Why Is Productivity So Weak? Three Theories | Hacker News Reader

Why Is Productivity So Weak? Three Theories

mobile.nytimes.com

138 pointsOsiris30115 comments

Possibly because it's a lot easier today to generate income without "producing" or creating new value.

"Sayer argues that the past four decades have been characterised by a transfer of wealth not only from the poor to the rich, but within the ranks of the wealthy: from those who make their money by producing new goods or services to those who make their money by controlling existing assets and harvesting rent, interest or capital gains. Earned income has been supplanted by unearned income."

Source: http://www.theguardian.com/books/2016/apr/15/neoliberalism-i...

That true, but it also has to do with the way productivity is calculated. If Joe borrows $10,000 from John, and loans $10,000 to Jill, and Jill uses that $10,000 to pay back the money she owes John, that counted as $30,000 worth of productivity as far as GDP is concerned. "Economic activity" does not equal productivity. If the government hires one person to dig a hole, and another person to fill it in, that's "economic activity" but it sure as hell isn't the productivity that GDP says it is.

No, borrowing and repayment are not included in GDP.

But there are some almost similarly absurd situations. If you paint your garden fence and your neighbor plants some potatoes, that doesn't count into GDP. However, if you buy your neighbors potatoes, and she pays you to paint her fence, those exchanges become relevant (ignoring the fact that small stuff like this is hard to measure).

This is more relevant than one might think. Considering one of the largest economic developments in the last half century was the integration of women into the labour force, growth statistics would look quite different if were to assign a fair value to unpaid housework they used to do.

Yeah, there's a lot of problems with measuring economic productivity. Almost to the point where I wonder if it's informative at all. In Australia, we've had a 10 year slump in measured productivity (MFP). During the same period, commodity prices were at all-time historical highs and we were raking in a tonne of national income (as our exports are heavily weighted towards commodities).

Guess which sector has been the biggest drag on MFP? Yep. Commodities. Because market prices were so high, it was profitable to throw a crap-load of inputs to extract fairly marginal outputs. Hence the drag on MFP. Now that the 'mining boom' is over, our national productivity will probably rise while our living standards fall due to the sharp reduction in national net income.

Productivity should not be seen as an end in itself, although it seems to dominate political discourse on the economy. I wonder if there are more sensible (and calculable) metrics that we could use...

If you need potatoes but don't feel like growing them yourself, and you like (and/or are better at) painting fences, then exchanging favors (whether or not involving currency) creates value - it's a positive-sum game.

Yes, absolutely! It's the tenet No 1 of a market – when people freely exchange something, both are better off. (No 2: there's some stuff that you can't do without cooperation).

But in the potato-case, all the potato-value and great-fence-you-have-there-value gets added to GDP, where realistically, output only grew by whatever the increase of efficiency was.

Yes, but apart from the women's integration into the workforce scenario, how relevant is this? It doesn't feel like that huge trades happen with "transaction of favor", instead all probably use money.

Big examples:

Grandparent childcare.

Eldercare.

wikipedia

volunteer activity

open source software

Not just the housework, consider the child care - you now have women who gets paid money for taking care of other peoples children.

Having the Fed use QE to buy mortgage-backed securities aggregating $500,000 loans for $200,000 houses made to people making $20,000/year is the financial equivalent of paying someone to dig a hole and paying someone else to fill it in.

> that's "economic activity"

True

> but it sure as hell isn't the productivity that GDP says it is

No, because GDP is just a measure of economic activity, not useful economic activity.

>GDP attempts to measure the “use” economy, i.e., the value of finished goods and services ready to be used by consumers, business and government. GDP is similar to the “bottom line” (earnings) of an accounting statement, which determined the “value added” or the value of final use.

https://en.wikipedia.org/wiki/Gross_domestic_product

I would agree that GDP is not really a measure of useful economic activity. But if that is so, the question begs, what practical use is the metric of GDP in the first place?

No.

Or maybe, just maybe, companies find it cheaper to hire new employees due to the number of people who permanently couldn't find jobs, than to invest in increasing productivity. The past 8 years of overestimating economic growth by central banks have clearly shown hope is not sufficient to boost the economy on its own. Central bank balance sheet have exploded, exploding price of assets, making in unattractive for businesses to invest. They would rather perform stock buybacks from borrowing money, send it to investors to be consumed. In terms of real physical capital (as opposed to financial), the American economy is actively divesting. Any supposed GDP growth from the current monetary policy is due to capital being actively consumed, increasing spending temporarily. The data showing lack of productivity growth supports this pessimistic scenario. Central banks will do well to hike interest rates, collapse the markets, destroying the zombie and hangers on companies, so their physical assets go on firesales, releasing physical capital at massively deflated prices, for well run and well managed companies to gobble up. Only this will rejuvenate the American economy and return its status as the world's economic growth powerhouse.

Remember, the current Silicon Valley boom started in the mid-2000's due to the collapse of costs of IT, with the advent of cheap Internet and cloud computing, not because of low interest rates. The cost of building capital got so low from 1999 people were doing it in their parents basements eating ramen.

That's supported by the observation in the article that companies are not investing much capital in improving productivity.

