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Re: Productivity Re: Br!n: some thoughts and quotes.

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  • Dan Minette
    ... From: Dan Minette To: Killer Bs Discussion Sent: Monday, September 27, 2004 5:56 PM Subject: Re:
    Message 1 of 21 , Sep 27, 2004
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      ----- Original Message -----
      From: "Dan Minette" <dsummersminet@...>
      To: "Killer Bs Discussion" <brin-l@...>
      Sent: Monday, September 27, 2004 5:56 PM
      Subject: Re: Productivity Re: Br!n: some thoughts and quotes.


      >
      > ----- Original Message -----
      > From: "Erik Reuter" <ereuter@...>
      > To: "Killer Bs Discussion" <brin-l@...>
      > Sent: Monday, September 27, 2004 5:07 PM
      > Subject: Re: Productivity Re: Br!n: some thoughts and quotes.
      >
      >
      > > On Sun, Sep 26, 2004 at 11:16:49PM -0500, Dan Minette wrote:
      > >
      > > > I may have just found the source of our differences. I have been
      > > > focusing on the median income: the money made by the person in the
      > > > middle. I think your compensation costs are the mean compensation
      > > > costs. The change in those numbers have been quite different.
      > >
      > > The numbers I am working with are averages. But there a significant
      > > difference between compensation and average hourly earnings even when
      > > both are measured as averages.
      > >
      > > According to the BLS:
      > >
      > > "Compensation is a measure of the cost to the employer of securing
      the
      > > services of labor. It includes wages and salaries, supplements (like
      > > shift differentials, all kinds of paid leave, bonus and incentive
      > > payments, and employee discounts), and employer contributions to
      > > employee-benefit plans (like medical and life insurance, workmen's
      > > compensation, and unemployment insurance).
      > >
      > > The measures of compensation published alongside the productivity
      > > measures include an imputation of the earnings of the self-employed.
      > > This is because the output of proprietorships is included in our
      output
      > > measures."
      >
      > I went to
      >
      > ftp://ftp.bls.gov/pub/suppl/eci.ecconst.txt
      >
      > to get tables, since it is easier for me to compare numerically. From
      '81
      > to '04 we have the following geometrically averaged yearly growth.


      > wages compensation
      > 0.55% 0.86%
      >
      > This also includes, BTW, the increase in the social security and Medicare
      > taxes paid by the employer.
      >
      > The total over 23 years is:
      >
      > wages compensation
      > 13.4% 21.7%
      >
      > Compensation increases are a bit more than 50% higher than wage
      increases.
      >
      > The difference between the mean and the median wage increase is much more
      > than this: a factor of 8. It would be interesting to see the same
      figures
      > for the median compensation and wages.
      >
      > Dan M.
      >
      >
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      >


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    • Erik Reuter
      ... Perhaps the measurement of the capital they are employing is not doing a good job of representing the true productivity of the capital. Since you do not
      Message 2 of 21 , Sep 27, 2004
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        On Mon, Sep 27, 2004 at 04:08:30PM -0500, Dan Minette wrote:

        > I won't argue with you, but its interesting that it doesn't reflect
        > itself in an accelerated growth in total capitol employed.

        Perhaps the measurement of the capital they are employing is not doing a
        good job of representing the true productivity of the capital.

        Since you do not disagree that investment spending increased greatly in
        the 1990's

        http://research.stlouisfed.org/fred2/series/PNFIC96/112/Max

        I guess you are debating whether that investment actually resulted in a
        large increase productive capital stock. I think the answer to that is
        yes, to some extent. Certainly productivity has accelerated recently

        http://research.stlouisfed.org/fred2/series/PNFIC96/112/Max

        but some of this may simply be due to decrease in hours in the
        denominator of the productivity calculation

        http://research.stlouisfed.org/fred2/series/HOABS/2/Max

        But output has NOT decreased:

        http://research.stlouisfed.org/fred2/series/OUTBS/2/Max

        So, people are working harder/faster/better and/or the capital
        (computers, machines, etc.) employed is supporting more output with less
        human effort. While there was overinvestment during the 1990's (i.e.,
        some investment was in unneeded areas or inefficient capital) I tend to
        think the cause is some of each, although moreso the capital. After all,
        investment surged, and a few years later, productivity accelerated.


