i think he might get it really is an obscene amount of money.

The reason for the massive push to post school education and training (and the raising of the school leaving age to 18) is to mask the massive youth unemployment figures. 

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2 minutes ago, One percent said:

The reason for the massive push to post school education and training (and the raising of the school leaving age to 18) is to mask the massive youth unemployment figures. 

Yes, that fact is not lost on me. Unfortunately, university has become a kind of social rite of passage. Truth be told, you can get pretty much the same social experience doing a house share in a large city for a few years, but doubtless the politician who dares mention that will be accused of stealing the futures of a generation (by liberating them for £50k of debt for a worthless, or even negative value, piece of paper) 

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2 hours ago, Castlevania said:

Is GDP that bad a measure? Clearly it should be GDP per capita excluding such nonsense as imputed rents as opposed to the current model of looking at the total figure but ignoring the number of people wanting a slice.

Terrible in concept but also the laughable manner (eg. assumptions) of its calculation.  Also massively impacted to the point of worthlessness by the application of the wrong rate of inflation (itself a concocted number based on dubious techniques and assumptions).  Just look out the window and ask if these numbrrs make sense, indeed have made sense for some time.  In reality, we have been in a stagnent to negative growth environment for some time.  You can fool some of the people some of the time.....

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Just now, No Duff said:

Terrible in concept but also the laughable manner (eg. assumptions) of its calculation.  Also massively impacted to the point of worthlessness by the application of the wrong rate of inflation (itself a concocted number based on dubious techniques and assumptions).  Just look out the window and ask if these numbrrs make sense, indeed have made sense for some time.  In reality, we have been in a stagnent to negative growth environment for some time.  You can fool some of the people some of the time.....

Do they use some godawful measure like RPI/CPI for the GDP deflator, or are they actually honest and just look at aggregates like money supply and productivity?

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Posted (edited)
7 minutes ago, PatronizingGit said:

Yes, that fact is not lost on me. Unfortunately, university has become a kind of social rite of passage. Truth be told, you can get pretty much the same social experience doing a house share in a large city for a few years, but doubtless the politician who dares mention that will be accused of stealing the futures of a generation (by liberating them for £50k of debt for a worthless, or even negative value, piece of paper) 

The beauty of the opening up of uni to all is that it lowers youth unemployment, makes the parents proud of obviously clever old Jonny, provides an opportunity for indoctrination, etc all for the govts benefit but all at the students expense!  Folk really are gullible.

Edited by No Duff

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Posted (edited)
28 minutes ago, PatronizingGit said:

Do they use some godawful measure like RPI/CPI for the GDP deflator, or are they actually honest and just look at aggregates like money supply and productivity?

Per:

https://www.gov.uk/government/collections/gdp-deflators-at-market-prices-and-money-gdp

"The GDP deflator is a much broader price index than the CPI, RPI (which only measure consumer prices), or PPI as it reflects the prices of all domestically produced goods and services in the economy. Hence, the GDP deflator also includes the prices of investment goods, government services and exports, and excludes the price of UK imports. The wider coverage of the GDP deflator makes it more appropriate for deflating public expenditure series".

Aka, whatever we want it to be!

More general criticism:

. What activities are considered productive (working mothers, maids versus housewives, and the broken window fallacy)

. Dubious adjustments (concept and calculated amount) such as imputed rents

. Ignored social direct and indirect costs of delivery, ranging from police to health, resources and environmental damage to quality of life, social cohesion, etc

. Matching discounted future costs (eg. discounting future pension obligations incurred today against today's growth figure)

. Plain bare faced manipulation like with inflation

.........

.........

Lots more on the web about all that too.

Edited by No Duff

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Posted (edited)
On 06/07/2018 at 13:09, null; said:

"UK productivity shrank in the first quarter of the year and continues to lag rates achieved before the financial crisis in 2008, figures show."

So it's a fuzzy somehow 2008 financial crisis related thing and not a FOM (eg. 2004) thing then.  Rubbish!

Edited by No Duff

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No Duff, thank you for the interesting and informative input.

You have given me some answers to questions I didn't even know I had.

What is your take on imputed rents? It's something I've been aware of for some time but will confess to not being 100% sure of what it's all about.

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Posted (edited)
2 hours ago, null; said:

No Duff, thank you for the interesting and informative input.

You have given me some answers to questions I didn't even know I had.

What is your take on imputed rents? It's something I've been aware of for some time but will confess to not being 100% sure of what it's all about.

Me neither TBH.  Goes in and out of my head each time, between which I just remember it's silly and annoying.

But this'll do:

https://notayesmanseconomics.wordpress.com/2016/05/23/the-problem-that-is-imputed-rent-and-hence-gdp/

Aka scraping the bottom of the barrel!

Edited by No Duff

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5 minutes ago, No Duff said:

Me neither TBH.  Goes in and out of my head each time, between which I just remember it's silly and annoying.

But this'll do:

https://notayesmanseconomics.wordpress.com/2016/05/23/the-problem-that-is-imputed-rent-and-hence-gdp/

Aka scraping the bottom of the barrel!

 

 

Thanks, good link. This was my favorite from the comments that sums it up nicely:

"It’s clearly safe to say that a fair chunk of the recovery has been down to an accounting trick.

I’ve often thought they’ll start imputing taxi fares next,you know where you could have taken a cab but drove your car."

 

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