On 9/23/07, Eugene Coyle <[EMAIL PROTECTED]> wrote: > What I mean is that consumer > demand is a factor in productivity gains. If people aren't buying > stuff, i.e. increasing their buying, productivity gains won't come, > will they? I mean, why bother improving if you (the producers, > collectively) can't sell more. > > That's behind my reference to Greenspan. Did he understand this, > that he needed to keep the bubbles pumping, in order to keep > productivity gains up?
In macroeconomics, there's a much-ignored empirical "law" named after an otherwise-unknown economist named Verdoorn. (I'll have to look him up.) What the "law" says is that persistently abundant aggregate demand encourages labor productivity to grow faster. Demand growth encourages new investment, implementation of technical improvements, the growth of specialization, etc. All of these help labor productivity growth (and maybe the bogus "total factor productivity"). The classic case is the middle-to-late 1960s, when labor productivity grew abundantly. Some think that the late 1990s fits this situation. In addition, there's the hysteresis effect: if demand is persistently abundant, some people who would "normally" be structurally unemployed (lacking the right skills or location for the jobs available) are able to get jobs, on-the-job training, etc. It's much easier with the transition costs involved with finding and getting a job. This lowers the NAIRU (or "natural" rate of unemployment). in plainer prose, the unemployment rate at which inflation tends to take off is lowered. This may have happened in the late 1960s and even the late 1990s. The reverse seems to have happened under Thatcher in England: shock treatment raised the inflation-threshold U rate. Greenspan may be aware of these theories, but he never put them into his policies as far as I know. Instead, in the late 1990s he allowed the unemployment rate to fall below that recommended by the majority of macroeconomists and almost all finance capitalists -- but only if low inflation was maintained. (For awhile, this was helped by low oil prices.) He may have suggested that the inflation-threshold unemployment rate had fallen due to the decline & fall of labor unions and the manifest economic insecurity facing most of the labor force (rather than due to hysteresis). It was also a deal with the government: as long as the government ran a budget surplus, the Fed would be (relatively) expansionary in its policies. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
