Solution to the Federal Deficit

[Lord Merciless]

Originally posted by Odin

Rich people waste a lot of thier extra money on useless goods like $100,000 luxury cars and whatever instead of using it for the good of society.

This $100,000 first appears as revenues of automakers who will be able to invest in new factories and hire more people. Second, it gets distributed as dividends to investors's who will then have more money to invest in more entrepreneurial activities, thus creating more goods and jobs. Finally, this money becomes as wages for people who assembled it. They can in turn spend this money on buying food and other necessities, making restaurant and grocery store workers happy.

I'm often amazed about how little you commies understand economy.

[Japher]

DanS: I think you underestimate the worth of the information age...

Merciless

[Kidicious]

Originally posted by DanS
We also haven't had as many big technological advances instituted during our time, even though I'm sure we're spending much more on R&D. I am amazed at what America did in the late 19th and early 20th centuries.

We haven't seen the end of the productivity gains from the Information Age, but the thing about productivity gains is that they have to result in less working hours for workers otherwise the result is unemployment in the short run.

[Kidicious]

Originally posted by Lord Merciless
I'm often amazed about how little you commies understand economy.

Because we understand that it's not that simple.

[DanS]

We haven't seen the end of the productivity gains from the Information Age, but the thing about productivity gains is that they have to result in less working hours for workers otherwise the result is unemployment in the short run.

That's not true.

[Kidicious]

Originally posted by DanS


That's not true.

You're no fun.

[DanS]

The fact is that productivity is normally strongest when economic growth is strongest. Because of this, jobs aren't lost in the aggregate, but rather they are gained. It is easy to know this is so conceptually, since capacity utilization is higher during times of high economic growth.

[el freako]

Are you totally sure about that DanS, because the figures seem to bear out Kidicious's assumption.

1990-92
Change in GDP 1990-92: 2.6%
Change in total hours worked: -0.8%

2000-02
Change in GDP 2000-02: 2.7%
Change in total hours worked: -1.3%

it looks to me like the vast majority of the productivity improvement in this recession compared to the last one is due to lower inputs, not higher output.

[DanS]

What you aren't taking into account is that historically the periods of growth are longer than the periods of recession, that productivity growth has been higher during periods of growth, and that the last two recessions have been deviations from the norm.

[el freako]

So you're saying that 'this time it's different' - surely that's hust what Kidicious was also saying.

During the boom employment growth was much slower than before as well.

Taking the last two cycle's in comparison:

1979-1990:
Average GDP growth: 2.9%
'Trend' underlying GDP growth: 3.1%*
Total Hours worked: 1.8%
Hourly Productivity: 1.1%

1990-2000:
Average GDP growth: 3.2%
'Trend' underlying GDP growth: 3.0%*
Total Hours worked: 1.5%
Hourly Productivity: 1.7%

* this is derived from using the OECD estimates of the output gap


So you can see that despite the faster overall growth in GDP in the 1990's, total hours worked showed a significant slowdown.

[DanS]

So you can see that despite the faster overall growth in GDP in the 1990's, total hours worked showed a significant slowdown.

No, the growth in total hours worked showed a significant slowdown. The total hours worked increased. Only a very few quarters among those 30 years showed both high productivity and job losses, as Kid is proposing as the norm.

[el freako]

Yup, my bad, that's what I meant.

But the growth was significantly slower.

However that still seems to substantiate Kidicious' argument over yours wouldn't you agree?

[DanS]

See my DanS.

[GePap]

"Your money"? Money is a symbol: if tommorrow the US goernment decided to make maple leafs the currency of the US, then the savings of all those people who hoearded dollars would become worthless..and yet, we have to make a huge fuss about "our money"?

The value of your savings is based not only on your work, which is why you pay taxes. Without the system that the state creates in which you can work, you would have very little: well, you have to pay for that system's upkeep.

[el freako]

I think you are misunderstanding him - to me he seems to be saying that, other things being equal, higher productivity can result in lower hours or lower employment.

Now I'm sure you and he would be the first to agree that other things are almost never equal in economic terms - so with the underlying growth in the economy his argument results in lower than expected growth in total hours worked, not an actual fall per se.

BTW, how do you explain the drop in the 'trend' growth rate between the 1980's and 1990's?

[DanS]

I think you are misunderstanding him - to me he seems to be saying that, other things being equal, higher productivity can result in lower hours or lower employment.

Things are never equal. High productivity most often goes hand-in-hand with employment/hour gains, since the high productivity normally equals high growth. Once a recession kicks in, productivity is low and jobs are lost.

