This page has been archived and commenting is disabled.
Productivity In America Now On Par With Agrarian Slave Economy
Submitted by Eugen Bohm-Bawerk
In the first episode we showed how the US became an unsustainable service sector based economy from the 1970s onward when service sector employment diverged from manufacturing without a corresponding boost in productivity. In the second episode we laid out the consequences that transition has had on labour in terms of lower wages and benefits. In addition, we reiterated our argument that monetary policy has become slave to the service sector as it has become linked to the much touted wealth effect (capital consumption) that is now an integral part of the American business cycle.
Now it is time to take a closer look at productivity measured in terms of GDP per capita. While this is not an entirely correct way to measure productivity, it does adhere to new classical growth model theories which posit that in a developed economy, reached steady state, the only way to increase GDP per capita is through increased total factor productivity. In plain English, growth in GDP per capita equals productivity growth. The reason we use this concept instead of more advanced productivity measures is to get a long enough time series to properly understand the underlying fundamental forces driving society forward.
In our main chart we have tried to see through all the underlying noise in the annual data by looking at a 10-year rolling average and a polynomial trend line.
In the period prior to the War of 1812 US productivity growth was lacklustre as the economy was mainly driven by agriculture and slaves (slaves have no incentive to work hard or innovate, only to work just hard enough to avoid being beaten). From 1790 to 1840 annual growth averaged only 0.7 per cent.
As the first industrial revolution started to take hold in the north-east, productivity growth rose rapidly, and even more during the second industrial revolution which propelled the US economy to become the world largest and eventually the global hegemon (see bonus chart at the end).
As a side note, it is worth noting that while the US became the world largest economy already by 1871, Britain held onto the role as a world hegemon until 1945. Applied to today’s situation in light of the fact that China is, by some measures, already the largest economy on the planet, it does not mean it will rule the seven seas anytime soon. In our view, they probably never will, but that is a story for another time.
Adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold. The productivity decline witnessed ever since is unprecedented. Despite the short lived boom of the 1990s US productivity growth only average 1.2 per cent from 1975 up to today. If we isolate the last 15 years US productivity growth is on par with what an agrarian slave economy was able to achieve 200 years ago.
In addition, the last 15 years also saw an outsized contribution to GDP from finance. If we look at the US GDP by contribution from value added by industry we clearly see how finance stands out in what would otherwise have been an impressively diversified economy.
With hindsight we know that finance did more harm than good so we can conservatively deduct finance from the GDP calculations and by doing so we essentially end up with no growth per capita at all over a timespan of more than 15 years! US real GDP per capita less contribution from finance increased by an annual average of 0.3 per cent from 2000 to 2015. From 2008 the annual average has been negative 0.5 per cent!
In other words, we have seen a progressive (pun intended) weakening of the US economy from the 1970s and the reason is simple enough when we know that monetary policy broken down to its most basic is a transaction of nothing (fiat money) for something (real production of goods and services). Modern monetary policy thereby violates the most sacred principle in a market based economy; namely that production creates its own demand. Only through previous production, either your own or borrowed, can one express true purchasing power on the market place.
The central bank does not need to worry about such trivial things. They can manufacture the medium of exchange at zero cost and express purchasing power on the same level as the producer. However, consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption.
Do this on a grand scale, over a long period of time, even a capital rich economy as the US will eventually be depleted. Capital per worker falls relative to competitors abroad, cost goes up and competitiveness falls (think rust-belt). Productive structures cannot be properly funded and the economy must regress to align funding with its level of specialization.
In its final stage, investment give way for speculation, and suddenly finance is the most important industry, pulling the best and brightest away from every corner of the globe, just to find more ingenious ways to maximise capital consumption.
As the slave economy got perverted by incentives not to work, so does the speculative fiat based economy, which consequently create debt serfs on a grand scale.
Bonus chart:
»
- 37989 reads
- Printer-friendly version
- Send to friend
- advertisements -
And unlike at any time in the past most people today couldn't grow a potato to save their lives.
Do I plant it head or feet down?
Time to plant a few bankers. Face down.
So when government is half of GDP, productivity goes to hell in a hand basket.
Where did I put my surprise mask?
Gubmint: ctrl-alt-del
Elected politician miedras & gubmint bureaucrats: sandpaper their skin off & bury em in salt. Fukem all
BTW, title is wrong and misleading.
