Of Course 2 % Growth Is "Here To Stay" - So Long As GDP Is Used As The Growth Indicator

First, some basics:

Labor productivity is a measure of economic growth within a country. Labor productivity measures the amount of goods and services produced by one hour of labor; specifically, labor productivity measures the amount of real gross domestic product (GDP) produced by an hour of labor.

What could be wrong with that? Well, plenty! Namely, if the GDP is in error or doesn't measure what is really needed, then the labor productivity will be off too. Hence, one must  look askance at the recent WSJ Business & Finance piece, '2 % Growth Is Here To Stay' (Jan. 31,  p. B14).   According to the piece:

"Economists get plenty wrong but they have been right about one thing: The U.S. economy is stuck in low gear.  On Thursday the Commerce Department reported that gross domestic product (GDP)  grew at an annualized rate of 2.1 percent from the 3rd matching economists' forecasts."

Adding:

"Most economists and the Fed expect GDP growth will be stuck around 2 percent in the years to come. This is partly due to demographics: the population is growing more slowly than it used to and aging as well. so growth in the labor force has moderated   And since the labor force produces the stuff that goes into GDP, GDP growth will be as well."

But the outside, inquiring economic observer must then ask if the growth index being used is not itself defective. I mean, why use a measure so subject to demographic change and especially population size?  We know, after all, that population cannot keep growing indefinitely, so why even incorporate it as part of the economic growth indicator?

As  Financial Times contributor David Pilling wrote in a 2018  TIME Viewpoint article ('Why GDP Is A Faulty Measure Of Success',  Feb. 5, p. 41):

"Invented in the 1930s, the figure is a child of the manufacturing age - good at measuring physical production but not the services that dominate modern economies. How would GDP measure the quality of mental health care or the availability of day care centers and parks in your area?  Even Simon Kuznets, the Belarussian economist who practically invented GDP, had doubts about his creation."

GDP is supposed to measure the total production and consumption of goods and services in the United States. But the numbers that make up the Gross Domestic Product by and large only capture the monetary transactions we can put a dollar value on. Almost everything else is left out: old growth forests that maintain cooling and act as CO2 repositories, watersheds, animal habitats, e.g. the Everglades, and costs of infrastructure maintenance. But ALL of these count toward  the physical security and welfare of a society. If bridges collapse owing to maintenance failure and hundreds or thousands of drivers are inconvenienced, delayed  - then that has a cost and hence an economic impact!

In addition, there are hundreds of other contributions not registered that arguably have  major economic repercussions. For example, a 2015 Forbes article highlighted how 40 million family caregivers in the U.S. are putting their own careers on hold to provide unpaid care — sometimes for decades.   The estimated  total value of the care has been put at nearly $1 trillion. This isn't reckoned into the GDP but IF it were,  the labor productivity cited in the WSJ would surely be much higher in the years since 2007 - maybe even double or (1.2%) x 2  2.4 %. Which would then exceed the rate cited since 1947.

Related to this - as reported in the WSJ three days ago- is the dearth of volunteers at senior care centers to help (e.g. in interactions with dementia patients, e.g. using games, coloring books and puzzles) to help caregivers at such facilities.  Surely, the assistance of such potential volunteers ought to be factored into the economic equation.

What to use in place of GDP? The Index of Sustainable Economic Welfare which was first proposed by Eco-economist Herman Daly of the University of Maryland. is a prime alternative  Daly's point was that the GDP was too artificial and narrow an indicator of economic health. He argued that if one incorporated all the "externalities" usually dismissed or ignored by standard economic models, people would be more parsimonious in how they consume which would yield a better world.

Ignoring these externalities leads us into a fool's paradise where we come to believe things are much better than the GDP numbers show. Similarly with energy, conveniently ignoring externalities of cost and demand leads too many to envisage a pie-eyed future of never-ending growth (based on producing material output)  and ever more intense energy consumption.

All this translates inexorably into “growth” and woe betide you if you dare intimate (as Prof. Daly has done) that a zero or negative growth index may be a lot better for humans, if they hope not to outstrip their resource support base. Right now, indeed, we already know that humans are consuming the equivalent of 1.5 Earths every year. See, e.g.

http://www.footprintnetwork.org/

This is obviously unsustainable, which means we desperately need to replace the industrial age GDP and sooner rather than later. Retaining it as a practical measure of real growth is a fool's errand and counterproductive, to say the least.