Periods of high productivity and job losses happen very rarely. Just because we've been in one of those periods for the last two quarters makes it only marginally less rare.

[el freako]

Yes, but,

Half of the increase in productivity growth in the 1990-2000 cycle was due to lower growth in total hours worked - so you can say that half of the productivity gains have been at the cost of there being fewer jobs that there would have been, 4.1m less by 2000, as average hours have stayed broadly stable.

[DanS]

Half of the increase in productivity growth in the 1990-2000 cycle was due to lower growth in total hours worked - so you can say that half of the productivity gains have been at the cost of there being fewer jobs that there would have been, 4.1m less by 2000, as average hours have stayed broadly stable.

That's just sophistry. In periods of high productivity growth, we have more jobs and more hours in the long term, short term, and every point in between. There have been only a few quarters in the last 30 years (and probably the last 55 years) where this hasn't held.

[el freako]

I fail to see how that statement agrees with the fall in the growth rate of total hours worked in 1990-2000 compared to 1979-90.

[DanS]

Because you're including low productivity growth, low economic growth, high job loss periods. They aren't applicable to Kid's argument of "short term" causality.

[el freako]

Hmm,

Well my original post only mentioned the growth in GDP and hours worked in the period 2000-02, but then you said:

Originally posted by DanS
What you aren't taking into account is that historically the periods of growth are longer than the periods of recession.

So, to me, you seemed to be arguing that you should take the whole cycle into account.

So, in both the previous cycle and since the peak in 2000, growth in hours worked has been significantly below trend - and this accounts for at least half of the increase in productivity growth in both those periods.

[DanS]

No, I was just saying that the number of instances of high productivity growth, job gains is vastly more than instances of high productivity growth, job losses. So his theory that high productivity leads to short term lower hours or lower employment is demonstrably not so.

[el freako]

Now that's sophistry.

As the number of incidences of job gains is also much bigger than the incidence of job losses.

What you should be looking for is the proportion of periods with high productivity growth in both job-gain and job-loss periods.

If it's the same or higher in job-gain periods then your argument is correct, if not....

[DanS]

What you should be looking for is the proportion of periods with high productivity growth in both job-gain and job-loss periods.

Perhaps I'm not understanding what you want to do here. Didn't I just get through saying that high productivity almost never goes hand-in-hand with aggregate job losses? It doesn't matter how you slice it.

[el freako]

Originally posted by DanS
Didn't I just get through saying that high productivity almost never goes hand-in-hand with aggregate job losses?

2002:
Productivity growth 3.1% (whole economy)
Total Hours worked: -0.7% (whole economy)

1971:
Productivity growth 3.6% (whole economy)
Total Hours worked: -0.2% (whole economy)

[Kidicious]

I didn't mean to say that productivity growth goes hand in hand with higher unemployment. I agree that productivity grows faster when the economy is closer to full employment. I meant that when there is on output gap due to productivity gains, and I believe there is one now, that shorter working hours and higher wages will solve the problem. I don't think that the current economy is set to return to the employment rate that we had in the mid and late 90s, because of the productivity growth since then. Even during this slowdown productivity is posting good gains.

[DanS]

Hmmm... Let's do some math to see what the score is.

From 1970 through the present, there have been 29 quarters of job losses, 14 of which were in high productivity growth periods (business output per hour, 2% or higher) periods. So job losses are associated in equal measure to high productivity and low productivity periods.

From 1970 through the present, there have been 60 quarters of high productivity (buisiness output per hour, 2% or higher). As discussed above, only 14 of these quarters have been during times of job losses.

Where's this causality?

Btw, I am wrong in that 14 quarters in the last 33 years is not "almost never". However, the causality bar is set quite a bit higher than the arguing against causality bar.

[DanS]

We crossposted. Let me think about your new argument.

[el freako]

That data certainly looks like it's going your way DanS, but one minor peeve:

I think your threshold for 'high' productivity growth may be too low, BTW what was the average using the 'business' productivity measure, I would choose anything above average+1% for a 'high' productivity period.

[Kidicious]

Higher demand for labor due to expectations of high productivity leads to more demand for goods and service, and the more demand for goods and services leads to productivity gains. We're in a new economy though. With productivity and working hours so high employers won't hire workers the way that they did during the last expansion period, even if consumer spending increases by a decent margin. If consumer spending grows by a very large margin then unemployment will fall, but that's not likely to happen.