Czar

Productivity Should Rise as Unemployment Rises: It Isn't

You are watching the effects of the GDP/GVA collapse. If you back out the "financial products industry" what a crock froth from the value added manufacturing economy GDP adjusts down 3-4 trillion. This appears as a productivity drop. This recession/depressionar... cusp is different in that at no time in history have so many people been doing absolutely nothing productive and adding no value while inflating away endlessly. If you want to understand the actual root the data is in the BLS database for non-farm payrolls. You need to do a little extracting, but it is there. Also keep in minf that the refiners are shutting down their cracking units. Last time I looked they were running low to mid 80% utilization. That will also bring down GDP/GVA and make productivity numbers look like crap. Economists suck at understanding productivity. Why else would they book producivity year over year against GDP instead of a constant baseline comparison. Simple, it hides the fact that our GDP/labor ratio is 3.67 times what it was in 1970.

Inflation on 'Sale' as Deflation Dominates Markets

Absolutely true. Fair value of real estate based on fundamentals of overall debt and income (ability to repay note without incurring more debt) have not been in line since the late 80's. You will continue to see a substantial contraction in that sector. Inflating the currency will not increase the ability to repay as value added manufacturing jobs have been removed from the economy. In general when America has gotten a financial cold the world has gotten pnuemonia. We usally have led out of these things through increased productivity. Per capita productivity is so high now we can easily produce more than what we need. That is by the way what really happened to Japan. They suffered a productivity driven deflation. China is experiencing this now. The GDP delta v. time is to money velocity/productivity. I think Tobin may have seen this, but economists rarely understand individual productivity in the value added chain. Service sector jobs mask the productivity gains generated in the manufacturint sectors.


On Dec 10 08:13 AM JE wrote:

> Real estate is still 3 years away from a bottom. To buy real estate
> is bad advice.

Inflation, Not Deflation, Is Our Ultimate Problem

Perhaps Mr. Greenspans mental picture of inflation maintainance during his tenure was really a misunderstood effect of productivity growth which is not properly understood by economists in general.

Japans level of process automation was the cause for it's deflation. In response to the lower price pressures more automation was built to maintain corporate profits which in turn led to higher levels of unemployment. The common thread is that Japan's economy was the first truly moden economy to substantially produce more than it could consume.

A more accurate understanding can be achieved through a look at the percentage of Americans and to a greater extent the level of factory automation has reduced the value added sector of the economy to 10% of the population. There is a popular misconception that the Chinese economy is dependant on large numbers of unskilled workers. Although this is an accurate picture of China 15 years ago they have made relentless advanced cap-x investments that have made them largely as efficient as us in many manufacturing areas and more efficient in some.

In short, we produce more than we need as a global society and don't have enough people involved in those processes. You can only have so many individuals involved in service and government before the value added chain gets disturbed and deflationary pressures overwhelm inflationary ones regardless of the amount of fiat currency printed.

I point to the deflation in the cost/performance ratios of virtually any technology which in iteslf is a deflationary influence as it is a powerful first order feedback amplification loop. I point to the ratio of discretionary vs. non-discretionary spending which has exploded (excluding housing)that is not only an American past-time but has become a global one. Perhaps Greenspan saw this macroeconomic effect and never understood the causal relationships with efficiencies as they include service sector effects that dissapear with discretionary purchasing power.

Expansion of the money supplies was the only thing keeping it afloat, and yes it caused an inflationary bubble in commodities and real estate as these areas were not demand driven or manifested short term volitility which people couls clearly see until recently, but real estate kept a lot of people off the street as it is difficult to automate the fabrication of stick built houses.

People always forget that wealth is not created by any other mechanism that production. Do not confuse transferrance or currency exchange for wealth in a macroeconomic system sense.

I wish everyone good luck. I am going to toiling over developing my next industrial automation project.