THE BEAR'S LAIR What productivity tells us
By Martin Hutchinson
Non-farm business productivity fell by 3.2% in the first quarter of 2014, according to the Bureau of Labor Statistics' revised data. Most commentators have rather ignored this number. You expect productivity figures to be bad when GDP drops unexpectedly, as it did in the first quarter.
After all, the last such bad number was in the first quarter of 2008, the outset of the Great Recession, and the one prior to that was in 1990, when that recession hit unexpectedly. Still, in this
expansion, output numbers have been much weaker than employment numbers as productivity has stagnated. But then, in a period of such massive malinvestment, to use the Austrian economists' term, that's what you'd expect.
Productivity growth is the fundamental underpinning of our prosperity. Thomas Malthus forecast in 1798 that human population would always outrun the capacity to feed it. Productivity growth, the ability to produce more with the same amount of labor, is the only reason why he has so far been wrong. If the Industrial Revolution's effects prove temporary, and productivity growth slows to zero, then in the long run Malthus will be right after all and we will be destined for progressive impoverishment as population grows.
Productivity growth in Britain was already ticking along at about 0.5% or so per annum when Malthus wrote, and his Britain was already close to the most prosperous society the world had ever known, exceeded only by Song Dynasty China and far ahead of the supposed marvels of Greece and Rome. Productivity growth accelerated during the 19th and early 20th century, peaking, at least in the US, at 2.8% annually in the quarter century after World War II. More ...
Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.
(Republished with permission from PrudentBear.com. Copyright 2005-14 David W Tice & Associates.)