        --
        Erik Reuter http://www.erikreuter.net/
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      • Horn, John
        There s nothing quite like reading an argument between economists to get your morning rolling. - jmh No Real Content Maru
        Message 3 of 21 , Sep 28, 2004
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          <snip>

          There's nothing quite like reading an argument between economists to
          get your morning rolling.

          <grin>

          - jmh

          No Real Content Maru
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        • Erik Reuter
          Here is an interesting graph http://erikreuter.net/econ/npro_comp.png comparing my calculation for nominal productivity increases with nominal compensation
          Message 4 of 21 , Sep 28, 2004
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            Here is an interesting graph

            http://erikreuter.net/econ/npro_comp.png

            comparing my calculation for nominal productivity increases with nominal
            compensation increases. All of the data is from:

            http://research.stlouisfed.org/fred2/categories/2

            I calculated productivity by taking business sector output (which is
            apparently REAL output), multiplying it by the business sector implicit
            price deflator to convert it to nominal output, and then dividing by
            business sector hours of all persons.

            Note that nominal compensation increases closely track nominal
            productivity increases (except for a couple years at the stock market
            bubble of 2000 when compensation pulled ahead, and recently when
            productivity pulled ahead). Unless there is something fishy going on
            with the business sector implicit price deflator (i.e., unless my
            reconstruction of nominal business sector output is wrong), it would
            appear that the main source of differences between real compensation
            increases and real productivity increases is the deflator used in each
            case.

            Ordinarily, one might be inclined to use the consumer price index to
            deflate compensation and something else (PPI?) to deflate business
            sector output. But since PPI and CPI differ, that obviously makes
            the calculated real values differ even if the nominal values were
            growing at the same rate. It seems simpler to just look at nominal
            values, and not introduce the complexities of choosing the "right"
            deflators. But, almost all of the data in use seems to be calculating
            "real" productivity, even though it is not usually explicitly labeled as
            "real". So maybe I am missing a good reason for dealing with inflation
            adjusted values.

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          • Dan Minette
            ... From: Erik Reuter To: Killer Bs Discussion Sent: Monday, September 27, 2004 6:54 PM Subject: Re:
            Message 5 of 21 , Sep 29, 2004
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              ----- Original Message -----
              From: "Erik Reuter" <ereuter@...>
              To: "Killer Bs Discussion" <brin-l@...>
              Sent: Monday, September 27, 2004 6:54 PM
              Subject: Re: Productivity Re: Br!n: some thoughts and quotes.


              > On Mon, Sep 27, 2004 at 04:08:30PM -0500, Dan Minette wrote:
              >
              > > I won't argue with you, but its interesting that it doesn't reflect
              > > itself in an accelerated growth in total capitol employed.
              >
              > Perhaps the measurement of the capital they are employing is not doing a
              > good job of representing the true productivity of the capital.

              It just hit me. With computers, depreciaton is accelerated compared to
              machinery, planes, factories, etc.. Thus, investment is higher, but it is
              not reflected in net capital employed because the yearly depreciation is
              much faster.

              I have no arguement, also, with the idea that improved technology is the
              foundation of productivity growth..more than an increase in the skills
              level of the average worker. For example, a master smith has more skills
              than a high school graduate that goes to work at the steel mill. Yet, the
              later's productivity is far higher. From personal experience, I know that
              the skill level needed to produce scientific graphs in 1977 was far higher
              than it was in 1981. One graduate student could process data in '81 with
              the same efficiency as a team of 5 did in '77. These numbers, as you may
              guess, are from personal experience. So, while the skill level of the
              workforce has increased, most of the increase in productivity seen during
              the last 250 years has been the greater leverage afforded by technology.

