Financial Crisis Creates Productivity Bonanza? No.By
This morning’s productivity numbers showed a huge gain in output per hour in the third quarter—up at an annual rate of 9.5% in the nonfarm business sector.
But here’s something else. If we are to believe these numbers, the biggest financial crisis since the Great Depression has actually produced a productivity gain of 5.1% since the downturn started in the fourth quarter of 2007.
If you think that productivity has risen by 5.1% during the financial crisis, I’ve got a subprime bond to sell you.
Let me get this straight. We have a collapse of the housing and construction sector, massive layoffs in almost every part of the economy, a sharp downturn in consumer spending, and bank failures on an astonishing scale—-and the numbers show an increase in productivity?
It defies common sense.
I suggest two reasons why the numbers are off. First, as in my recent cover, companies are cutting educated workers such as scientists and engineers who are not directly involved in the immediate production process. This means a drop in important but unmeasured intangible investments in R&D, product development, training, and advertising, which are not getting picked up by the GDP statistics.
Second, and this is relevant to the DC conference mentioned in the previous post, the statistics are being greatly distorted by globalization. Let’s take a look at the computer purchases and supply, as reported by BEA.
According to the BEA’s number, final sales of U.S.-produced computers has *risen* by 3.9% since 07IV, while imports of computers have *fallen* by 1.5%. Over the same stretch, employment in the computer industry has fallen by 12.5%. Being incredibly simple-minded, that would suggest that productivity in the U.S. computer industry has risen by about 19% in the downturn. Not bad, if true!
But there’s a problem. According to the BEA’s stats, the price of imported computers has fallen by 9.6% since the end of 2007, while the price of computers to consumers has fallen by 22.2%.
That doesn’t make sense. It’s far more likely, as I argued here, that the import price stats are mismeasured.
If we assume that import computer prices really fell at the same rate as domestic consumption, that would mean import growth is really faster, and domestic output growth is slower, as is productivity growth. By my back of the envelope calculation, the effect on computer industry productivity growth is potentially huge (I’ll give the details later after I have had a chance to check them). This sort of calculation extends to the rest of the economy, though less dramatically.
So for these two reasons, I am quite skeptical of the proposition that the financial crisis has increased output per hour.
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