Latest / Trumponomics / The U.S. Economy's Silent Menace

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The U.S. Economy's Silent Menace · Trumponomics

• 0:00
  Speaker 1: I think it's pretty incredible. You've been monitoring and involved
• 0:03
  Speaker 1: in economic policy making since the Johnson administration. You're just
• 0:08
  Speaker 1: revealing how old I am. Welcome to Bloomberg Benchmark. I'm
• 0:16
  Speaker 1: your host, Tori Stillwell of Bloomberg News, and I'm joined
• 0:19
  Speaker 1: by my colleague and co host Dan Moss. Benchmark is
• 0:22
  Speaker 1: a podcast about the economy, and we'll be pulling out
• 0:25
  Speaker 1: all kinds of numbers and ideas from around the world
• 0:28
  Speaker 1: and sharing them with you in hopefully the least boring
• 0:31
  Speaker 1: way possible, so Les's econ one oh one lecture and
• 0:34
  Speaker 1: more backyard barbecue Banter. Will be enlisting the help of
• 0:38
  Speaker 1: our colleagues from across Bloomberg News, as well as experts
• 0:41
  Speaker 1: who are way smarter than us to help break all
• 0:44
  Speaker 1: of it down. And for our very first episode, we're
• 0:46
  Speaker 1: going to be talking about productivity, which Tori, I thought
• 0:49
  Speaker 1: you put it nicely when we were brainstorming topics. You
• 0:53
  Speaker 1: said it's possibly the biggest threat to the economy that
• 0:56
  Speaker 1: you've never heard of. Well not quite, but we explain
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  Speaker 1: what this mysterious productivity thing is in a minute. First,
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  Speaker 1: let's introduced our guests. Our colleague Aki Ito is here
• 1:08
  Speaker 1: from San Francisco. Hello, And we also have Barry Bosworth
• 1:12
  Speaker 1: with us. Barry is a senior fellow in economic studies
• 1:15
  Speaker 1: at Brookings and I really have to just say, I
• 1:19
  Speaker 1: think it's pretty incredible. You've been monitoring and involved in
• 1:23
  Speaker 1: economic policy making since the Johnson administration. You're just revealing
• 1:27
  Speaker 1: how old I am. So let's get right to it.
• 1:32
  Speaker 1: The biggest threat to the economy you've never heard of, Akie.
• 1:35
  Speaker 1: Aren't you being a little bit harsh there? And if
• 1:39
  Speaker 1: you're not, just tell us what it is. Sure, So,
• 1:42
  Speaker 1: productivity is pretty simple. It's output per hour. It's everything
• 1:47
  Speaker 1: that you're producing in the economy, divided by all the
• 1:50
  Speaker 1: time that it takes to actually produce it. So, Tori,
• 1:54
  Speaker 1: your favorite food is pizza che pizza specifically, so let's
• 1:59
  Speaker 1: say that. Or an owner of a pizzeria, let's say, Yeah,
• 2:03
  Speaker 1: you have a bunch of workers who make pizzas for you.
• 2:06
  Speaker 1: Your goal is to sell more and more pizzas, but
• 2:10
  Speaker 1: at the same time, you don't want to pay all
• 2:12
  Speaker 1: this overtime wages to your employees. Your goal is to
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  Speaker 1: sell more pizzas, but to not have to pay workers
• 2:19
  Speaker 1: all these wages. Um. So you're trying to cut down
• 2:22
  Speaker 1: on the time that it takes for your workers to
• 2:24
  Speaker 1: make these pizzas every day. You could do a couple
• 2:27
  Speaker 1: of different things to do that. You could maybe train
• 2:30
  Speaker 1: your employees so they can make the pizzas faster and better.
• 2:34
  Speaker 1: Maybe you could raise wages for your workers. You can
• 2:37
  Speaker 1: attract more experienced pizza makers. Or maybe you could invest in,
• 2:42
  Speaker 1: you know, some kind of magical oven if it exists,
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  Speaker 1: so you can make your pizzas and maybe five minutes
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  Speaker 1: instead of twenty or twenty five minutes. So, Barry, you
• 2:52
  Speaker 1: used to teach at Berkeley, what would you write that
• 2:54
  Speaker 1: out of town? Fill in the blanks force here, I
• 3:03
  Speaker 1: guess I would always start with there are two measures
• 3:05
  Speaker 1: of productivity that are commonly used. I agree the output
• 3:10
  Speaker 1: per worker is a very standard one. I think it's
• 3:13
  Speaker 1: the most relevant one for workers because increases in productivity
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  Speaker 1: is what gives room for increasing your real wage, and
• 3:22
  Speaker 1: everybody wants to have a higher standard of living. The
• 3:25
  Speaker 1: key to that increases of labor productivity. But the one
• 3:29
  Speaker 1: thing you mentioned about how you can get it is
• 3:31
  Speaker 1: sort of two things. You can have technological innovations, or
• 3:36
  Speaker 1: you could simply substitute a lot of capital for the workers.
