Monday, July 13, 2015

Parsing "Generic Productivity"

"Little snippets taken out of context can make anyone sound dumb." -- Kevin Drum, Mother Jones.
Kevin Drum thinks "It's Time to Cool It" on Jeb Bush's assertion that "people need to work longer hours." After all, Bush "quickly clarified" that he was talking about something totally different than what he said. Perhaps Mr. Drum would like to quickly clarify a dumb-sounding little snippet of his own with some ex post facto context? In a previous column on Bush's call for working longer hours, Drum pardoned Bush for a "confusing" reference to productivity:
It's true that Bush's use of "productivity" in the third sentence is a bit confusing because he's suddenly using it in its generic sense, not its formal economic sense, but that's no more than the slight clumsiness that's inevitable in live settings.
This is clearly wrong. There is no such thing as a "generic sense" of productivity. Furthermore, the formal economic sense of the word fits the context of Bush's statement better than would the alternative definition of productivity as the capacity to produce. Bush said, "people need to work longer hours and, through their productivity, gain more income for their families."

Bush was talking about growth -- economic growth defined as an increase in the GDP -- and hours of work. Productivity refers to a ratio between output, in the form of GDP, and inputs in the form of hours of work. If Bush had a different meaning of productivity in mind, it could as easily have been the misconception that productivity is simply a synonym for output.

What Drum is asking us to do is credit Bush for the keen insight of his retroactive clarification and at the same time give him a break on the grounds his original statement was clumsier than it appeared. Somehow Bush comes out ahead on two counts for being both smarter and dumber than he sounds.

The worst thing about Drum's apologetics is that Governor Bush is not the real problem here. The real problem is a feeble public discourse about economics in which terms like "growth," "productivity" and "hard work" are tossed around as vague euphemisms that have no definitive meaning. Bush was merely reciting a stock jumble of empty platitudes. It was the incongruity of a particularly odd arrangement of those platitudes, whether intended or not, that struck a nerve. Drum urges us to set aside the reflex of incredulity and get on with the droning monotone of platitudes -- the real business of political punditry.

This is a teachable moment. I don't see any point to "cooling it." Here's why:

First, there is the matter of the disconnect between productivity gains and income that Alan Pike mentioned at Think Progress. If greater productivity hasn't been translating into higher income for decades, why should we assume it will magically do so in the future? Regardless of whether Jeb Bush meant what he didn't say or said what he didn't mean, we should be having an intense public conversation about the disconnect between productivity gains and median incomes.

Second, and more germane to the sense in which Bush may have been misusing the term productivity, both output and productivity are weak links in the logical chain between longer hours and more income. Longer hours don't necessarily translate into increased output and increased output doesn't necessarily translate into improved productivity.

Under current conditions in the U.S. it is very likely that those links have been broken. According to a Gallop poll from last August, full-time workers in the U.S. worked an average of 47 hours a week. The Bureau of Labor Statistics gives an average of 42.5 hours a week for full-time workers. This number, however, averages in the hours of workers who usually work full time but who worked less than 35 hours in the reference week due to non-economic reasons, such as illness or family obligations. So the average hours of people who usually work full time and who actually did the week they were surveyed would be more than 42.5. For the sake of argument, let's say that full-time workers average 44 hours of work a week.

If we assume that a 40-hour workweek is optimal for total output then those extra four hours a week are not only going to significantly depress productivity but also would lower total output by a small amount. The latter conclusion follows tautologically from the assumption. What is perhaps less intuitively obvious is that even if we assume that a 44-hour workweek is optimal for total output, hourly productivity would be significantly lower under a 44-hour workweek than it would be under a 40-hour workweek. I estimate around 9% higher productivity for the 40-hour week.

One of the pioneers of national income accounting, Edward Denison, estimated in the early 1960s that as much as 10 percent of economic growth between 1909 and 1957 could be attributed to "the effect of shorter hours on the quality of a man-hour's work." During that half-century, average annual hours of work per worker declined by about 30% while total economic output nearly tripled.

