Benson's Economic
& Market Trends
 The Productivity Miracle
...and Other Myths
and Fairy Tales
Richard Benson
March 25, 2004
Lately,
so much has been made of the New Economy and the "miracle"
of high productivity growth as a reason why inflation has remained
so low. During this time, the Fed has run the easiest monetary
policy since a Latin American country kicked off hyperinflation.
Moreover, the talking heads on "CNN Bubble Vision"
have become instant classical economic luminaries in their own
shallow minds, fawning at the Fed Chairman and proclaiming his
genius that the low rate of job growth is caused by this miracle.
We agree there is a connection between high productivity and
the lack of job growth, but we also notice the destructive trends
that are the root cause of high productivity. We are led to assume
that new capital invested in American factories is so productive
that we can have more productivity without additional labor.
However, while superior capital investment does increase labor
efficiency, the factors being measured in America have nothing
to do with this cause of productivity. In this country, we could
certainly have a policy guaranteeing that 70 percent to 80 percent
of manufactured goods consumed in America are actually made
in America. Such a policy would add over 6 million manufacturing
jobs in the United States and another 10 million service jobs
that support the high paying manufacturing jobs.
Sadly, the real causes of the productivity miracle are "purposely
hidden in plain sight" while the Chairman of the Federal
Reserve tells us to look the other way, and believe in fairy
tales.
We noticed the first indication of something going horribly
wrong when Greenspan went to Capitol Hill for his annual testimony.
On the first day, he went to the Senate and praised productivity
growth. On the next day, he immediately went back to tell the
House that retired workers on social security should not only
not share in this productivity miracle, but they should work
longer and harder and receive less benefits! Surely, we should
have expected that he would be urging Congress to increase, not
decrease, the benefits to those receiving a pension!
In looking at the world as it really is (and not what our government
and Fed officials would like us to believe it is), at least two-thirds
of productivity growth comes from the convenient ways
that productivity is actually measured.
The first big con is measuring the investment in computer-type
equipment. Because computers are running faster, the Bureau of
Labor Statistics, "BLS," claims their prices, and that
of other technology related goods, have fallen. In addition,
because we have bought so much more in the way of technology,
such as computers and cell phones, this factor not only pulls
down the CPI and Price Deflator in the GDP, but it accounts for
a large fraction of growth in the GDP. While the same amount
of dollars are being spent on things like computers, the price
for the same amount of computing power, speed and disk storage,
is dropping like a stone. Pushing inflation down, by definition,
forces production up which moves productivity upward.
True. My computer now handles many tasks much faster than, say,
five years ago. However, all this new "productivity"
assumed out of thin air because the computer is faster is
clearly a myth, not a reality. Indeed, while the internet and
using a computer has allowed for an incredible improvement in
one's ability to perform their job and get work done expeditiously,
the average user spends an inordinate amount of time deleting
spam and answering needless emails. This productivity drain does
not get factored into the CPI, or the GDP. Moreover, we find
ourselves as unpaid employees of the airlines, hotels, and other
businesses we do commerce with, since we now do the work that
their paid clerks used to do. Those companies now require fewer
workers because we provide the labor to order their products,
so we are technically working for them for free. The productivity
vanishes if hedonics and the miss-measured price indexes are
taken into account.
Productivity is measured by the product that leaves the factory
in the United States, divided by the number of workers. No common
sense adjustment is made for the sad fact that now the United
States only produces 45% of the manufactured goods it consumes.
Also, a startling percentage of workers, classified as manufacturing
workers, are not engaged in manufacturing at all but in the design,
marketing, back-office, shipping and logistics of these companies.
All too often, the manufactured product (or almost all of the
component parts), arrive from Asia. All that is left for the
American to do at this point is to assemble, put it in a box,
ship, and bill. Take one look at our trade deficit with China
and the rest of Asia and you'll realize the real manufacturing
work is being done over there. No wonder Americans look productive.
It doesn't take too many people to put the finished goods in
a box and ship them out!
To fully understand the "Productivity Fraud," take
a moment to notice that worker productivity is measured as Output
vs. Unit Labor Cost. Sending jobs to Asia is a great way to cut
Unit Labor Cost by 80 to 90 percent! Another way to cut Unit
Labor Cost is to cut health care benefits for retired workers.
Even better is forcing labor agreements that allow new workers
to get paid one-half of what established workers receive.
In the world of "white collar jobs" the usual tactic
is to inform the work force that half of the jobs have been eliminated.
This changes the definition of the remaining job(s), and creates
one job that used to be performed by two people.
You also have to love the stories about Wal-Mart, the self-proclaimed
and largest private employer in the United States, and how they
repeatedly avoid paying their employees their full earned wages.
In particular, I recall reading a story about staff that were
forced to work off-the-clock and through lunch and rest breaks.
They were also pressured to complete assignments while the store
managers refused to permit them to stay on-the-clock for the
full amount of time it took to accomplish their duties. A former
employee stated "when he worked at Wal-Mart, the employees
were routinely "locked in" after closing and were forced
to remain there until the store managers visited every department.
Where would American commerce be without those million plus "illegal
workers" to pick crops, build homes, cook, clean, and wash
up at the Indian owned motel chains? They work incredibly hard,
can't complain in English, and are terrified of being sent "home."
Sweating Asian labor to import inexpensive manufactured components,
and abusing both legal and illegal workers here in America, is
the real productivity miracle! If you gave these same
hard working people health and social security benefits, not
only would there be no productivity miracle, but social security
would be "bust." When you realize what is really going
on, you can then comprehend why jobs aren't growing and our wages
and salaries are stagnant. American workers are getting the "short
end of the stick."
Our current policies of easy credit and tax-cut stimulation designed
to favor consumption over production, creates a world where:
America is the consumer; Asia is the producer. America is the
debtor; Asia is the creditor. Asia is a builder of new factories;
America is a country that keeps borrowing more against their
houses to keep spending in an election year. We have mortgaged
our future to pay for Japan's aging population, and we need to
tell our old folk to go back to work to keep paying for their
children's wild spending spree on credit cards, super-sized homes,
and gas-guzzling hummers.
For years, the Democrats ruled by buying the public's votes and
money. Indeed, such "spend, spend and elect, elect"
tactics usually worked. However, even Fed officials realize that
the level of trade and federal deficits and consumer debt are
near a "tipping point," yet, they are searching for
new arguments to persuade us that the debt levels are acceptable.
You may wonder what President Bush's economic legacy might be?
George Bush is on the verge of going down in history as the President
who "left every American worker behind." If this kind
of productivity continues, America will likely be headed into
massive inflationary recession.
Richard Benson
President
Specialty
Finance Group, LLC
Member NASD/SIPC
2505 S. Ocean Boulevard
- Suite 212
Palm Beach, Florida 33480
1 800-860-2907
eMail: rbenson@sfgroup.org
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321gold Inc
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