If you've ever seen video of a Foxconn factory you've seen the rows of people carefully placing ICs onto circuit boards. In fact, there are machines to do that. They're called pick and place machines[0]. They've existed for many years. But labor in China is cheap enough that it often makes more sense to pay humans to do it manually than to invest in automation.

[0] https://en.wikipedia.org/wiki/SMT_placement_equipment

I'm not 100% certain but I'm pretty sure you don't know what you're talking about.

There are several types of components that require surface mounting on PCBs. By far the most common are things like resistors & capacitors that are machine placeable. But others, like BGAs and through-hole components, often require hand placement because they require hand soldering and can't go through a wave solder machine. Additional possible complications are boards with components placed on both sides, or multi-layer boards with non-standard solder. Finally, Debug/Repair stations are always manual.

Source: Masters in operations research and 15 years experience writing factory control software for one of Foxconn's direct competitors & largest trading partners.

BGAs are nearly impossible to hand solder. You can theoretically do it by flipping them upside down and soldering individual wires to each ball, but this is very difficult, unreliable, and harms signal integrity. It's completely unsuitable for production and even for prototyping it's basically never done.

Through hole components are commonly hand placed or hand soldered because there are only a few on the board, not enough to make machine placement/wave soldering cost effective. Additionally, some through hole components have shapes that make machine placement difficult.

Yeah that comment jumped out at me as sketchy the second I saw that...

"15 years" in operations and isn't even aware of this basic fact.

Generally, increasing automation requires some design changes, but you can start with the same basic design and end up with one focused on automation and another optimized for human asembly. So, it's a little more nuanced than you are suggesting.

PS: There are also at least demos of pick and place for through-hole components. But, I don't know how production ready they are. (Manufacturing PCBs is not my area.)

TH pick & place is very old, like 30-40 years. Very common too, the PCBs were designed for it ( enough clearance ).

That's a terrible example, not just because of technical inaccuracy because China is one of the few places in the world making vast capital investments - not just in production, but real estate, transport, power generation etc.

(Sibling comment is correct that SMT automated assembly is used for most parts, and a few large TH parts like connectors are soldered on at the end. Wire bondout of chips into chip packages and things like SD cards and USB sticks however seems to be more manual.)

Plus you can scale labour up or down whereas you can usually only scale machines up without significant loss.

Also, real wages are declining. After a point, working harder to make the c suite and Wall Street richer begins to seem pointless.

My old boss said, "Million dollar ideas don't come for free." I stopped giving mine away.

If the business thinks it needs to funnel money up and away, hire product people who take the credit, then why should I as an engineer care?

I am sad to say I care more about my coworkers and learning abstract concepts than the business model because I feel I have been cut out of it.

That's a symptom of division between product and engineering and zero sum mentality. Get rid of that and you have happier and more productive employees.

That's certainly one pretty-sounding possibility. Another is that it is a zero sum game, or, more likely, somewhere between that and a 1-for-1 game where the product manager and above realizes most of the gains.

There are two things to consider when talking about productivity. The best way I can explain it is with a little story.

There was a contest where contestants had to find a box in a forest based only on a photograph of an item. There were two contestants. One was a spry young fellow who has never been to this particular forest. The other was a limping 60 year old woman who has lived nearby and knows these woods like the back of here hand.

The pistol fires and off they go. The young man takes off running. He runs here, runs there, runs circles, looking for something familiar from the photo. His endurance is uncanny and his ability to jump across branches second-to-none.

The lady looks at the photo and studies it. After a few minutes, she takes her walking stick and limps off. She recognized the rocks in the photo and knows more or less where to go to find the box.

The young fellow is much more productive in "miles ran per hour", or "acres searched", or in "O2-consumption-per-mile" metrics. For the lady, the above metrics are dismal. However, she beats the man in the most important "boxes found" metrics.

Nowadays, in the US, a lot of the grueling and repetitive work is done by machines. In order to be successful (whatever that means) you often don't need to run quickly, but you need to know where to go and how to get there. So what if 151 million people are working 1789 hours per year (1) for a total of 27 billion hours worked, if a good number of those hours are productively spent doing things which are in the end deemed useless, are unnecessary, or are done incorrectly.

It all comes down to quality vs. quantity in the end.

(1): https://stats.oecd.org/Index.aspx?DataSetCode=ANHRS

+100.

I spend over 30% of my time at work (pleb level helpdesk) doing busy work that generates no actual benefit to the business other than making it easier to track the real work I do. If we were more trusted to do the right thing or the tracking of our work was better automated my job could be done with half the staff.

The entire company has similar inefficiencies at every level that have all been introduced over the last decande and especially the last two years. From all accounts this seems to be a pretty similar trend happening all across large businesses in Australia and I assume America as well.

Large companies look pretty similar to a planned economy in a communist state. I remember in East Germany they had banners everywhere "We will increase production next year by 50%" or "We are innovative". Guess what? A lot of companies do the same thing. Big banners, centralized control, tons of people just checking on what other people are doing. I am on a project where it's two engineers doing the work with 5 managers looking over them. And if the work doesn't get done we just need a new steering committee consisting of more managers.

> If we were more trusted to do the right thing

Is that trust justified? Not on the scale of you, but on the scale of everyone working the helpdesk in your company.

While I will concede that many management tasks could be optimized away, or just plainly removed without replacement without impacting performance negatively, these tasks do exist for a reason.

