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Labor Productivity measurement depends on GDP, so it suffers from classic GDP mismeasurement error. GDP only measures $, not value, so it fails to measure techn

by gohrt 10y ago

Labor Productivity measurement depends on GDP, so it suffers from classic GDP mismeasurement error. GDP only measures $, not value, so it fails to measure technological improvements in a competitive industry -- so it utterly fails to measure productivity (hence the charts showing that labor productivity growth is always tiny). Your computer today costs $1000, but it's 1000x more useful and more complex than that $2000 computer of 30 years ago. In GDP / Labor Productivity terms, though, it's value hasn't changed at all -- in fact, it's DECREASED, since your new computer costs less than the old computer!

lkrubner 10y ago
You are completely wrong here: "In GDP / Labor Productivity terms, though, it's value hasn't changed at all -- in fact, it's DECREASED, since your new computer costs less than the old computer!" At least in the USA, the government does adjust for the increasing power of computers. Indeed, that is one of the arguments that productivity is really lower than what the government says (and therefore inflation is higher). Consider this article: https://growthecon.com/blog/Manufacturing/ https://growthecon.com/blog/Manufacturing/ It sets out to debunk this claim: … the numbers are skewed by huge gains in real output in computer and electronics manufacturing that mainly reflect quality adjustments made by government statisticians, not increases in real-world sales. But in fact, the author points out that it is altogether appropriate for the government to make those adjustments: "Multi-factor productivity is simply a ratio of value-added to an index of inputs. Value-added in the manufacturing sector is a mesure of the economic value of all the goods produced. Not the physical number, the economic value. And hence manufacturing MFP is a measure of how much economic value that sector produces - not the physical number of goods - per unit of input used." And even with those adjustments, productivity growth in the USA has been weak. If you were to remove the quality adjustments that the USA government makes to the computer and consumer electronics sector, then productivity has been even worse, and inflation much higher, and growth even weaker, than what we typically think.

by gohrt 10y ago

lkrubner 10y ago

You are completely wrong here: "In GDP / Labor Productivity terms, though, it's value hasn't changed at all -- in fact, it's DECREASED, since your new computer costs less than the old computer!" At least in the USA, the government does adjust for the increasing power of computers. Indeed, that is one of the arguments that productivity is really lower than what the government says (and therefore inflation is higher). Consider this article: https://growthecon.com/blog/Manufacturing/ https://growthecon.com/blog/Manufacturing/ It sets out to debunk this claim: … the numbers are skewed by huge gains in real output in computer and electronics manufacturing that mainly reflect quality adjustments made by government statisticians, not increases in real-world sales. But in fact, the author points out that it is altogether appropriate for the government to make those adjustments: "Multi-factor productivity is simply a ratio of value-added to an index of inputs. Value-added in the manufacturing sector is a mesure of the economic value of all the goods produced. Not the physical number, the economic value. And hence manufacturing MFP is a measure of how much economic value that sector produces - not the physical number of goods - per unit of input used." And even with those adjustments, productivity growth in the USA has been weak. If you were to remove the quality adjustments that the USA government makes to the computer and consumer electronics sector, then productivity has been even worse, and inflation much higher, and growth even weaker, than what we typically think.