Friday, April 29, 2016

The Scariest Chart On The US Economy? -- American Enterprise Institute -- April 29, 2016

Note: disregard this post. This is the "first half." This post has now been completed and can be found at this link

US productivity at this link. The first graph below is as it appears at the link. The second graph with some notes added so that I could put the first graph in historical context.

At the link, the author suggests three interpretations:
  • US innovation has come to an end; low-productivity workers first to lose jobs in recession; workers now returning to the work force are the lower-productivity workers
  • we are mismeasuring productivity; current productivity formulas/statistics were based on "steel-and-wheat" economy; those algorithms/assumptions/formulae don't work for an IT economy
  • current "lull" is to be expected; innovation off the radar scope drags productivity down; "seed corn" being planted for another cycle of productivity gains
I assume "productivity growth" is unrelated to global economy. That assumption may be terribly wrong. And it's important to differentiate between "global economy" and "globalization." This might be a good place to start when sorting that out

Let's say US innovation and entrepreneurism have not changed. Let's say IT has matured (it's been around since at least 1984).

If one takes out US innovation, entrepreneurism, and IT maturation, then is one left with policy? I don't know. But one wonders.

  • RR: exact years of President Reagan's administration
  • Bill: exact years of President Clinton's administration
  • 1: first term for George W Bush (an overhang from Bill's presidency)
  • 2: second term for George W Bush and first term for Barack Obama (reflects the ship of state as it started turning in the first term of George W Bush)
  • BHO: the second term of President Obama and the overhang that Hillary will inherit
National Productivity

As defined/discussed at wiki, about halfway down that webpage, under the subsection called "National Productivity."
There are different measures of productivity and the choice among them depends either on the purpose of the productivity measurement and/or data availability. One of the most widely used measures of productivity is Gross Domestic Product (GDP) per hour worked. 
This, of course, is fairly simplistic compared to an alternate method called or multi factor productivity or total factor productivity.
Based on the nature of the discussion at the AEI link at the very top of this post suggests that productivity in this case is being defined as GDP/hours worked.

The Arguments

The first argument had two parts:
  • innovation has come to an end in the US
  • in a recession the less productive were "made redundant" first, and now with unemployment rate back to 5%, employers are hiring the less productive workers
Obviously, the argument that innovation and the spirit of entrepreneurism in the US has come to and end, is hogwash.  I won't even address that one. If accurate -- that innovation is dead in the US, Obama has done more to "destroy" the US than even I could imagine.

The second part of that argument: the less productive are now being re-hired. Not even worth discussing. One can come up with a dozen counter arguments, but the military has some of the most sophisticated technology in the universe, and the all-volunteer force, many of them high school graduates with no prior training do just fine with that state-of-the-art technology. It would be hard to argue that the best and brightest are volunteering in droves for the US military.

The second argument: we are mismeasuring productivity. We probably are, but that doesn't explain what has happened in the last four years. What surprises me is that the Obama administration did not re-define productivity to make things look a lot better.

The third argument: it's simply a "technology" lull. Of course that's just as crazy, but let's take a minute and explore that for a few minutes. I would opine that the folks who came up with this one might be on to something, but they are just a "off" a bit. Let's say the incredible drop in productivity is due to "technology." It's not a "technology lull." It's "technology misplaced." Countless billions of dollars have been spent on companies like Solyndra and SunEdison. Countless billions of dollars have likewise been spent on EVs with little to show for all that investment.

Having said that, I think those arguments are all a stretch.

Can The Slump In Productivity Be Explained?

It comes down to this: the sharp drop in productivity in the graph above appears to be "cyclic." The question is whether the remarkable decline in US productivity is simply to be expected / inexplicable (sort of like the business cycle) or is the result of something specific. For purposes of this post, I will assume the severe slump in productivity is manmade.

The Obama Legacy: Decreased Productivity

1. Tens of thousands of new pages of compliance rules and regulations across the entire federal bureaucracy. Without question, this is the #1 reason for decreased productivity. Simply google Obama legacy compliance regulations.

2. Idealism at any cost. "Fixing" health care was a noble effort, but in the end, the president let lobbyists write the bill. The result was a trainwreck, their word, not mine. ObamaCare is the 800-lb gorilla in every corporate boardroom. 

3. Bad science. Climate change is a given; assuming US taxpayers can make a difference is perhaps the best example of presidential hubris.

4. Balkanization / polarization of America. This is an interesting one. No less than McClatchy DC has identified politics of anger, fights, and division as Obama's defining legacy. Tens of thousands of new pages of compliance regulations might have happened under any president but it's hard to imagine any president more polarizing than President Obama. The polarization has simply put America in gridlock. Nothing gets done, but a lot of dollars and manpower are spent on either side fighting for their side. At its extreme, Balkanization has led to the growth of CAVE dwellers. Historians will begin the chapter on the Obama presidency with these words: No other presidency, since Abraham Lincoln, was marked by such divisiveness.

5. Legalized money laundering. Perhaps the best example of spending money that adds absolutely nothing to the economy is "cap and trade." It's not that the beneficiaries don't break even, they go spectacularly broke spending US taxpayer money. Solyndra is Exhibit A; SunEdison is Exhibit B.

6. Crime. I don't know how economists factor in law enforcemen when it comes to determining productivity. But releasing tens of thousands of felons over a short period of time certainly seems like it would be a drag on the economy. Permitting open borders does little for American productivity.

7. Inability to make a decision. President Obama's inability to make a decision may be best exemplified by his lack of a "Syrian strategy" for years. With regard to US productivity it was best reflected by his inability to make a decision on the Keystone for six years.

8. Anti-business. "Keeping the boot on the neck of BP" was excessive, inflammatory, overkill, but demonstrated well President Obama's attitude toward business in general. By 2012, Obama's anti-business, anti-job bias was already evident. [It might be of interest to see that ObamaCare let that list of "Top 10."]

Bottom line: Regulations, ObamaCare, and bad science account for 99% of the US decline in productivity. Many more causes exist but compared to the Big Three, the rest are simply ankle-biters.

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