• 3:40
  Speaker 1: If you substitute capital for workers, and so you refer
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  Speaker 1: to that as total factor productivity, not just the output
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  Speaker 1: per worker, but the output of the combination of workers
• 3:49
  Speaker 1: and capital. Well, then capital has got to get a
• 3:53
  Speaker 1: share of that too, and so there's less left over,
• 3:57
  Speaker 1: so to speak to given the form of wage increases.
• 3:59
  Speaker 1: It's aims like technology, particularly in this digital age, is
• 4:03
  Speaker 1: advancing at a dizzying pace. Why have the recent numbers
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  Speaker 1: from the Department of Labor looked so ordinary? I think
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  Speaker 1: the reason is that technology is advancing at a dizzying pace,
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  Speaker 1: but it's trivial. It's people playing games on social networks
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  Speaker 1: and things like that. It's not comparable, for example, to
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  Speaker 1: the invention of the automobile, the invention of electric power airlines.
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  Speaker 1: So you're saying Snapchat, Twitter don't make people more productive
• 4:35
  Speaker 1: at work. That's right. It entertains people, but it doesn't
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  Speaker 1: have a great value in terms of output. And when
• 4:42
  Speaker 1: we're talking about productivity, we're talking about things that have value.
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  Speaker 1: So we have to take every innovation, so to speak,
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  Speaker 1: and value it by how much revenue is obtained from that.
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  Speaker 1: And most of these things are pretty trivial uses of
• 4:59
  Speaker 1: people's time. Him there are substitution in many respects. Advertisers
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  Speaker 1: used to assume you were on TV all the time
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  Speaker 1: and you sat around the directed their ads at you.
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  Speaker 1: Now they assume you're on Twitter or you're on Facebook.
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  Speaker 1: But that's not a major shift in output or a
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  Speaker 1: big increase that society gets from it. It doesn't raise
• 5:20
  Speaker 1: standard of livings. Particularly so somebody is sitting in Aloft
• 5:24
  Speaker 1: on the West Coast designing apps and they're getting paid
• 5:28
  Speaker 1: for it, no question about it. But you're saying, in yesteryear,
• 5:32
  Speaker 1: these people would have been working on the next super
• 5:35
  Speaker 1: type of semiconductor, something like that, something that would have
• 5:39
  Speaker 1: more value. If you think about the revolution of the computer,
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  Speaker 1: it just dramatically changed the way we worked. Offices were changed.
• 5:49
  Speaker 1: Twitter is little feeds of things that's sort of a substitute,
• 5:54
  Speaker 1: maybe for a snack. Because you would say, I don't
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  Speaker 1: see necessarily that social networks have great value in terms
• 6:02
  Speaker 1: of adding to GDP. We do include them. The problem
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  Speaker 1: is that we value them at quite a low level.
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  Speaker 1: So the increased activity of social networks we measure basically
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  Speaker 1: by how much the advertisers are willing to pay for it,
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  Speaker 1: but translate those incremental technological gains into the big issue
• 6:23
  Speaker 1: of the moment, which is how come pay roll growth
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  Speaker 1: of two hundred thousand plus a month isn't translating into
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  Speaker 1: significant wage gains. I think the fundamental reason for that
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  Speaker 1: is that productivity is not in a value sense of
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  Speaker 1: what firms do to produce things adding much output. So
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  Speaker 1: we have become a society where most of the job
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  Speaker 1: growth is in retail stores, restaurants, relatively low wage jobs,
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  Speaker 1: low skilled jobs that don't add a lot of output.