Productivity is much higher than it ever was. The only thing similar today to 19th century, is productivity GROWTH.
pls change
Not sure what you're driving at. Look at the chart that defines productivity as GDP per person. By that definition, productivity has indeed fallen since 1970.
Shatzi is correct. The units of GDP per capita should be dollars, not %. GDP per capita will not start to decrease until the % growth goes negative (which looks to be pretty soon unless the trend changes). Of course, paying people to not work is not going to help turn the trend around.
401k contributions, health insurance, state income tax, Social Security, Medicare, IRS, student loans, wage garnishments caused by unpaid medical bills, child support garnishments, how much of the paycheck is left??? Then the rent is due, so what little is netted goes right to the landlord.
Yeah, I don't blame people for not caring about their jawb.
Meanwhile, business owners can write off business expenses, whereas employees are on the hook for everything.
When your nation has 50+ MILLION leaches on food stamps and welfare and 40+ illegal aliens of course your GDP per capita rating is going to fall. Admittedly there overlap in those groups but no nation can survive with many million monkeys on its back.
Or when companies spend 99% of their ZIRP windfall on buybacks or M&A.
Half the US population is receiveing some form of government benefit.
Hmmm.
Look at China on that bottom graph.
Fyuh cracker go boom!
WWIII the war to end banking and put the world on a global open source financial system--publicly owned and operated bitchez.
Let's get back to work building a better future: longer lifespans and fewer children; improved quality of life for everyone.
It's been estimated there were more than 10,000 political murders in Germany during the interwar period (population at the time about 60 million).
We will have the war, then we will have some fun.
Except that WWIII will depend heavily on banking. That and a dictatorship and slavery. War needs money and people.
financial system--publicly owned and operated bitchez.
I'm inferring from the tone of your comment that you may be one of those imbeciles that has the low-info temerity to utter complete bullshit like 'it failed because it's unregulated'.
So you're saying that to solve the problems we have now with 'a publicly owned and operated finance system', we should send our children off to die in a war to distract from the failure of that system and lynching the people responsible (aka progressives), and then whatever the outcome, we should incorporate 'a publicly owned and operated finance system' to solve all our problems.
If you're in doubt about how we already live under a 'a publicly owned and operated finance system', then you're going to need to research progressives and what they believe/do. In oher words, this failure that's all around us is the result of the policies you support and more of the same isn't going to fix them.
Peak workers drones who want to work.....less FSA
Wages are also on par with agrarian slave 'economy'
So give me one fucking sane reason why productivity should not be
If we were an actual agraian society at present, that'd be an improvement.
Hear, hear.
At least we would have a few pots to piss in.
And a homegrown source of food for the coming Mad Max era.
And maybe a window to throw it out of.
Thats exaclty what Piketty says : the bigger the inequality the lower the productivity; feudals are slothful to the nth degree.
When the productive pay 70% income tax on marginal income its hits them like Indiana J's whip; very stimulating.
The rule has always been : spread it out like manure it grows the corn, stack it in a bank it stinks to hell.
Geometric growth kills the cat. No civilization can maintain geometric; thats MATH.
Capitalism has to change to something else or its dies in the financialized sands of Pharaohs.
What we have now isn't Capitalism. It's a shit stew of the worst features of Fascism, Corporatism, Socialism, Cronyism, Feudalism,...
lol, ok.
Dream on.
I'm not sure when or if we ever had capitalism. Even in the 19th century it was fascism when the military was killing natives for corporate interests such as the railroads.
Of course when the country was founded so corporate interests didn't have to pay taxes and the people fought to defend those corporate interests, it was fascism from the get go.
Capitalism has to change to something else
IMBECILE! This system has nothing to do with capitalism. It's interesting that the first part of your comment is coherent and rational and then you completely fucking fail by referring to this failing system as capitalism.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=A
Year of peak... drumroll ... 1970
Mystery solved.