              The pattern that I have seen is that, from time to time, is a burst of
              technological innovation allows for the development of hardware that
              significantly improves productivity. Computers, and associated equipment,
              are the technological innovation that handled this in the '90s. The cheap
              horsepower that became available allows me to have significantly more FLOPS
              capacity for $500 than Western Atlas had for $1,000,000 in '85. Relating
              back to an older thread: Walmart used computers to get a handle on its
              inventory, one example of the new old ecconomy. The other listed in the
              Atlantic monthly was the advances in 4-D seismic and geosteering that
              greatly reduced the price of oil field production. These types of
              possibilities increased the return on investment....which had to happen
              because the depreciation on this type of investment was much faster than
              the depreciation of airplanes, for example. With Moore's law,
              computational power is close to becoming a commodity....PICs with more
              power than a 1960s mainframe computer are now available for a few bucks
              apiece.

              I think that's what happened in the '90s. I know that the Clinton
              ecconomic team went to Greenspan about the expected increase in
              productivity early in their term, arguing that this will allow for more
              non-inflationary growth, which was right.

              I'm glad I saw an explaination for data that seem to be contradictory. When
              different bits of data don't seem to fit, I always think we're missing
              something. If the faster depreciaton is as widespread as I think, it would
              explain the increase in the rise in investment not being matched by an
              increase in total capital.

              If anyone sees a mistake in my reasoning, please tell me. While I don't
              like being mistaken, its better to be corrected than to stay mistaken.

              Dan M.


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            • Erik Reuter
              ... Sounds reasonable to me, but I m not familiar with the details of how they calculate the capital. One of these days I am going to have to dig into the
              Message 6 of 21 , Sep 29, 2004
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                On Wed, Sep 29, 2004 at 03:22:45PM -0500, Dan Minette wrote:

                > If anyone sees a mistake in my reasoning, please tell me. While I
                > don't like being mistaken, its better to be corrected than to stay
                > mistaken.

                Sounds reasonable to me, but I'm not familiar with the details of how
                they calculate the capital. One of these days I am going to have to dig
                into the NIPA's (national income and product accounts) and see how they
                account for everything.

                Another thing worth keeping in mind (although I don't think it affects
                the data you looked at since it starts in 2003) is that recently
                there have been incentives given to business to expense capital and
                accelerate the depreciation on it (to encourage investment). It could
                be interesting to see if this is discernible in the total fixed assets
                account of the NIPA's.


                --
                Erik Reuter http://www.erikreuter.net/
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              • John D. Giorgis
                I ve delayed in responding in part because I ve been busy, but also in part because I think all sight has been lost of whatever it was we have been disagreeing
                Message 7 of 21 , Oct 2, 2004
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                  I've delayed in responding in part because I've been busy, but also in part
                  because I think all sight has been lost of whatever it was we have been
                  disagreeing about. I'll include a few line-by-line responses below....

                  At 12:19 AM 9/27/2004 -0500 Dan Minette wrote:
                  >> At 04:35 PM 9/26/2004 -0500 Dan Minette wrote:
                  >> >For all of this priming of the pump, employment is still lower than it
                  >was
                  >> >when Bush took office. You can use any pejorative terms you want for
                  >the
                  >> >improvement in the ecconomy under Clinton. But, it was real and it was
                  >not
                  >> >accompanied by inflation or pump priming.
                  >>
                  >> I don't know that the term "unsustainable" is pejorative. Indeed, I
                  >doubt
                  >> that you can find very many respected economists who would describe the
                  >US
                  >> economy at the end of the century as anything other than unsustainable.
                  >> Just because similar unemployment rates were achieved in the 1960's
                  >doesn't
                  >> mean that it wasn't unsustainable at both times.
                  >>
                  >> Indeed, I think you have to ask yourself why it is that your economic
                  >> analysis keeps leading you to the conclusion that the 1960's were a
                  >golden
                  >> era for the US economy - a time in which almost anything was perfect;
                  >while
                  >> at the same time the standard economic reading of the 1960's is that
                  >> overspending on guns *and* butter set the stage for the US economic
                  >misery
                  >> of the 1970's.
                  >
                  >But, in terms of job creation, the '70s averaged much better than now. The
                  >overspending of the '60s was a small fraction of the present overspending.
                  >We had a trade surplus in the '60s, instead of the deficit of 5% of GDP
                  >that we have now. At no time during the '70s (even by cherry picking the
                  >worst consecutive years, can you find a job decrease over three years, like
                  >we saw during the first 3 years of Bush. At no time during the '70s can you
                  >find a job decrease in 3.5 consecutive years.