> Is that trust justified? Not on the scale of you, but on the scale of everyone working the helpdesk in your company.

Why did you hire that person, and then not train him correctly?

Productivity is measured in cash value produced per hour.

So, what happens when the products people make get cheaper? I daresay filling station employees have declining productivity right now under that measure even if they pump more gas than a couple of years ago.

The people at Micron / Crucial are similarly less productive. I can buy a shiny new 4GiB RAM stick for $20, when two years ago it was $80. It's just as good, and that company is a good one. But still, their products have less cash content to them.

In a decade when energy cost/use patterns are in flux, are we mismeasuring productivity? In an age when human population is very high indeed, does it makes sense to use a productivity metric that encourages more-more-more?

I wonder if it makes sense to measure productivity using some longer-term measure? How many hours must a person work to gain an hour of artificial light at night? (There was a study about this a few years back, but I can't find it.) The advent of LED lamps and solar charging has caused this measure of productivity to soar, especially in developing cultures.

My favorite example along these lines is health care. If USA ever gets a reasonable health care system both GDP and productivity are going to plummet, even though everyone will be objectively better off.

I typically go with a related argument: "Productivity" is measured in the value of capital transferred during interactions, not utility produced from interactions.

Changes in prices are taken account of in the GDP calculation.

The whole premise that bigger GDP is greater productivity sounds like BS. The economists say, If you got more money for the things you made/did, you must have been more productive.

But to use a computer analogy: 40 years ago, $100 got you the home version of pong (a primitive computer game) -- today the same inflation-adjusted money would get you something mind blowing.

Whoever produced today's game is in some sense a million times more productive than the creators of pong (as brilliant as those developers were for the time).

As far as I can see, GDP or cost is not the correct measure of productivity. Trying to connect GDP with productivity is like linking stock market performance to the outcome of the Super Bowl -- there might be a relation but it's very very very remote and tenuous.

The people who use GDP are aware of this. The thing is that no one has come up with anything better.

It's also worth noting that GDP missed things before that were a lot more important than clock cycles.

In 1800 in the US about, say 1/3 of children died before they got to 5. This wasn't captured in GDP. But it's a far bigger deal to watch children die than to play games on a faster computer.

Years of healthy life also shot up, mostly prior to 1950 in the developed world. How much is it worth to see your grandchildren grow up because you live longer and healthier and children don't die as much?

This all comes from the fantastic book 'The Rise and Fall of American Growth' by Robert Gordon. It might be worth checking out for you. It goes on about what GDP doesn't measure but still uses it to show that productivity isn't rising like it used to and shows the implications of that.

> The people who use GDP are aware of this. The thing is that no one has come up with anything better.

For what it's worth, I too cannot think of anything better. And good points about all the other things not captured by GDP.

But given that GDP is a terrible measure of productivity, shouldn't the result be: We don't know how to measure productivity on a nation scale so let's stop pretending that GDP meaningfully measures it?

Thanks for the book recommendation. For anyone else who's interested in checking it out I found chapter 1 available here: http://press.princeton.edu/titles/10544.html

""Some of the volume data, such as power and rail freight and even (bank) credit, are interesting because there is less incentive to massage them at the local level. But they reveal only part of the truth, not the entire truth," he said.

"This would be a useful measure for steel and cement production. I'm not sure how well it would measure retail sales.""

This is what one Chinese official uses to get a better sense of the economy rather than relying on massaged numbers. It's still far from perfect obviously, but I find it interesting.

http://www.reuters.com/article/us-china-economy-wikileaks-id...

True, but why does economists and politicians in America be so singularly obsessed about it?

I am from Norway I spent a lot of time reading American news and some of the big differences I notice is that while we in Norway pretty much never talk about GDP and economic growth in public, it is a very central theme in the US. It doesn't mean economics isn't discussed, it is simply different aspects of it. competitiveness, unemployment, salaries is discussed a lot as well as how money should most effectively be used on welfare programs.

I am not saying one thing is better than the other. E.g. in Norway there is probably not enough focus on how value is created. But at least the economic debate feels broader.

But is the happiness produced by playing Angry Birds (or other modern games) any higher than Pong? I'm sure that people had just as much fun playing cards in the 1800s as they do play video games now. In that sense the overall productivity is far lower, since modern games take more work to produce.

I think so - Pong was only available on the arcade machines at first, and cost a coin for each play, and real estate to hold those machines. Angry birds is available on people's phones, 24 hours a day, and the only real estate it needed was a few offices. I'd argue it produced a lot more amusement value than Pong, compared the real capital it used. Card games could only be played with people, whereas Angry birds can be played solo, on a train. When the value of playing card games is higher, people still play card games.

> Card games could only be played with people, whereas Angry birds can be played solo, on a train

Solitaire?

Yeah, maybe it's just me, but on vacation I would play Pac-Man during the day and cards with my dad at night after the arcade closed, and both were fun--long after the 1800s.

Guess which memories are the better ones now?

You're describing the hedonistic inflator. Pretty standard economics adjustment factor.

I see a problem arising from Maslow's hierarchy. You can't eat Pong or an Xbox. They're both entertainment. Not fundamental needs. Security, shelter, food, clothing, are fudamental. You can't build the pyramid from the top down.

pong was mind blowing 40 years ago

These issues are very well understood and incorporated into GDP.