Which only proves what I've been saying all along which is that we need to go back to the good 'ol days of slave labor. You must give the Fed & the Federales their due in this regard as we are almost there now due to their tireless work.
wealth effect (capital consumption) that is now an integral part of the American business cycle.
finance did more harm than good
I listened to a neoliberal economist who was on NPR for an hour long program on robots and the end of work. He showed clearly the range of jobs now subject to robot replacement of people. Even in a hospital operating room they have a computer robot that puts you under for operations, better than a doctor can do. Cost $200 an operation. A trained doctor would charge at least 2K to 15K depending on operation length. Computers are writing basic news stories and doing the weather forecasts. He said the biggest places for replacement should be Education, Health Care and Government. And he is right! You can see what modern computing can do, why have all these paper pushers. Why all these teachers, when in higher education they are not needed, even High School. Who needs a Spanish teacher with the internet?
He figures, as this takes hold, the top 10% who invent and program the machines and keep control of society, like in law enforcement, military, spies etc. will gain more and more income. Becoming a rich elite. The other 90% will sink into the lowest forms of service work. Wiping asses, cleaning toilets, taking out the trash, paving the roads, etc.
He said, that this is how it WILL be, there is no room for debate. The 90% will simply have to learn to live with tiny incomes, and entertain themselves on social media. That simple!
"Becoming a rich elite. The other 90% will sink into the lowest forms of service work. Wiping asses, cleaning toilets, taking out the trash, paving the roads, etc."
At least there's something machines can't do! oh,,, wait....
Gee, I thought the Japanese had already designed a machine to wipe their asses so scratch one more career opportunity.
The Japanese are perfecting sexbots, which will even put practitioners of the world's oldest profession out of work/business.
Forward (over the cliff)!
"He said, that this is how it WILL be, there is no room for debate. The 90% will simply have to learn to live with tiny incomes, and entertain themselves on social media. That simple!"
There is absolutely room for debate. Robotization is the endpoint of a century-long trend toward increased societal complexity. The level of complexity in our current state is beyond anything ever witnessed before. His statement follows the classic premise of <follow the trend to its conclusion>. Trends never reverse? We all know better than that. We are near a social breaking point, documented here daily. The social anger bubbling under the surface? Just like an earthquake zone, we are building tension in a fault, and when that fault ruptures, look out!
This system is too fragile to reach the endpoint this NPR egghead so confidently predicts. Personally, I will welcome chaos, even if (as I think probable) I may not survive the effects. I want to see the global system rebalance itself in a more robust and naturally balanced configuration than we are currently living. The bizarreness of our current society is just too creepy, and the concept of robot-doctors or robot-teachers sounds like an even worse version of what is already plenty bad enough, thank you very much!
when the AI arrives, the part of economy already not replaced by the robots, will become obsolete as well. for example, can anyone imagine a justice system where a lawyer is trying to build a case against an AI attorney? there wouldn't be a single job left for humans.
we can all live happily ever after on well-fare while our only job will be to consume.
Correct. Deep Learning algorithms are to white-collar jobs what mechanized automation is to blue-collar jobs.
https://www.youtube.com/watch?v=t4kyRyKyOpo
As long as people describe problems in the current world in terms of "GDP" and "productivity", we have a ways to go to get past the slavery paradigm.
Authority = slavery.
Mutual Consent = Freedom.
The problem is not the lack of a good top down, iron-fisted command of the so-called economy.
Interest rate manipulation + corruption/legal immunity for elites = no rational capital/small business formation
Ergo, end of USA as we knew it. The rest is all dominos, including the values, urban blight, etc. etc. etc.
Ya, but the staaate faaaair is right around da corner ya know.
I should get the fuck out of this state before another lightrail line that no one pays to ride gets the green light by the state legislature. Run Forest Run.
Productivity is sooooo twentieth century.
beam me up Scotty !
So the male recession has crushed productivity growth you say?
Who would have thought firing men while at the same time the first large wave of female workers were hitting there mid fortys would cause productivity issues.
Men always work harder then women on average and older women also lose there motivation to work faster as they age when compared to older men.
I'm an adult female and I approve that message. It is a broad generalization, but it is pretty close. I am an old registered nurse who outworked plenty of males when I was younger. After a certain age the physical demands were too much.
Truth can be tough but it is not hate speech.
Zion is a fifth-column plundering and exploiting colonizer of the American country, so this should not be a surprise to anyone.
The colonizers need to "return."
Zion is a scheme, not an ethnicity.
