Asymmetrical Information

Hi, I'm new and don't know much about economics but one of the things that concerns me about a Kerry presidency is the potential that he will burden manufacturers with onerous environmental regs similar to the ones Clinton tried to enact during his last days in office. Additionally, will Kerry push for ratification of the Kyoto treaty? Would this cause more manufacturers to flee to other countries where the environmental regulations are (much ?) looser? Kerry should talk less about Vietnam and more about his plans in this regard. I'm trying to make a decision here.

Guess it really is time to get out the butter, because Bush truly is toast!

Why does it make one worry about the next year?

Looks like things are settling down to something like normalcy after a re-adjustment, to this non-economist.

This might hurt Bush, but I don't share DiscoStu's belief that a drop to a level of productivity increase that is merely half again above the historical norm will somehow seal his doom.

I see no relevence in any of this to Bush or Kerry. Neither is particularly deft at dealing with economic issues. Indeed, I suspect neither could pass a basic test of economic knowledge.

As for Bush's reelection prospects, the people betting real money (say, http://www.tradesports.com/) are still pretty much 50/50 on the odds, so I wouldn't say that the race is a clear win for either side at this point.

A productivity GROWTH rate of 2.9% is not, in and of itself, a bad thing. In fact, it is most likely a universal positive. The increase in productivity will create new wealth that will drive development of new goods and services which will create new jobs.

A 9% productivity growth rate would not be sustainable over the long term -- there would be too much dislocation in the economy as workers were laid off (the rise in productivity would soon allow 4 to do the job of 5, allowing number five to join the unemployment line). Of course, as the economy developed new products and services those losing their jobs to productivity increases would be able to find new work -- only to be laid off again as their new employer developed productivity increases. I just think that a 9% growth rate would result in a glut of laid off workers we would be unable to train quickly enough to take on the new jobs created.

At any frequency lower than 5 years, "productivity growth" is a residual - it's simply the movement in output divided by the movement in employment. Think about it this way; is it really sensible to assume that new technologies are implemented from quarter to quarter which have a material effect on the productive capacity of the economy? Can you materially change the capital-intensity of production in three months? Does the idea that, at an individual firm level, fluctuations in output per man-hour drive hiring decisions sound at all pluasible? Or is it more likely that output fluctuates, employment fluctuates, and therefore, measured productivity fluctuates.

I would assume that when employers went on their hiring binge this spring it was a result of not having enough capacity. Now that they have increased their capacity, there will be a period where demand will have to grow to use up the additional capacity. Then there will be another hiring binge followed by a lull. This of course precludes the appearance of a new growth industry (or several as we had in the 90s due to Moore's law making several technologies feasible at a low price).

"Can you materially change the capital-intensity of production in three months?" Maybe a bit, because when facilities are below maximum utilization, additional production can be accomplished with existing capital.

Also...I wonder to what extent productivity is being impacted by the (freight) railroad bottleneck that has developed in the U.S. this year. Particularly in the west, and particularly for customers of the U.P., it sounds pretty ugly.

Ray Fair at Yale has produced a study that can be viewed at http://fairmodel.econ.yale.edu/rayfair/pdf/2002A.PDF

This study found that there was a negligible increase in productivity in the 90s and that the stock market boom had the greatest effect on the economy. There is no economic factor which can account for the stock market boom and Mr. Fair doesn't hazard a guess, but he pretty much debunks the entire new economy argument. Personally, I think the Fed, specifically Mr. Greenspan, was responsible for the stock market bubble through their manipulation of monetary policy.

Productivity measures are a useless statistic in a vacuum. High productivity is not necessarily a good thing. If it is, why does productivity tend to rise during a recession?

As for the Presidential race, this will have no effect. How individuals feel about their personal financial situation is the only thing that matters and with consumer confidence at a two year high, I would say, advantage Bush.

High productivity is not necessarily a good thing. If it is, why does productivity tend to rise during a recession?

Joe, I believe the usual explanation is that businesses fire their least productive workers. You're also cutting back on overtime, so your most productive workers are being their most productive. There may be some capital equipment effects, too; more time for maintenance, people don't waste time waiting in line for the copier, etc.

Conversely, companies have to hire whoever they can get in boom times. Even if new hires are inherently productive, they have to be trained first, which reduces someone else's productivity, at least in any output-measuring sense.

Just wondering if it could be something along the lines of: During recessions, employees are "whipped like slaves" and concede to such in order to keep their jobs -- especially now that health benefits are (in the US, at least) nearly universially tied to employment.

Playing a bit of devil's advocate here, but somebody has to on Jane's blog ;^} -- you know, when y'all univerisally accept that raising the minimum wage will wreak mayhem and havoc, but multi-million dollar executive salaries/billion dollar corruption schemes are just par for the course. Kinda have to question the indoctrination y'all have swallowed hook, line 'n sinker in economic school....

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