Thomas Picketty says because the share of capital versus the share of salaries is up by ten points (and usually people notice it, hence all the raising inequalities and the crazy billionaires that "deserved it").

Also, because we're still working 40 hours a week in a world, especially in computer science, where that makes zero sense.

shocking that the nyt article doesn't mention wage, salary or profit.

I am about two-thirds of the way through Paul Mason's 'Postcapitalism - A Guide To Our Future'. It's a book recommendation I got from some HN comments on a UBI story a while back.

The happy / neutral / depressing theories (more hypotheses) don't cover all the possibilities, of course.

Weirdly, while the 'depressing' scenario is badly described (is the placement of a computer in front of ever office worker an example of 'innovation'?), the initial premise -- that productivity is / has peaked -- may be accurate, iff we try to measure productivity today the same way we have done for the past hundred years. And that's kind of the problem -- we don't currently have appropriate metrics for productivity in a market increasingly based on information, let alone where information components of products are approaching zero cost.

Anyway, I'll pass-on the hive mind's recommendation of Mason's book - I'm yet to finish it, and even further from being convinced of the soundness of all his arguments, but it's the most interesting book on economics I've read.

> we don't currently have appropriate metrics for productivity in a market increasingly based on information

I like this xkcd comic for a great representation of this: https://xkcd.com/1629/

How, exactly, do you quantify the productivity of someone who makes some obscure library for a tool that provides monitoring services for some other utility that...

Hell, my own job is hard enough to quantify. I do defect analysis at Intel, looking for defects in chips with a scanning electron microscope. Sure, my output of samples is pretty easy to track, but what's the actual productivity of my work? I am one very, very small cog in a very, very big machine that somehow shits out fantastically small computer chips at the end. How important is my role? Er, I'm not quite sure. All I know is that I'm paid good money for what I do, and I work 12-hour shifts and am frequently asked to work overtime. But not once have I been told, "Hey, thanks to the defects that you and your team found, we got the information needed to increase wafer yield by X! You're doing great work!" Nope. Chips come in, pictures go out, engineers do Stuff with those pictures, and that's about as far as I can tell.

How do you measure the productivity of my work? The engineers who use the data I create to tell other people to make changes in the process? The guys who make the tools that I use to do all of this? The janitor who cleans the wastebaskets of the guys who make said tools? We keep going farther and farther down the rabbit hole, and it doesn't get any clearer.

Some great points. Trying to evaluate your usefulness or productivity based on income doesn't seem safe - nor does any connection with essentialness of what you do. Even trying to connect it to numbers of people who could do the same thing seems to have sufficient exceptions to make me wary of turning that into even a lowly rule of thumb.

Increasingly I'm tending to agree with a group I would previously have dismissed as Ludicrously Optimistic Socialists -- though the S word may not be quite right there -- in that pretty much everything is going to have to change, in huge ways, if we're to retain any kind of stability in the developed world.

I also work in the tech industry, as a consultant, but about 75% of my output is creative / people-related -- but that still means my part of the industry is going to shrink by at least 25% in the near future as smart machines are brought online to do the non-people/creative bits. It's fascinating to talk to people with various jobs, and ask them how long they reckon it'll be before what they do will be done by a computer / machine. Most people are hugely optimistic about the level of sophistication they bring to the table, and their consequent relative safety in the workforce.

What happens when automation starts to produce more physical, intrinsically valuable goods, though? I'm thinking of developments that don't just eliminate jobs, but also increase personal security.

Like, what if farming becomes primarily robotic. But, in the process of that transformation, each of us ends up with solar-powered, open-source driven backyard robots that tend gardens where the produce did not require pesticides nor chemicals to grow. Perhaps even raw materials for 3D printing and manufacturing of some household items could be raised as backyard crops.

You'd have less need to buy things that you need to survive, and so less need to work. Society probably will need to trend more socialistic, but perhaps automation will wind up allowing unemployed people to live more independent and self-sufficient than they can today.

Then the new kings will be the people who build these farming robots. (Unless we get easily reproducible open-source designs for these.)

Yes, I believe that open source hardware and firmware would become an imperative if one actually intended to rely on robot-grown food as a supplement/replacement for store bought food. You wouldn't want to risk having Google revoke your license to eat.

You have a wicked cool job! Possibly your role is insight generation for the wider business. Beyond just quality control, engineers on your team or far-flung teams may have an epiphany looking at one of your images that leads to the next breakthrough in design or manufacture.

It's a very abstract sort of "atta-boy" we need to be giving ourselves here. And companies need to do a better job of tracing success stories back up the chain and celebrate individuals for their specific contributions to the "big wins" when they occur to humanize the whole endeavor.

As far as the janitor goes, I am less enthusiastic. That role in the marketplace will be automated away because there's very little craft to that job where human participation is useful. Comparing what you do with the waste and dust collector doesn't seem right.

That's on my reading list though I suspect Mason's economics are somewhat scewed. He is right that zero marginal cost screws with pricing.

Look at that chart. I don't think that general productivity swings that widely.

The other thing to consider is that productivity tools like automation and outsourcing can bite back. When you lose your competency in "non-core" activity, you're now beholden to a vendor, whose incentives are often not aligned with the business.