This is not to say that economic output would have necessarily been less if annual hours of work had not declined as much as they did -- only that more of the output would have been attributable to long hours of work rather than increased quality of work. Workers would have received less income for more hours of work. Therein lies the cost-benefit riddle that the euphemistic false equivalence of growth, wages, productivity and hard work doesn't solve. Productivity is  not simply about how much output there is but how much output relative to effort. Way back in 1929. Lionel Robbins wrote, prematurely:
The days are gone when it was necessary to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it.
Unfortunately, those days are not gone. Instead the "naïve assumption" has triumphed over economic analysis of the hours of work and the public conversation has retreated to the glibly vicious "magazine of untruth" refuted nearly 150 years ago.




14 comments:

Philip said...

The fall in productivity growth is simply a result of the fact that investment has fallen. If you consider the metric of real domestic investment per dollar of GDP everything gets explained. The following post has more:
http://www.philipji.com/item/2015-06-29/making-sense-of-the-productivity-puzzle

Sandwichman said...

Philip,

You write, "The fall in productivity growth is simply a result of the fact that investment has fallen."

And why do firms make capital investments? Because of the pressure of rising labor costs. When you depress labor costs, you discourage capital investment. Why should I invest in a new backhoe if I can get the same amount of work done cheaper by laborers with shovels working at extremely low wages? The gap between productivity growth and wage growth explains a fall in investment.

Philip said...

Sandwichman,
That could certainly be part of the explanation, especially given that wage growth has been so poor since the crash.

But I think the main reason is that consumption has fallen (see the graph on http://www.philipji.com/item/2015-06-24/the-history-of-the-US-economy-in-one-graph) and firms do not see much point in making capital investment if they can meet the lower consumption demand with the existing amount of fixed investment.

Sandwichman said...

Philip,

Of course. Falling consumption also reflects wage stagnation, increased inequality, lower propensity to consume. There is a delicate and unstable balance in a wages-rut system.

greg said...

Sandwichman:

Yes! Since the savings rate of labor is so low, especially if we discount the wages of the upper percentages, total labor consumption is about equal to the total national wage bill. And since Republicans, at the behest of their masters, are pursuing policies at both the state and national level which further depress this wage bill, we should not expect much in the way of future economic growth. Not only is there decreasing incentive to invest in the real economy, but there is increasing incentive to cash out of it.

But we can expect debt, and thus the financial sector to grow.

And as wealth becomes more concentrated, we should expect the marginal propensity to consume of the wealthy to decline. This will further dampen demand, and put further downward pressure on the wage bill.

This is all part of the continuing elimination of constraints on the exploitation of the economic commons by the wealthy. This can only end badly. Very badly.

Republicans fail at understanding the fallacy of composition.

greg said...

Sandwichman:

Yes! Since the savings rate of labor is so low, especially if we discount the wages of the upper percentages, total labor consumption is about equal to the total national wage bill. And since Republicans, at the behest of their masters, are pursuing policies at both the state and national level which further depress this wage bill, we should not expect much in the way of future economic growth. Not only is there decreasing incentive to invest in the real economy, but there is increasing incentive to cash out of it.

But we can expect debt, and thus the financial sector to grow.

And as wealth becomes more concentrated, we should expect the marginal propensity to consume of the wealthy to decline. This will further dampen demand, and put further downward pressure on the wage bill.

This is all part of the continuing elimination of constraints on the exploitation of the economic commons by the wealthy. This can only end badly. Very badly.

Republicans fail at understanding the fallacy of composition.

Thornton Hall said...

Woah there! I can think of only one thing worse than an economist criticizing the ordinary language of non-economists for getting the economics wrong: that's a prescriptivist economist...yada yada yada.

Just because the rich and famous (eg Thaler) claim to study human behavior while telling their subjects "You're doing it wrong!" (Imagine Jane Goodall trying this with the chimps!) doesn't mean it's OK.

You are of course right. The way we talk about this stuff matters. But rejecting the way a human being uses the words "I was really productive today" is a poor start to changing human behavior.