No surprise that a decade ago a panel headed by Nobel Prize winning economist Joseph Stiglitz concluded we are  "mismeasuring our lives" using GDP.

If indeed it is true (and it is) that the millions of man-hours that go into Wikipedia  (which brings human knowledge to  virtually everyone) "adds not a cent to GDP" then something is seriously amiss. Because if that's so then it also doesn't add a single extra unit to labor productivity. Hence, those millions of man hours of research, writing, editing go unrecorded in our grand economic metric.  This is absurd.

We can't keep using this antiquated metric which is totally detached from reality.  "Production" simply cannot be measured in output of material units of slim Jims, Barbie dolls, Legos, Ipads, Ipods or X Boxes alone. Apart from being skewed toward one type of production it omits an entire other (admittedly less tangible) universe that now needs to be reckoned in - including for things like Wikipedia, unpaid care giving and creative expression in the generation of art or music, as well as abstract (basic) scientific research.

AARP Perpetuates Trope That The Only Good Codger Is A "Productive" (Or High Spending) Codger

It is amazing that when one travels to more socially progressive nations, especially strong on social insurance, or which embrace democratic socialist values,  there is not only greater happiness noticed, e.g.

• Oprah got perfect response from Danish woman on their social welfare state 

But also the belief that once workers retire, at whatever age, there is no longer a need for them to be either "productive" or "consumers".   Not so in the US of A, evidently.   Our nation is still dominated by capitalist and Calvinist memes that reinforce the canard that the only worthy citizens are those who contribute directly to the GDP, either as productive workers, or consumers (consumption is responsible for nearly 70% of the Gross Domestic Product in the U.S.).   To underscore this we have the bastardized "Pareto economic model" which defines economic efficiency in terms of "utils" - such that each dollar spent by the rich or investor class is always worth more than each dollar spent by the lower 50 percent or hardcore saver class, e.g.

http://brane-space.blogspot.com/2011/06/modern-economics-its-evil-basis-pareto.html

One of the most glaring examples being when, in 2003, the Fed Chairman Alan Greenspan - before the Senate Banking Committee  - averred  "Social Security benefits need to be cut to pay for Bush’s tax cuts."   What on Earth was the man thinking? Well, he's thinking on the basis of Pareto efficiency!

Social Security payments, especially with COLAs, do everything the Fed Chairman didn’t want. They pour more money into the economy, but not via productive labor or market investments. People receive their checks merely by existing and breathing day to day, and having paid into the system with FICA deductions.   In other words, the elderly are mostly unproductive drains who must be tolerated, say even if we can't get their Social Security monies converted to private investments, or their Medicare turned into "voucher" systems.

Now, this trope is resurrected in the latest AARP POV column by Jo Ann Jenkins ('Changing the World's Conversation About Aging-. p. 42, April , AARP Bulletin). She writes:

"Where leaders once looked at the growing aging population and saw only retirees, they are now beginning to see a new type of experienced, accomplished workforce. Where they once saw only expensive costs, they are now beginning to see an exploding consumer market that is bolstering our economies...no longer a growing pool of dependents."

In other words, reaffirming the trope that if an oldster isn't working and productive, or spending on all kinds of material bullshit:  RVs, new TVs,  gas-fired barbecues, new carpets, etc.  s/he is an "expensive  drain and "dependent".   Gasp!  Just a retiree! Imagine! But, WTF is wrong with just being a retiree, say after you've put in your dozens of years of hard work? And what is wrong with retiring and not having to be a spendthrift freak  either?   Only in America, the land of the almighty dollar, where profits are put before people,  can this type of degenerate thinking prosper and be sold to ...who? Well, mainly Neoliberals and closet Calvinists convinced the only good Medicare beneficiary is one who works 5 hours a day to pay for his medical treatments!

Be assured that Ms. Jenkins babble isn't the first on this issue. Some 7 or so years ago there appeared the cheery, upbeat Saturday Evening Post article, 'The New Retirement'. Therein we were  informed that "Americans are increasingly choosing to stay on the job after age 65 and money is only part of the story". Well, who'da thunk?