Also, we have lots of middlemen skimming profits for services of questionable value. My underwear was made in North Carolina in 1990, now it's made in Bangladesh or China, but costs more. That money is going somewhere!

The chart shows productivity increase. Productivity itself is never shrinking.

Usually not a fan of zerohedge, but they sometimes make some insightful graphs: http://www.zerohedge.com/news/2016-04-01/waiters-and-bartend... They show how waiters and bartenders increased dramatically relative to manufacturing jobs. So it seems to me that high value/margin production is much more likely to be automated and results in big productivity gains for those companies. These workers then find jobs in low production value jobs (or businesses which require low capital investment - for lack of a better word). Ie. machine operators turn into waiters. In summary the productivity gains in one industry are offset by more staff in another. There's more staff in the service industry working for lower wages (think UBER, etc.). Is that plausible? And is there a productivity analysis for each industry?

Yes, ZH can be a good source of info, but it has to have an amount of filtering and de-sensationalizing

My theory is that many big employers have structured to carry more part time employees over fewer full time. Worse, many part time employees are working two or three jobs to stitch together enough wage to live. Both part time work and multiple disjoint work contexts reduces efficiency.

Also, there are fewer and fewer small to midsize businesses and too many huge businesses. Somewhere between, the ideal scaled company actually has the highest productivity, but we've been skewing larger and larger which is also a drag on productivity.

It doesn't just do that. A careful reading of the establishment survey will tell you that the unemployment ratio is

unemployment = total jobs reported / people saying they're in the labour force (ie. who have a job or collect unemployment)

Part time jobs count as a fulltime job. So a poor person with 2 jobs is counted twice as employed, and long-term unemployed are excluded from the figures. It is hard to imagine, given the successive changes to this variable that this is an accident.

In reality the unemployment ratio should be:

people that are employed/people that could be employed

people that could be employed needs to be approximated, so I'm using the "working age population" figure.

I'm sure it's a total coincidence that the first ratio is 5.5%, showing a constant, if excruciatingly slow, decrease under the current administration (except during the GFC in 2008) and the second ratio is currently 25.8%, and shows a constant increase (except for the last 2 months) under the current administration. Caveat: I'm pretty sure the actual 25.8% figure is overstating matters, the changes in the figure are real: they represent either people who enter the workforce and can't find jobs, or people who get fired. Given anecdotes, and sentiment, I'm much more inclined to believe the latter : that there has been a constant increase of the unemployment figure since around 2006, extremely fast increase during 2008-2009, to ~12-13% followed by a slower increase after that, currently at 16% or so.

It is also funny that both figures start do diverge, immediately following a change in the way unemployment is calculated. One wonders ... which of those 2 things is cause, and which is effect.

As I understand it, U1-6 is calculated via statistical sampling. They call people and ask them questions to determine which category they are in. U6 includes people currently holding a part time job but wanting a full time job. U6 is significantly higher than U3 (the usually touted "unemployment rate"), but I don't know how to extract numbers that would show the results of a move to more part time workers.

>They call people

Do they adjust for the bias introduced by using a phone survey? I would hypothesize that job holders are more likely to have a stable phone connection than the unemployed.

Having been on the business end of a BLS survey for a year, they do more than call. They visit in person for an in-depth interview at the start, then follow up by phone for a very detailed interview every month for a year. If you're not available by phone (or don't call back, or they can't get in touch), they will send someone out to find you.

The questions are very detailed and probing, and they have additional questions each month related to some special surveys that they conduct (e.g., food spending and availability). We'd typically have to spend about 20 minutes giving answers.

The methodology seemed pretty sound to me, certainly not anything that would be skewed by phone access. (It might be skewed by people being completely off the grid, for instance, people not measured in the US Census, but I would guess their methods can correct for that.)

Hmm I imagine productivity is something like GDP/"total worked hours", do they use unemployment figures to get to the hours or some other calculation route?

Lots of new jobs, but lots of them are part time, and lots of those are "flexible schedules." So there's a lot of churn, both within the day as part timers come in and out, and within the week as they get scheduled and cut. After a certain amount of productivity, you need motivated people to get more, and where's the motivation, besides fear of losing a job, in that world.

And then there's the further churn from people who have more than one flexible schedule job, and the inevitable day when they're scheduled for both jobs. So they lose one job, and the employer eventually replaces them. Training and churn.

If more people had full time jobs with realistic chance of advancement, and therefore identity with the employer, I think productivity would increase nicely.

Rational response to the economy that -- for whatever reasons, productivity increase, wealth transfer etc. -- is able to satisfy all the demand by putting just a fraction of the population to work is to create bullshit jobs that nobody needs and that don't add to productivity. I've written about it here: http://250bpm.com/blog:44

Another option is that "producing" is related to "consumption" and people's free time and resources have become saturated. If this is the case, perhaps we should reduce the number of hours worked to increase the demand side of the economy ;-)

Productivity increases don't boost GDP if no one has money to buy the goods&services being produced.

This is why you need to watch out for steep income inequality between the managerial and working classes.

Or maybe "productivity growth" will have to stop at some point; even at 1% year over year, that makes 1000x growth in 700 years.