                  Again, the job creation environment was quite different back then due to
                  labor force expansion.

                  Secondly, the overall job losses under Bush are overall quite mild compared
                  to previous recessions - especially previous recession resulting from the
                  bursting of an asset bubble.

                  The overall employment rate has remained a very high level.... in fact,
                  today's employment rate is comparable to the level in 1996 - when by all
                  accounts, we had a very, very, good economic situation.

                  We also suffered far less of the usual pain associated with recessions this
                  time around, again despite the bursting of an asset bubble. Just compare
                  the relative economic pain of the previous two recessions to this one.

                  >>Even if I overstate the existing consensus on that point
                  >> among professional economists (and so far as I know, I am not), I've
                  >never
                  >> seen anyone argue that the 1960's were a golden age for the US economy in
                  >> the way you do. Why is that? Have you perceived something that the
                  >rest
                  >> of the world's economists have not?
                  >
                  >No, its just that you appear to me have a way of interpreting what other
                  >ecconomists say in a manner that differs from what they think they say.
                  >I've seen my arguements written in a number of different forums, by
                  >professional ecconomists. Are you arguing that no one has written on the
                  >lack of income growth for the middle class?

                  Don't be ludicrous. There have been volumes written on the growth in
                  income inequality since 1978. I just don't find much written about the
                  1960's golden age that you seem to be fascinated with. I also see very
                  few economists who are as rabidly partisan as you are. I mean, when it
                  comes to economics, you are a lot like Dr. Brin - everything good in life
                  comes from Democrats, and Republicans are evil, craven, cynical creatures
                  who have never accomplished a single good thing.

                  > No one has commented on the
                  >poor getting poorer under Reagan and Bush? Have you read Brad DeLong's
                  >stuff? How in the world could you say you and he agree,

                  This is completely disingenuous. If I understand your reference
                  correctly, you are referring to an earlier discussion, in which a single
                  quote was posted from Brad DeLong, and I stated that I agree with it. Of
                  course I do not agree with Brad DeLong on everything.

                  >As far as I can see, you support the President's attempts to accelerate
                  >this process.

                  Yeah, that's the President's goal. And mine. Uh huh. Accelerate
                  pre-tax income inequality through adjustments in the tax rate. That
                  makes a lot of sense.

                  And I suppose that that's why the President lowered the bottom tax bracked
                  from 15% to 10%, and took millions of poor families off the tax roles?
                  is that why Citizen's for Tax Justice - not exactly a conservative group -
                  concluded that Bush's first tax cut gave benefits to workers in essentially
                  the same proportion to which they pay taxes?

                  >Its not that there were no structural problems in the late '90s. Its that
                  >there were problems at other times too, but we somehow managed to grow.
                  >The US faced real foreign competation for the first time in the '70s. When
                  >I was a kid and in high school, "made in Japan" meant cheap junk. The rise
                  >in oil prices had a much bigger hit on the ecconomy at that time, becasue
                  >oil was a much greater part of the GDP.
                  >
                  >Again lets look at the numbers: job growth by decade: 1-40 to 1-50, 1-50
                  >to 1-60,
                  >
                  >40s 38%
                  >50s 25%
                  >60s 31%
                  >70s 28%
                  >80s 20%
                  >90s 20%

                  Is there a reason you keep ignoring labor force expansion? I feel like I
                  am talking to a wall here. If the US created a similar number of jobs
                  during the 1990's as in the 1960's, when the unemployment rate was
                  approaching 4%, and when the employment rate was at an all-time high, where
                  do you think that the workers to fill these jobs would have come from????
                  Were we going to have even vastly more immigration during the 1990's than
                  we did????

                  JDG
                  _______________________________________________________
                  John D. Giorgis - jxg9@...
                  "The liberty we prize is not America's gift to the world,
                  it is God's gift to humanity." - George W. Bush 1/29/03

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