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  Speaker 1: Let's get an overview of what the trend in productivity
• 6:57
  Speaker 1: has been like for this expansion and how that compared
• 7:00
  Speaker 1: to previous expansions. And I want to sort of frame
• 7:02
  Speaker 1: it this way, as you know, we have some minor
• 7:06
  Speaker 1: market volativilty going on at the moment, and you know
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  Speaker 1: that's obviously a crisis in its own sort of way,
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  Speaker 1: maybe a short term one, but you know, a lot
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  Speaker 1: of things that I've read from economists they view productivity
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  Speaker 1: as a as a long term crisis of sorts. So
• 7:21
  Speaker 1: I was wondering if you could just put the whole
• 7:23
  Speaker 1: trend in context for us and tell us what it's
• 7:25
  Speaker 1: like our concern has been on that long term contest,
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  Speaker 1: it has slowed down. We came out of World War
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  Speaker 1: Two and the Great Depression with an enormous number of
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  Speaker 1: major innovations, and we spent basically up to the mid
• 7:39
  Speaker 1: nineteen seventies implementing those ideas, and there was a tremendous
• 7:43
  Speaker 1: expansion of American standards of living, and it showed up
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  Speaker 1: in productivity and in people's real incomes. Since nineteen seventy two,
• 7:52
  Speaker 1: then everything slowed down, and I think we'd have to
• 7:55
  Speaker 1: be honest, we're not too sure about why that happened,
• 7:58
  Speaker 1: despite a lot of studies to try. But then in
• 8:00
  Speaker 1: the nineteen nineties mid nineties, there's another big shot, the
• 8:04
  Speaker 1: Internet and all the technological innovations associated with communications and computers,
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  Speaker 1: and there was a big improvement. So the nineteen nineties
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  Speaker 1: was an era of very rapid growth and productivity, rapid
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  Speaker 1: growth in people's standard of living, lots of people got jobs.
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  Speaker 1: The bubble kind of burst. It probably stayed with us
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  Speaker 1: until the mid two thousand's, but for the last ten years,
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  Speaker 1: since about two thousand five, we have reverted back to
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  Speaker 1: that same old pokey growth and productivity that was from
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  Speaker 1: nineteen seventy two or so up to nineteen seventy five,
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  Speaker 1: the difference productivity was growing at about two and a
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  Speaker 1: half percent per year in the good times, and now
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  Speaker 1: it's growing a little over one. It's not like it
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  Speaker 1: doesn't exist, but it's about half the rate it used
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  Speaker 1: to be, and that means you're real incomes are going
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  Speaker 1: up much more slowly. And they is the problem ondly
• 9:02
  Speaker 1: one of perception. And we keep thinking, wow, if I
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  Speaker 1: think we could get back to the way things were
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  Speaker 1: in the nineties, But you seem to be saying that
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  Speaker 1: the nineties and the period that preceded that were an
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  Speaker 1: anomally and this actually is the normal. That's the big
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  Speaker 1: argument among economists. We haven't settled there. There is which
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  Speaker 1: which economists too think the nineteen nineties was just a
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  Speaker 1: brief bubble, as they put it, bound the burst, and
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  Speaker 1: we've now returned to the sort of sluggy no major innovations,
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  Speaker 1: the big ideas have been thought of, etcetera. And others
• 9:41
  Speaker 1: who are much more optimistic that there's been a little
• 9:43
  Speaker 1: pause because of the Great Recession shocked a lot of firms.
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  Speaker 1: They postponed their investment in new ideas, but it will
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  Speaker 1: come again, and so they point to things like robots,
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  Speaker 1: increased reliance on those forms of technologies that could be
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  Speaker 1: another big wave of productivity gains, which saw do you want.
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  Speaker 1: I hate to say that I chicken out and I'm
• 10:07
  Speaker 1: in the middle, but I think basically I'm with the
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  Speaker 1: pessimist on the whole. I do not see innovations of
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  Speaker 1: the magnitude that we used to observe. It is true, though,
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  Speaker 1: that they take a very long time to be fully
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  Speaker 1: introduced into the economy. We have an idea, but it
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  Speaker 1: will take decades. Like the computer existed for twenty to
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  Speaker 1: thirty years before it really began to have a big
• 10:31
  Speaker 1: effect on people's lives. So maybe three D printing or
• 10:35
  Speaker 1: the hyper loop could be artificial intelligence one of those
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  Speaker 1: things that's just taking a really long time to actually
• 10:42
  Speaker 1: get on the ground. Well, these are all buzzwords that
• 10:44
  Speaker 1: people throw around. I mean, what do you think they name?