Barring space travel, it's hard to even imagine 1000x growth over the next 700 years in any real sense (as opposed to just adding zeros to currency), and completely absurd to imagine 1 million times growth over the next 1400 years.

Massive improvements in standard of living are certainly conceivable. I can't speak for how the maths work out, but if you e.g. consider potential improvements that have no physical law preventing them:

    - Eliminating the requirement to work for a living
    - Eradicating disease (including mental health 
      and first-world diseases as obesity, RSI and diabetes)
    - Reducing health problems related to aging, increasing
      the number of healthy years of the population, 
      increasing life span
    - Eliminating aging altogether, enabling replacement of
      organs and body parts with improved artificial versions
    - Achieving sustainable energy production and transport
    - Eliminating the need to perform unwanted boring tasks
    - Fully-immersive virtual reality
    - Automating production of goods and services to such a
      degree that everyone in the world has access to the 
      same standard of living that the richest have today

The sky is the limit, so to speak. One obviously has to think outside the box of what the world looks like today, but the limits of economic growth are in physical terms far, far beyond where we are today. This is even without considering the very distant possibility of compelling space habitats that could support greater populations than Earth.

Not to mention the potential impact of the usual breakthroughs that are always just 20 years away like working nuclear fusion reactors, quantum computers and AGI. Having AGI could mean productivity growth so stratospheric than humans are essentially obsolete.

> Barring space travel, it's hard to even imagine 1000x growth over the next 700 years in any real sense

Why not? 700 years ago most of the things that people produce today weren't even conceivable, and any sort of comparison of functionality is going to end up involving large factors of improvement. For example, how much more functional is a smartphone with the ability to dial anywhere in the world and connect to the Internet, compared to writing a letter that would travel by horseback or sailing ship, which was the best known communication technology 700 years ago? I have no problem at all saying that the smartphone is at least 1000 times more functional, which means that productivity needs to have gone up by a similarly large factor for smartphones now to be about as ubiquitous as letters were then.

Asteroid mining by autonomous robots, completely or almost completely automatic robotic manufacturing/construction, fusion power & genetically engineered crops (including artificial meat) might consivebly make for 1000x gain in less than 700 years.

The basic math in this article seems questionable. If Americans worked an extra 1.9% and output was up 1.9% then that doesn't mean productivity was flat, because the marginal labor is unequal.

Amen. Further, I think there's a lot of evidence of actual "productivity" concentrating in fewer and fewer workers as the labor force continues to segment into high-productivity knowledge and low-productivity service jobs.

Why, in 90s we have to hard code HTML to make a website. Then PHP emerged, and then WordPress and Joomla and countless themes - making a shitty website became very productive. What happened next? Crappy WordPress sites were not cool, so the Rails era began. Making of big crappy websites became very productive. Nowadays there are React and other indispensable stuff to make very cool crappy websites. The productivity soared - one could make Bootstrap, React, Mongo, NodeJS hello-world website in a half of a day.

But if content is crap productivity of making site does not really matter, and if content still is a king, no fucking hipster's frameworks are required (hello, Craigslist and this very site).

Same thing happen today with ML tools and techniques. One could download and install Tensorflow in 15 minutes (I am so clever!) - a huge boost of productivity, and then one has to apply ones own brain, which is, usually, not near as productive.

That's why.

That's the same argument as

I used to have to make my own hammer, and then I could buy them at the store.

Not exactly.)

I have revolutionary idea - if we create environment where people have a decent chance of making something out of their life - they may have incentive to work smarter. We don't have productivity increase, because we have nowhere to put it. Elites are fine, the bottom people have no expendable income and the middle class is nonexistent.

Open plan offices are another sign of this. They exist to foster status effects that go hand in hand with the modern shift to intensive pursuits of rent seeking. As a developer if you're asked to work in non-private conditions, it's a huge signal most of the time that your actual productivity isn't important.

Misplaced incentives and wrong motivation for workers is the reason for low productivity. Lack of recognition plays a part too.

If your betters mainly motivate you by fear of losing your job and getting kicked out, which is how most jobs starting from wallmart and ending at larger tech companies are, how productive can you really be? Part of your mind is already in the wrong place because you're going to be thinking "whats next for me if the worst thing happens?"

This is one of the reasons productivity may get a large increase with introduction of basic income, if it ever happens. Intrinsically motivated people who get recognition for their work (likely because they'll be working for themselves) can dedicate 100% of their mindpower to what they're working on.

If the rewards of productivity increases accrue to capital, what is the incentive for labor to improve their productivity?

There are so many problems with these sorts of measurements anyway. My own country Norway had on paper rapid productivity growth simply because our main export oil increased in value. A lot of the productivity before the great recession was just an illusion caused by the broken financial industry. The inflation of the asset bubble looked like economic growth and hence productivity growth.

Hence what if productivity growth is just normal today? It is simply what it is when financial wizards aren't there to hide the truth.

Anyway perhaps people should stop being so obsessed about GDP and productivity numbers as they are distorting reality. If more people get sick or do more crime GDP will increase as health care and police produce more services. More people in prison also produce prison services adding to GDP. But none of this really adds to the well being of the population or the economic strength of the country.

Possible that increased productivity means increase in knowledge required for the job. But people are unable to keep up with those increasing knowledge requirements.

