Once Again, Slow Economic Growth Is NOT Due To Fewer People

Like a bad penny that just keeps bouncing back, bad memes can do the same though they've been shown over and over to have no ballast, no support. One such meme is the one that insists our slow economic growth is because we have slow population growth. This is the most cockeyed non sequitur among countless others that infest the brains of the Neoliberal econ gurus, pundits and other gasbags.

In this case the meme returned in a recent WSJ piece:'A Hidden Risk of Slow Growth' (Sept. 21-22, p. B14) wherein we read:

"In the future economic growth is expected to be slower still. One reason why is that population growth is slipping so the pool of available workers isn't expanding as fast as it used to."

However, this is a non sequitur and certainly if those same workers are essentially being paid no more per hour than they were 45 years ago. Fiat wages, which means limited spending and disposable income - whether for a mortgage or even a used car. So it makes no difference how many more people one has, or how large the pool of available workers is, if their wages remains stagnant.   Why is this so hard to grasp?

The piece also resurrects another "reason" for current and future slower growth, but which is actually a Macguffin:

"The other reason is that improvement in productivity  - how much workers produce per hour, on average- has slowed markedly since the early 2000s."

And why is this?  Northwestern University's Robert Gordon argues, and he's correct, that by the time the digital revolution got under way- say in the 80s- the big payoff in productivity began shrinking. Meanwhile, the PC-computing payoff basically has "come and gone" dissipating by 2004, when EROEI reached below 10:1.

Energy efficiency continues to decline and yet the econ genii still can't fathom why labor productivity is in decline, nor identify the things gov't can do to slow it. For the worker himself, any such claim is taken as nonsense because he is working harder than ever and merely treading water. 

Less noted, but an equally important factor is how productivity is gauged. We are informed that labor productivity is tied to economic growth, i.e.  the GDP. The GDP in turn is dependent by nearly a 75% proportion on consumption. The growth "rate" however seems to basically be stuck at 2 percent per year and no more.

Is this all bad? And what is the root cause?  A major clue was provided over 20 years ago by authors William Wolman and Anne Colamosca  in their (1997) book,  The Judas Economy: The Triumph of Capital and the Betrayal of Work'.  Therein we learn that productivity in relation to GDP has increased more than 40% in the interval since 1973 even as wages-salaries have remained almost stagnant.

From this it emerges that labor productivity is ebbing because wages have stagnated so workers have not been able to earn enough to spend - to contribute to the 75 percent consumption part of the GDP equation.  The inherent problem then appears to be tying labor productivity to economic growth.   In a September 5, 2016 TIME essay (p. 20),  columnist Rana Foroohar reinforced this aspect by noting:

"Nobody is suggesting that productivity isn't rising because individuals aren't working hard enough. On the contrary, most economists believer the American blue and white collar workers alike are firing on all cylinders."

So what the ivory tower economists, or WSJ nabobs are really telling us when they bitch about "moderate productivity" or "labor productivity too low" is that it isn't being translated into economic growth. But that elicits the question, why not? The answer again, is because workers are not being paid enough to purchase most of the goods they make.  Unless it's via credit card debt, of course.

It doesn't take a rocket scientist or math whiz to figure out the disposable income available to those with the lower incomes (than $37,000/ yr.) would not entice them to spend on very many things - whether goods (e.g. new HDTVs, cars) or services (dining out). Hence, to avoid overstocked warehouses companies must cut production of goods. This in turn leads to a problem with aggregate demand.

Aggregate demand is composed of two parts: 1) demand generated by consumers for goods and services, and 2) the demand for investment goods. When the level of aggregate demand is high, both these components are generally equally high, and the levels of production and employment are high. On the other hand, when aggregate demand is low - or even one of the components (e.g. (1)) is very  low, then levels of production  plummet.

The takeaway is that population increases will not solve the slow economic growth issue, nor will making workers push harder.  What is needed is much higher wages - basically a living wage (I reckon at least $25.00/ hr.) so citizens can afford a decent roof over their heads, adequate food, and access to medical care that doesn't bankrupt them.  But because the Neoliberal financial system views these as having too exorbitant  a cost  via -a vis capital it will never implement them - or allow a politician to be elected who might (say by raising taxes).  

The result? There will never be higher economic growth than 2.0 percent.  In addition, the primary index for inequality, the Gini coefficient, will continue to increase - as it has just recently (from 0.482 to 0.485).  The reason is that the Neoliberal system has zero interest in implementing the changes that could reverse its direction, i.e. Bernie Sanders 8 % tax on wealth.