Sandwichman said...

"But rejecting the way a human being uses the words 'I was really productive today' is a poor start to changing human behavior."

Thornton, you are reaching. It wasn't a "human being" using the words you quoted, it was a hypothetical being posited by a political pundit to justify a speculated usage of a politician.

Fuck you.

Thornton Hall said...

"Fuck you"

I've tried this one myself. Again, if the goal is changing human behavior, I question your strategy.

Thornton Hall said...

Here's the problem with "Fuck you". It caused me to almost totally miss something obvious. It's only my extremely magnanimous nature that allows me to get past the invective and notice that I was misunderstood to be defending Jeb Bush.

Jeb Bush is well known to be the stupidest of the Bush brothers. Nonetheless, we should expect his pronouncements about economics to be... Well actually, who knows? How is he supposed to understand an incoherent pile of BS. Anyway...

I was defending Kevin Drum. This sentence, in particular, motivated my comment:
There is no such thing as a "generic sense" of productivity.

I'm sorry, but that's stupid.

Sandwichman said...

So what you're saying I should have said is "I'm sorry, but "the generic sense of productivity" is stupid."?

I don't have an opening for an editor at the moment but I'll keep your application on file and let you know if something comes up.

Sandwichman said...

By the way, Thornton. There was no invective intended in "Fuck you." It was meant as a jocular dismissive. I apologize if anyone was offended by my light-hearted use of this everyday expression. Standard non-apology apology.

But here's the deal: "Nearly 50% of eighth-graders in the United States could not order 1/2, 2/7, 5/9 from least to greatest" according to the 2007 National Assessment of Educational Progress.

Does that mean that 2/7 is larger than 1/2 "in a generic sense"? The mistake is common, so it's O.K. for politicians to speak as if 2/7 really is larger? If I'm talking about medical procedures, there is no "generic sense" of catheter tube.

It might seem to you, Thornton, that I am being pedantic. It was, however, Mr. Drum who introduced the semantic unicorn to exonerate Gov. Bush from speaking nonsense. In effect, what Drum was saying is "don't be harsh on Bush for saying THIS nonsense because he really meant SOME OTHER nonsense. And don't be harsh on him for the other nonsense because lots of people talk that way." THAT is pedantry. I was objecting to a pedantic apology and thus quoting pedantry.

Thornton Hall said...

Kevin Drum somehow gets tossed into the category of "econobloggers" but he's more of a plain old blogger. He certainly doesn't pretend in the way Yglesias does. And his favorite stance on pretty much everything is: well isn't this just a phony tempest in a teapot ginned up by the scribes and chatterers?

And he's usually right. Now here is Bush saying something which contradicts the axe you most like to grind of late. Does he mean it in the way that Krugman means it when he lays into "the lump of labor fallacy"?

Of course not. Because the things that Paul Krugman says in his sleep have more thought behind them than Jeb Bush could muster in s lifetime.

And really, what could the man say after promising 4% growth that you wouldn't hate? Did you expect him to say "Even though the concept 'growth' is faulty and unsustainable, of course."?

Is that what Drum should have said?

The point isn't about economics. It's an occasion for you to make a point about economics, and that's fine.

The axe I like to grind is that the language of economics has infected the language of policy like an STD. How do we get it out? Not by demanding strictly economic meanings for the words that economics has stolen from our language.

"Productivity" means more to humans than it does to Neoliberals. That's an advantage we humans should press, not abandon or concede.

Sandwichman said...

"the language of economics has infected the language of policy like an STD. How do we get it out? Not by demanding strictly economic meanings for the words that economics has stolen from our language. "

I respectfully disagree. Economics is not some monolith, entirely separate from and antagonistic to the authentic language of the people. Economics mixes and matches popular meanings and contains valuable insights as well as distractions, evasions and deceptions. The integrity of language is important. It can not be defended by adherence to some simple rule. See also my discussion of fourth grade arithmetic for economists and in the comments there.