I see this on my team a lot. We are pushing hard to spread newer and more efficient programming and data analysis techniques, but people remain stuck and unwilling or unable to learn.

The Self-Attribution Fallacy

Intelligence? Talent? No, the ultra-rich got to where they are through luck and brutality.

http://www.monbiot.com/2011/11/07/the-self-attribution-falla...

"151 million Americans count themselves employed"

Whoa - that would be 47% of the population? Or even higher if you only count percentage of population eligible to work (no kids or pensioners)? That number must be wrong?

67.4% of Americans aged 15-64, as of 2013. Working age population is around 200 million.

There's still a decent number of single-earner married households out there -- roughly 25% of all married households. That accounts for some. 13.5% have no earner at all. That's mostly retired couples, but there's also some who are permanently disabled.

Labor force participation rate has hovered in the mid-60% range for a long time -- it increased over most of the latter 20th century, plateaued in the '90s, and dropped a lot during the Great Recession. The main change is that the rate dropped a lot for men -- from 87% in 1948 to 69% in 2014 -- and women increased from 32% to 56%. (Yes, men are still over 10 percentage points more likely to be employed than women in the US.)

US Labor force participation drops during recessions, recovers afterwards, but never to the same rate as before the recession. Basically every recession removes some people from the working economy permanently.

Perhaps the next big change could be in transportation and infrastructure. If someone could reasonably commute to Boston from NYC (or vice versa) via a 250mph bullet train, wouldn't that increase productivity?

This kind of solution sounds like wishing you could fly so that you could get to the bus stop faster.

A better (for almost every meaning of the word) change would be the reduction of the requirement for people to commute - especially over such long distances and times.

If and when the central bank finally sends the interest rates up the stratosphere, real estate and equipment prices will collapse to a fraction of its current value, which will make infrastructure like you mentioned possible.

If and when the central bank finally sends the interest rates up the stratosphere

Why do you think they will?

When they hit limits of monetary policy and stop digging into the hole they are in. Japan is the closest to such a limit. It has relentlessly pumped money into stocks and bonds and now all the JPY does is move up.

Assuming for the moment this is true, what does that imply for near- and mid-term planning purposes for the average software developer with bills to pay but also spare cash to invest?

In the medium term - the prices of stock markets are driven by capital flows. Even the price of a money losing company is going to go up if the pension funds[1] are buying it.

Central bank pulling liquidity out when they finally realise their monetary policy is only making the inevitable worse, will mean a lot less money to flow into various investments.

Therefore, avoid investments that have gone up in the past few years, that went up because of monetary policy (e.g. direct central bank buying, lowering of reserve ratios, lowering of interest rates). Avoid government bonds, avoid municipal bonds, avoid companies that have leveraged up for stock buybacks, ruling out S&P 500. Avoid companies whose stock prices are fueled by margin loans (e.g. tech unicorns). Avoid energy companies that have been limping along because they keep borrowing at low rates. Avoid companies with debt.

In January 2016, the only sector that fulfilled all of these requirements were the junior gold miners - the collapse of gold prices since 2011 has wiped out all but the strongest gold mining companies. They have little debt, high margins, lots of cash and very profitable compared to their share prices. The junior gold mining stock index GDXJ[2] has went up 111% in 3 months.

Of course, now that they're going up, margin loaning investors are piling in, and it's no longer as safe as a rock as it was in January 2016. I'd wait and see if GDXJ corrects back to the mid 20's, and then I'd buy more. (I have 130% of my portfolio in gold miners at the moment, so I'm biased.)

The next sector to look for is overseas iron ore and oil producers. When finally the collapse of iron ore & oil prices has wiped out all the highly indebted and poorly performing companies, you will see the strongest of the bunch go on fire sale shopping spree. Those will be good buys. I think it will happen in 12-24 months. I think we're currently still in the clean up phase at the moment - lots of dead man walking companies hanging on desperately. The Chinese stimulus plan that lit a fire on iron ore prices in the past 2 months is going to prolong this phase for a while yet.

[1] Pension funds are big.

[2] https://au.finance.yahoo.com/q/bc?s=GDXJ&t=1y

> when they finally realise their monetary policy is only making the inevitable worse

How come you realise it and those in charge of the policy are ignorant of the fact ?

To be fair, they may well be very well aware, but can't decide when to finally pull the plug. There are other issues right now such as the UK Referendum on leaving the EU proto-state Customs Union, plus the forthcoming US Presidential Elections.

Nobody wants to deal with the fallout anyway, but at a febrile time politically it would be even worse. Hence keep putting it off.

The Federal Reserve is very well aware[2], cyclical movements in the economy promotes the creative destruction required to grow the economy in the long run.

At the same time, it's mandate given by the Congress is to minimise cyclical movements in the economy, through maintaining price stability, maximising employment, and moderating long-term interest rates.

Regular periods of price volatility, temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses. But the Federal Reserve's mission isn't to promote creative destruction for long term economic growth. It's mission is to maintain economic stability, even if it is anaemia to long term economic growth. In fact, it's mandate doesn't even mention economic growth or productivity.

Why do politicians create a Federal Reserve to do this, and to let it keep this mandate for the past hundred years? Why does President Obama want Federal Reserve to maintain economic stability, even as it corrodes American economy, month by month, year by year?