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  Speaker 1: Really those ideas are going to improve things on but
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  Speaker 1: they're small. They're just not the magnitude and sweep. When
• 10:56
  Speaker 1: you think of what is our history composed of, the
• 10:59
  Speaker 1: invention of electricity just dramatically changes everything. Is anything happened
• 11:04
  Speaker 1: like that, and so I don't think recent events have
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  Speaker 1: been the big breakthroughs. I would argue, in fact, that
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  Speaker 1: we put so much restrictions on innovation as people try
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  Speaker 1: to capture it as rents, that it is much harder
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  Speaker 1: to come up with new ideas and implement them than
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  Speaker 1: they were in the past because everybody says, oh, that's mine,
• 11:26
  Speaker 1: you can't I patented it, and you try to. We
• 11:29
  Speaker 1: sue a great deal today just over that idea. So, Tory,
• 11:35
  Speaker 1: let's us step back a little bit, and you know,
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  Speaker 1: if you were talking to your uncle or maybe to
• 11:40
  Speaker 1: your friends, why should normal ordinary Americans care about this
• 11:46
  Speaker 1: nerdy statistic here on productivity? Why should they care that
• 11:49
  Speaker 1: this is slowing down? I think it goes back to
• 11:52
  Speaker 1: the point that Barry you mentioned earlier. A more productive
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  Speaker 1: worker has way more bargaining power when it comes to
• 11:58
  Speaker 1: their wages. I think, if you know, going back to
• 12:01
  Speaker 1: the pizza example, if you can show that you make
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  Speaker 1: five pizzas per hour and so and it only makes one,
• 12:08
  Speaker 1: why shouldn't you be paid more? But it's also this
• 12:11
  Speaker 1: idea that's hoping you could expand on a little bit
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  Speaker 1: of how productivity in the context of rising wages also
• 12:17
  Speaker 1: helps keep inflation and control. No, it's a big offset.
• 12:21
  Speaker 1: I mean, if if we don't have any productivity growth
• 12:23
  Speaker 1: and we just give wage increases, all they're going to
• 12:26
  Speaker 1: pass forward into higher prices and we'll be back into
• 12:29
  Speaker 1: the same problem we had decades ago of high inflation.
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  Speaker 1: So rapid productivity like in the nine nineties, it did
• 12:37
  Speaker 1: help hold down inflation. That's the big break. In fact,
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  Speaker 1: with the history of inflation and industrial countries, I would
• 12:44
  Speaker 1: argue it's gone so far that inflation is just not
• 12:47
  Speaker 1: a significant issue anymore most industrial societies. And we're worrying
• 12:53
  Speaker 1: about yesterday's problem. The much more fundamental one is that
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  Speaker 1: we are not getting these games and people standard up
• 13:00
  Speaker 1: living and actually living better for hour of work than
• 13:04
  Speaker 1: they used to in the past. You know. I read
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  Speaker 1: this incredible report that the White House released, um I
• 13:10
  Speaker 1: think it was earlier this year. They said that, uh,
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  Speaker 1: if productivity had been growing at the pace that it
• 13:16
  Speaker 1: was between nineteen and nineteen seventy three, um one, productivity
• 13:20
  Speaker 1: was going really quickly, the media and household in the
• 13:23
  Speaker 1: U S would be earning thirty thousand dollars more per year.
• 13:28
  Speaker 1: Thirty thousand I could buy a lot of really fancy bicycles.
• 13:31
  Speaker 1: With that, there is also the argument that a lot
• 13:36
  Speaker 1: of the innovation isn't being properly measured, and that's why
• 13:40
  Speaker 1: the productivity stats are coming in low. What do you
• 13:42
  Speaker 1: think of that argument. It's a problem. It's very hard
• 13:46
  Speaker 1: to evaluate how important it is. But with computers, for example,
• 13:51
  Speaker 1: the original difficulty was that we weren't capturing the productivity
• 13:55
  Speaker 1: growth and computers back in the early nineteen nineties, and
• 13:59
  Speaker 1: a lot of the ovation that we now point to
• 14:03
  Speaker 1: with communications and computers is because we devise better ways
• 14:08
  Speaker 1: to measure the technological change. And people worry that we're
• 14:14
  Speaker 1: not doing well on that, but I think we're very
• 14:17
  Speaker 1: aware of it. We spend a lot of more effort
• 14:19
  Speaker 1: by the statistical agencies to try to adjust for these things.
• 14:23
  Speaker 1: I think we do better than we did in the past.
• 14:27
  Speaker 1: So I'm not of a view that you can just
• 14:30
  Speaker 1: explain this away as a measurement problem. I think you
• 14:34
  Speaker 1: see it in the discontent of people about improvements in
• 14:38
  Speaker 1: their life standards. They do not think that there that
• 14:41
  Speaker 1: their real incomes are rising, and I think their perception
• 14:45
  Speaker 1: is correct. It's not just a measurement problem that you
• 14:47
  Speaker 1: can tell, oh, but you're really much more excited than
• 14:50
  Speaker 1: you realized over social networks. I don't think that that
• 14:54
  Speaker 1: can resolve this problem, but we have to grant that
• 14:59
  Speaker 1: really measuring technological change and incorporating it into the quality
• 15:05
  Speaker 1: of the product is extremely hard to do. Underlying all
• 15:09
  Speaker 1: the surveys of consumer sentiment that we've seen that show
• 15:14
  Speaker 1: people just don't feel as good as they used to.