On the next page, we find the photos of two obviously well-provided for seniors at the top who were wealthy enough to actually retire early and buy an 85-acre farm where they "pursue their passion" by stuffing bouquets of flowers into canning jars and selling them. Well, nice work if you can get it! And, the couple informs us they're blissfully happy doing all that canning and insist: "If our health holds out we'll do this as long as we can".

My first reaction, to this well-heeled but dumb pair was, WTF!? The rate of human knowledge is doubling every 4 years and you choose to waste your remaining years canning flowers!

But that's just me and maybe my own priorities are wrong. I happen to think that in a limited life time humans owe it to themselves to learn as much about their world and cosmos as they possibly can. And that doesn't mean wasting time canning miniature flower bouquets if you don't have to!

Next we're introduced to a well-coiffed exec of 71 who has absolutely NO intentions of leaving her job as senior vice president of career services at the Ayers Group. As the lady exclaims:

"I just wouldn't know what to do with myself if I retired!"

 Well, uh, how about reading a few books...not just romantic pot boilers from Jacqueline Susanne, but areas of astronomy, psychology, philosophy to broaden that bean counter brain? How about even traveling to other places, like Switzerland, or Sweden or India? To gain something beyond a parochial perspective?

But evidently the thought never crosses her brain. She's obviously content to remain in her little corporate cubbyhole until she croaks.   But hey! At least she's "productive" - in line with Jo Ann Jenkins'  AARP crusade to remake the American image of aging - to think of us 70-plus geezers less as bums and more as.... workers and consumers!

Fortunately, a Mother Jones piece coming out at about the same time as the Post pabulum, thoroughly demolished its "working longer is better", e.g.

In other words, most older Americans (past 65)_ who do choose to stay on the job longer do so often at the expense of their health, and without much in the way of monetary return. 

What would it take to get me to rejoin the work force, at the age of 71 and with new (rising) PSA tests showing the prostate cancer may be coming back? Well, for starters,  a salary of at least $150-$200 an hour.

Oh, and that would be on a part time basis only and working at home. That alone would work given that I may not have that many years left, and I don't wish to spend them pushing paper, checking emails or "learning coding",  but rather learning more about the latest scientific and other research developments - some of which make it into my blog posts.

Btw, regarding the coding frenzy and "2 million more jobs" cited by Apple CEO Tim Cook (in his 'Revolutions' appearance on MSNBC last Friday) I will have more to say - rather naysay - in a coming post.

Oldsters, especially in their 70s - 80s deserve to be left alone by the media mavens and others who try to impose their own expectations on what an American retiree ought to be or do. If in fact millions wish to waste their time -  if they already have scads of $$ - canning flowers, or working as Walmart greeters,  then so be it. If that's what floats their boat, let 'em do it. But if others just wish to kick back and  read and learn, or attend university classes (even online) then let them do it. Stop hectoring us 70-somethings  to "go back to work" to satisfy the trope of the "on the go, productive" senior.  Or the high spending senior!

Why Labor Productivity Needs To Be Redefined And GDP Eliminated

Once more labor productivity is being criticized as too low (e.g. Worker Productivity Remained Sluggish in 2017, WSJ,  Feb. 2, p A2).  Using the graph and other stats, the WSJ author (Eric Morath) is led to write:

"Soft productivity gains is an impediment to stronger wage gains and ultimately better economic growth".


Which in itself is a rather strange comment given it has been precisely "stronger wage gains" in concert with higher bond yields - that has spooked the stock market causing it to dump nearly 2.7 % of gains. (The worry being the higher wages will lead to inflation and the Federal Reserve raising interest rates - which means the cost for business borrowing and credit increases.)

He also writes (ibid.):

"When workers don't become more productive, it may be difficult for business to justify larger raises for workers. Firms may instead opt to add more employees rather than increase pay for current staff."

Which is more patent codswallop, given I earlier (Jan. 10) quoted Paula Harvey, VP of Human Resources at Schulte Building Systems in Houston:

"Companies are really hesitant to give raises. When you give a raise, it's stuck in the pay system. It is something you're guaranteeing: it's becoming a fixed cost. "

In other words, companies don't wish to give raises on account of being stuck with a fixed wage rate for their employees, not because they aren't working productively or hard enough. Today's workers are producing every bit as much as they were in early years - it's just that the metric is no longer capturing the work!

Before commencing my argument that labor productivity as currently defined is archaic, let's provide a definition:

Labor productivity is a measure of economic growth within a country. Labor productivity measures the amount of goods and services produced by one hour of labor; specifically, labor productivity measures the amount of real gross domestic product (GDP) produced by an hour of labor.