RE: Mr E B-B
this is very well thought-out and researched article. precise and to the point!
quite surprised that you picked-up on the Brirtish Empire. excellent!
http://en.wikipedia.org/wiki/Presidencies_and_provinces_of_British_India
Ps. note that for empires to function it is imperitive to export [beggard thy neighbor] slavery?
Ps2. regarding the 90's and finance-- again excellent!!!
bush #41 [1988-1992] & clinton [1992-2000] were miraculous? 'Finance' berlin wall 11/9/89 'germany's 'marshall-plan' redux $$$$
USSR dissolution 12/26/91! WOW! Exporting Capital, capital, and moar capital actually working hard.
finally,... you mentioned in the end-- which was also stunning and brilliant!
GATT[1948-1994]-- ITO/WTO [1995-present]-- NAFTA/CAFTA[?] [1994-present], and China becoming a member of of the WTO under Bush #43 exactly 90 days after '911' !!!
thank you, sir
When you failed in the agrarian economy you starved (and rid the world of surplus population). Today when you fail (or are just lazy), you get free food, free housing, free Obamaphones, and free Medical care. It takes a lot of productive workers to offset one non productive worker.
You cannot look at robots and computers and say we are less productive today. But you do have a much larger denominator today.
Like Burton says above, tech is making the final attempt at an economically practical socialism. Aldous, I believe I will have some that Crome Yellow now.
1972 was the year the first wave of modern MBA graduates were let loose on Wall Street. Their focus on micro economics instead of macro meant that it's ok to ignore the impact of moving jobs off-shore because an "X" industry is always coming along. Except that there is no positive X industry impact in the modern era because there are just too many potential workers. Which is exacerbated by technology which is designed to replace humans.
I'd be interested in seeing that graph of financial industry contributions to the GDP extended back to the agrarian slave period and on forwards from there. Even his own limited time frame shows that its influence has receded since 2000.
I'd like to see some adjustment made for the effect of prisons.
in my area we lost all our textile mills, factories, and other means of production, but ... we still have a plastic injection facility that makes sporks.
USA USA USA
What a total waste of time with a satistical play on the concept of GDP. 18th century productivity was basically agricultural production. Fiat did exist but gold, whisky as well as wealth in livestock were the measurement of the countries GDP.
With the "agricultural revolution" and exponitial growth in food production with newer technology (steam, then fosil fuel) for replacment of horses and oxen, the continent of Europe trying to commit suicide twice made the USA the food supplier as well as the war material and all other inputs need to wage war and the build up to war.
The GDP of the economy that is measured now is not the same, just the statistical play with numbers. This false wealth that is measured now will soon devalue to a levels 10% to 30% of the present measurement in value within a year, but most probably before this next election circus is over.
Extra popcorn and beer should be stocked up on!
Is it time to start talking about flying the Confrdrate Battle Flag over the US Capitol Yet?
Ready.
intuitively most of this make sense...i strugglle with stuff like
"violates the most sacred principle in a market based economy; namely that production creates its own demand"
i mean , producing crap that doesnt increase the demand for crap, ..who wants crap?
also, China may have the fastest productivty growth, but the abiity to build a 40 storey building in a month (using bamboo scaffolding!) and an inability to fit it out with plumbing and wiring or even people willing to live in a concrete shell, does not signify productivity growth.
which leads to another point. whats missing from the article is the impact of tax and spend on useless pork barrle projects and the encouragement of mobocracy by buying votes with welfare benefits (and other peoples money).
mobocracy creates slavery - you pay benefits in the form of bank bailouts or foodstamps or huge pensions/health care packages from the central government/bank - you turn people into slaves...so that bit i agree with
"If we isolate the last 15 years US productivity growth is on par with what an agrarian slave economy was able to achieve 200 years ago."
It's called neo-feudalism you clueless bastard... Agenda 21.
The plan to De-industrialize the U.S. as presented in1969 to Dr. Lawrence Dunegan which has been accomplished.
https://www.youtube.com/watch?v=3dYRRXUFUdg
Well, labor hasn't seen any of the profits from their increased productivity over the years...that has all gone to the top. So the complainers can go piss off.
The productivity of an agrarian worker? Good, because that's about the current pay rate.
See, the market IS smart...you get exactly what you pay for. You want to pay rice-farmer rates? Then rice farmers will be making your Iphones, either literally or figuratively. Just be glad they can put the damned things together at all and shut up. It could be worse. And will no doubt soon be.
