The Slow Growth Meme

The pre-determination of slow growth for the US and other developed nations took another step forward with a WSJ cover story on "Learning to Live with Slow Growth." The finger-pointing centered on productivity, or it lack there of. Even the chart posted shows a sideways path from the 80s to the crash, damaging the base premise.

In reality, the productivity miracle, heralded by the Greenspan Fed, never really took place. Innovation (computerization) in a service economy was exciting but hardly the Holy Grail. Consider Lawyer X, cheap computing power and innovative software boosted his and the firm's efficiency. Labor intensive work became easier and more streamlined. The quicker he embraced and implemented the tools, the potential profit margin of his work increased. But what about his work relative to other lawyers? Weren't they rolling into these new technologies also? Once all firms had updated their systems, was Lawyer X, or the entire Law community any more productive from an economic standpoint?

The financial system is a perfect example of the productivity meme myth. Everyone chased technological innovations right down to suing each other over lines of code. It is too easy to call this chase productivity increases. If one used to take 10 seconds to buy 10000 shares and now it takes 400 the trader more productive? Once everyone has the same platforms, is the system? Essentially, 17% of the economy became quicker, not "better" and certainly not more productive. (Who had time to read Twitter?)

The production, availability and use of credit has a much more accurate effect on growth than the always cited productivity. Since the Industrial Revolution, and even centuries earlier in the Mediterranean, individuals, groups and societies that rejected the Puritanical notions equating austerity with morality, grew faster and out prospered their neighbors. Big government, small government, balanced budgets, raising taxes, lowering taxes, privatization, regulation, reform or deregulation all failed to deliver the productivity nirvana. Credit, however, made the multitude of Crusades for the cause possible.

But don't take my word for it, take James Burke's:

2 thoughts on “The Slow Growth Meme

  1. LWM

    isnt productivity a euphemism for real peeps terminations from the work place and/or closing of open FTE requisitions (attrition) and/or widespread use of temp contract labor ?

    i can also give u an anecdote abt what cash looking for a home (is this credit ? not sure) has done in our small, mostly affluent non-urban hood; that is the sprouting up of several large shopping centers over the last year, anchored by food stores and restaurants and sports bars. lotsa not filled yet floor space i might add. i am thinking this is all not very productive use-of-money but hey it does make for some interesting visits to the food store.

  2. Patrick Grattan

    Maybe it was cheap labor and its arbitrage that drove so called productivity, the demand for infrastructure to put that cheap labor to work , get capital to it and goods back.

    How does more credit help if there’s no discernible goal to improve quality of living when peeps are choking on too much stuff?


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