What could be wrong with that? Well, plenty! Namely, if the GDP is in error or doesn't measure what is really needed, then the labor productivity will be off too. Hence, the WSJ's (and other) sources criticism of this productivity will be baseless.   As  Financial Times contributor David Pilling writes in a recent  TIME Viewpoint article ('Why GDP Is A Faulty Measure Of Success',  Feb. 5, p. 41):

"Invented in the 1930s, the figure is a child of the manufacturing age - good at measuring physical production but not the services that dominate modern economies. How would GDP measure the quality of mental health care or the availability of day care centers and parks in your area?  Even Simon Kuznets, the Belarussian economist who practically invented GDP, had doubts about his creation."

This has import for the other claims made about falling productivity in the WSJ piece, i.e.:

"Nonfarm, business sector productivity, measured as the goods and services produced per hour worked, advanced 1.2 percent last year from 2016...That matched the average rate recorded from 2007 through 2017 and is well below the 2.1 % annual rate averaged since 1947."

Says who?  GDP is supposed to measure the total production and consumption of goods and services in the United States. But the numbers that make up the Gross Domestic Product by and large only capture the monetary transactions we can put a dollar value on. Almost everything else is left out: old growth forests that maintain cooling and act as CO2 repositories, watersheds, animal habitats, e.g. the Everglades, and costs of infrastructure maintenance. But ALL of these count toward  the physical security and welfare of a society. If bridges collapse owing to maintenance failure and hundreds or thousands of drivers are inconvenienced, delayed  - then that has an economic impact!

In addition, there are hundreds of other contributions not registered that arguably have  major economic impacts. For example, a 2015 Forbes article highlighted how 40 million family caregivers in the U.S. are putting their own careers on hold to provide unpaid care — sometimes for decades.   The estimated  total value of the care has been put at nearly $1 trillion. This isn't reckoned into the GDP but IF it were,  the labor productivity cited in the WSJ would surely be much higher in the years since 2007 - maybe even double or (1.2%) x 2  2.4 %. Which would then exceed the rate cited since 1947.

Just saying!

What to use in place of GDP? The Index of Sustainable Economic Welfare which was first proposed by Eco-economist Herman Daly of the University of Maryland. is a prime alternative  Daly's point was that the GDP was too artificial and narrow an indicator of economic health. He argued that if one incorporated all the "externalities" usually dismissed or ignored by standard economic models, people would be more parsimonious in how they consume which would yield a better world.

Ignoring these externalities leads us into a fool's paradise where we come to believe things are much better than the GDP numbers show. Similarly with energy, conveniently ignoring externalities of cost and demand leads too many to envisage a pie-eyed future of never-ending growth (based on producing material output)  and ever more intense energy consumption.

All this translates inexorably into “growth” and woe betide you if you dare intimate (as Prof. Daly has done) that a zero or negative growth index may be a lot better for humans, if they hope not to outstrip their resource support base. Right now, indeed, we already know that humans are consuming the equivalent of 1.5 Earths every year. See, e.g.

http://www.footprintnetwork.org/

This is obviously unsustainable, which means we desperately need to replace the industrial age GDP and sooner rather than later.

No surprise that a decade ago a panel headed by Nobel Prize winning economist Joseph Stiglitz concluded we are  "mismeasuring our lives" using GDP.

If indeed it is true (and it is) that the millions of man-hours that go into Wikipedia  (which brings human knowledge to  virtually everyone) "adds not a cent to GDP" then something is seriously amiss. Because if that's so then it also doesn't add a single extra unit to labor productivity. Hence, those millions of man hours of research, writing, editing go unrecorded in our grand economic metric.  This is absurd.

We can't keep using this antiquated metric which is totally detached from reality.  "Production" simply cannot be measured in output of material units of slim Jims, Barbie dolls, Legos, Ipads, Ipods or X Boxes alone. Apart from being skewed toward one type of production it omits an entire other universe that now needs to be reckoned in - including for things like Wikipedia, unpaid care giving and generation of art or music, as well as abstract research/

See also:

http://www.smirkingchimp.com/thread/dean-baker/77576/three-percent-gdp-growth-and-democrats-irresponsible-opposition-to-trump-tax-cuts