Taxes are just another form of slavery. The main idea is to steal the fruits of someone's labor by force.
"Taxes are just another form of slavery. The main idea is to steal the fruits of someone's labor by force."
"Rightful taxation is the price of social order. In other words, it is that portion of the citizen’s property which he yields up to the government in order to provide for the protection of all the rest. It is not to be wantonly levied on the citizen, nor levied at all except in return for benefits conferred." - 1848 committee report to the State Senate of Ohio
The thieves always threaten you with mayhem if you don't obey them.
The title is misleading. Confusing productivity growth with productivity.
I used to talk about "productivity" (and our loss of it) until the pseudoboffins complained that the "economics" term meant (output) (divided by) (input). So I invented the term "PRODUCTIONALITY".
The true reality is that if you just look at photographs from the mid-1920s you will clearly see that we ware vastly more wealthy then. The Wal-Mart era has delivered fake wealth.
We're not producing squat, really.
"The true reality is that if you just look at photographs from the mid-1920s you will clearly see that we ware vastly more wealthy then. The Wal-Mart era has delivered fake wealth. We're not producing squat, really."
There's some merit to what you have to say here, but may I offer an additional perspective that may help to give some balance to your argument? Look up an old Sunday newspaper ad for Radio Shack from 1980 or so, and look at all of the different things that are being shown. Then consider that every single function or feature from every single product on that page is now available in your cell phone.
It's difficult to use certain metrics for comparing now to then, when what is being measured is changing so rapidly.
US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold.
This is absolute nonsense. Productivity has been exploding throughout my lifetime ... and throughout my parent's and grandparent's lifetimes. I know that "first hand".
Gold has nothing to do with it ... except to curtail productivity if gold is made to have something to do with it.
Look at the limit. Everyone's job has a component to make their job more efficient. In the end, we all "produce" ourselves out of a job. At the limit, "everyone" is out of a job.
We need to be considering how we enjoy our short time in existence. We, and our parents, and our parent's parents have worked hard to bring us leisure. Let's find a way to "productively" enjoy it.
i am down with that
Adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold. The productivity decline witnessed ever since is unprecedented.
Unprecedented? Look at your own graph. I see a precedent from about 1880 (+4%) to 1930 (-1%). Your "unprecedented" period from 1970(+3%) to 2015 (+0.5%) is clearly preceded by this.
This article is total nonsensical double talk gobble-dee-gook. It bears all the markings of being written by someone who has "never" produced anything.
And we need to stop talking about "monetary policy". Management of a Medium of Exchange is not about policy. It's about an enhancement (money) allowing simple barter trade to proceed over time and space. Anything else is unhelpful manipulation and gaming.
It was US Peak Oil that did this. Since then the real price of oil is on the increase, it costs more and more to transport, defend, refine oil, etc.
The law of diminishing returns, the silent killer of empires.
Productivity continues climbing. 1% or 10% gain varies depending on what new technologies come to the forefront. Low hanging fruit gets picked first but new technologies create new low hanging fruit. Some years they appear and other years they don't but there is long term steady growth no matter what.
The problem is that instead of the promised 20 hr work weeks for everyone we have 40% of the population being worked to death for the other 60% and that will probably become 20/80 eventually. This is what is wrong with society. We have a so-called financial and political elite and the dependent underclass they created threatening the middle. The middle forced to produce ever more for the so-called elite for ever less real compensation while paying ever higher taxes to support the ever growing demands of the underclass. As time goes on more people fall into the dependent underclass. We will reach 80% parasites and 20% host and then collapse.
Yupp. Exactly what happened to Rome. Google curiales. Trapped between a tax-exempt Senatorial class and an ever-expanding pool of slave labor, subject to every imposition and regulation dreamed up by the pre-Byzantine bureacracy, the middle class collapsed . . . or cut a deal with some nearby barbarian chief of foederates who was interested in testing the hollowed-out Legions.
Personally, I suggest we find some amenable foederates.
Who is more productive, the person who designs and builds a machine or the person who operates it.
Obviously we are clueless about productivity because we attribute it to machine operators rather than machine creators (who could be long dead but are still producing through their inventions).
Remember, at the limit we have all put ourselves out of work through invention and efficiencies ... but our robots continue to produce impressively.