It's election year, and President Obama wants to convince the world the American economy is doing great.

Reject pessimism, cynicism and know that progress is possible. Progress is not inevitable, it requires struggle, discipline and faith.[1]

[1] http://www.theguardian.com/us-news/2016/apr/23/barack-obama-...

[2] https://www.chicagofed.org/publications/economic-perspective...

Because a firm’s failure frees the labor and capital it employed for use at a more profitable entrant, this process may be described as creative destruction. Although there are costs associated with creative destruction, such as the lost labor of temporarily unemployed workers, it benefits an economy in the long run by moving productive resources into more profitable uses.

http://www.federalreserve.gov/pubs/feds/2006/200623/200623pa...

Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization

https://www.federalreserve.gov/faqs/money_12848.htm

The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act.

The Federal Open Market Committee (FOMC) is firmly committed to fulfilling this statutory mandate.

temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses

This argument really needs more economics to back it up, because the trouble with the "creative destruction" line of reasoning is that you get the destruction first and the creation is far from guaranteed.

A big fall in employment is something that has real human consequences in misery, ill-health, and even death. Likewise a capital collapse tends not so much to release capital as destroy it - both in terms of capital values and actual physical capital of abandoned buildings. Detroit's vast areas of abandoned real estate aren't capital that's freed, they're capital that's destroyed one burnt-out building at a time.

Stability is vastly underrated. There are plenty of less stable economies and they do less well. Stability enables planning.

Also, your interest rates/capital investment argument is the wrong way up. The normal understanding of how interest rates affect inflation is that high rates reduce inflation by reducing investment ( e.g. http://www.bankofengland.co.uk/monetarypolicy/Pages/how.aspx ). Raising rates makes it less attractive to make physical investments and more attractive to just leave the money in bonds. Conventionally to encourage more investment we need lower interest rates.

This argument really needs more economics to back it up

Japan has been engaging in this kind of monetary policy for over two decades.

Bloomberg: "Japan Must Let Zombie Companies Die"[1]

A big fall in employment is something that has real human consequences in misery, ill-health, and even death.

I don't think that's a valid argument to prevent short-term unemployment at all costs. Winter brings death to trillions of leaves every year. Does that mean it should be stopped? Half a decade ago Detroit's situation was hopeless. Detroit declared a long overdue bankruptcy in mid-2013. By mid-2015, it's described as a "revival template for struggling U.S. cities"[2]

Also, your interest rates/capital investment argument is the wrong way up.

I'm afraid it is the right way up. The effect you're describing is only valid in the short-term, but it is completely the opposite in the long term. In the long run, nominal interest rates = real interest rates + inflation[3]. As you raise nominal rates, real interest rates remain constant, and inflation must rise to compensate. To encourage investment in the long run, we need higher interest rates. Lower interest rates increase spending in the short term, following the effect you've described. In the underlying economy, this increase in spending is funded by consumption of real capital. (e.g. refraining from capital maintenance and using the funds for consumption activities instead.)

[1] http://www.bloombergview.com/articles/2016-01-20/japan-must-...

[2] http://www.usatoday.com/story/opinion/2015/07/06/fixing-detr...

[3] https://en.wikipedia.org/wiki/Fisher_equation

In the underlying economy, this increase in spending is funded by consumption of real capital. (e.g. refraining from capital maintenance and using the funds for consumption activities instead

Surely it's funded by expanded credit - after all, that's the transmission mechanism for this?

And I said that raising nominal rates causes inflation to fall, so I think we're agreeing there. Which in the current environment would imply CPI deflation and the ills thereof.

And I said that raising nominal rates causes inflation to fall, so I think we're agreeing there.

Sorry, fixed it. Ugh.

"never assume bad intentions when assuming stupidity is enough"

You were originally implying stupidity but now it is bad intentions.

I don't disagree with your analysis beyond that

Hmm, yeah, I'm contradicting myself there.

The papers are produced by individuals within the Federal Reserve, so I know there are individuals in the organisation who is aware, but the way the Federal Reserve acts and the public statements it makes, as group it looks like it isn't aware. Maybe it's kind of like how a PR person working in the cigarette industry thinks smoking is horrible to people's health, but hangs his or her morals at the door when he or she arrives at work.

Productivity gains are usually driven by business investment. ZIRP (zero interest rates) and large accumulation of debt in strange parts of the economy and caused businesses to be reluctant to invest. Without that capital investment productivity tends to stagnate and growth mediates around 1-2% which is precisely where we are.

Perhaps what we produce is limited by what we can consume.

If we assume that wealth is not concentrating at the top like many people say; it is possible that people are not consuming. Not because they don't need things, but because they can't buy them.

It could be that the industry the jobs being created aren't more productive. A server at a restaurant wouldn't add a lot of high productivity value.

Because we increased the number of jobs in the public sector, because we instituted a healthcare system where we get less for paying more into it (and one that makes it attractive for business to decrease permanent labor), because our tax policy makes it more attractive for business to hold money overseas, and because government through regulation continually makes it more difficult for individuals to succeed and produce a good or service.

Facebook revenue up, productivity down, coincidence? You decide !

Economics is not a real science. Start over by building measurement and regulation into society by integrating technology.

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