• 15:17
  Speaker 1: It's all about productivity, do you think I think a
• 15:20
  Speaker 1: lot of it. I think the in society that the
• 15:23
  Speaker 1: people who do feel good about what's happened are the
• 15:26
  Speaker 1: people who have had big gains in their real incomes, uh,
• 15:29
  Speaker 1: the success stories, so to speak, and the people who
• 15:33
  Speaker 1: are discontent as the stagnation where life has been disappointing.
• 15:37
  Speaker 1: If you go to a country like say, take an
• 15:40
  Speaker 1: extreme example of China, there's just been an enormous expansion
• 15:44
  Speaker 1: that people standard of living and the things they enjoy.
• 15:47
  Speaker 1: They're not complaining about the lack of productivity growth. Their
• 15:50
  Speaker 1: life is getting better every day, and it's because they're
• 15:54
  Speaker 1: generating enormous improvements and productivity. It's easy to do because
• 15:59
  Speaker 1: all you have to do is copy. It's much harder
• 16:02
  Speaker 1: in the United States. We're at the technological frontier. So
• 16:06
  Speaker 1: you can't copy anybody anymore. You have to come up
• 16:09
  Speaker 1: with a new idea, and it's hard to do that.
• 16:12
  Speaker 1: Let's rewind back to the early nine nineties, when, if
• 16:18
  Speaker 1: memory serves, there was this debate that America was getting
• 16:22
  Speaker 1: left behind, that the nation's best days were in the past.
• 16:27
  Speaker 1: Japanese products were dominating, the Asian economic and business model
• 16:32
  Speaker 1: was on the rise, the West was in decline, and
• 16:36
  Speaker 1: little did we know it, but at precisely that point,
• 16:39
  Speaker 1: the next big technological way, the next big productivity boost,
• 16:44
  Speaker 1: was happening in garages, and not just garages on the
• 16:47
  Speaker 1: West coast. So how do we know that the next
• 16:51
  Speaker 1: big technological and productive spurt isn't already with us? And
• 16:55
  Speaker 1: we just can't see it. That's why we always have
• 16:58
  Speaker 1: to be a little doltful about any of our claims
• 17:01
  Speaker 1: about what's going to happen in the future. I think
• 17:04
  Speaker 1: your point is completely justifiable that if you went back
• 17:08
  Speaker 1: in the early nineteen nineties, we used to comment a
• 17:12
  Speaker 1: famous quote by an American economist, as you can see
• 17:15
  Speaker 1: the influence of computers everywhere except in productivity, and just
• 17:20
  Speaker 1: about the time he said it there was an explosion
• 17:22
  Speaker 1: of productivity. You know, I'm still trying to figure out, Barry,
• 17:27
  Speaker 1: whether you're an optimist or a pessimist. You've come close
• 17:30
  Speaker 1: to showing your hand at times in this broadcast. I think,
• 17:33
  Speaker 1: basically I'm a pessimist when it comes to the productivity.
• 17:38
  Speaker 1: I think we're moving away from being truly an innovative society.
• 17:42
  Speaker 1: Whereas you said, people came up with ideas in their garages,
• 17:47
  Speaker 1: and we're being captured by large enterprises that try to
• 17:51
  Speaker 1: claim everything is owned, and we're becoming a society that
• 17:55
  Speaker 1: we're running around seeking rents from everybody else in the
• 17:58
  Speaker 1: world rather than innovating, and I think that's discouraging for
• 18:02
  Speaker 1: the future. On that note, thank you so much, Barring.
• 18:08
  Speaker 1: In the meantime, you can find us on the Bloomberg
• 18:10
  Speaker 1: terminal Bloomberg dot com as well as on iTunes, and
• 18:14
  Speaker 1: while you're there, please please please take a moment to
• 18:16
  Speaker 1: rate the show that helps other listeners find us and
• 18:20
  Speaker 1: also tell us what you find. You can reach us
• 18:22
  Speaker 1: and follow us hopefully on Twitter at Dan Masty, scene,
• 18:26
  Speaker 1: at Tory Stillwell and at Aquito seven and until next time.
• 18:30
  Speaker 1: If you find yourself hankering for more economic analysis, see
• 18:34
  Speaker 1: your Bloomberg terminal, or visit us at www dot bloomberg
• 18:39
  Speaker 1: dot com. You're a really nice radio voice. Well, thank you.