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Bingo. Measures of productivity got knocked down by massive inflation. Neither are measured directly, and they've negated each other. All we see is the shadow o

Bingo. Measures of productivity got knocked down by massive inflation. Neither are measured directly, and they've negated each other. All we see is the shadow on the wall of the cave and presto "low inflation and low productivity." The Mises Institute is a great place to start studying this: https://www.mises.org/ https://www.mises.org/. I learned the mainstream economics way in undergrad. It's absurd and so full of hubris. The reason being that the most prestigious institution for economists is the Federal Reserve and they're able to keep almost everyone in line. That and public scientists don't actually have to be rigorous to be successful without the teacher of the market (though there are wonderful exceptions to be sure!). What I'm thinking about is, how can I exploit this? We don't know when productivity is going to take a break and yield run away inflation. Central Banks are starting to deflate, so you have to figure we'll start hearing about massive productivity gains. Where is the most misallocated? Certainly Sillicon Valley to some degree. Student loans seem to be the largest single misallocation, but the government backs them. So I suppose the banks will be the first to feel it and then the government. If the banks feel it then I guess it'll flow through commercial paper and real estate. It's just not clear to me how to hedge yet, but it's something I'm thinking about.

spangry 10y ago
This is simply incorrect. From a theoretical standpoint, productivity is a volumetric measure (Outputs / Inputs). From a more practical standpoint, even if output is measured in dollar denominated terms, the methodology used to measure TFP/MFP minimise the effects of inflation on the calculated residual, primarily by: - also measuring inputs in these terms (e.g. wages paid to labour, rents paid to capital) - adjusting prices with reference to a selected base-year so that movements in MFP/TFP are comparable across years And empirically, what has been historically observed is actually the opposite of what you suggest: productivity and inflation are inversely correlated (i.e. periods of high inflation have show low productivity and vice-versa). Here's a paper from some absurd and hubristic mainstream economists on this issue: https://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-10.pdf https://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-10.... It's actually even more complicated than just this. But I can't really be bothered to get in to it. But good luck with that Mises Institute stuff.
- RA_Fisher 10y ago
  I used to "measure" productivity as part of expert witness testimony in U.S public utility rate cases, so I'm not ignorant of the difficulty of doing so (as you expand on). It's precisely that difficulty in calculation that I see as one clue among many that the optimization task the Fed attempts is not better than the market for money.

spangry 10y ago

This is simply incorrect. From a theoretical standpoint, productivity is a volumetric measure (Outputs / Inputs). From a more practical standpoint, even if output is measured in dollar denominated terms, the methodology used to measure TFP/MFP minimise the effects of inflation on the calculated residual, primarily by: - also measuring inputs in these terms (e.g. wages paid to labour, rents paid to capital) - adjusting prices with reference to a selected base-year so that movements in MFP/TFP are comparable across years And empirically, what has been historically observed is actually the opposite of what you suggest: productivity and inflation are inversely correlated (i.e. periods of high inflation have show low productivity and vice-versa). Here's a paper from some absurd and hubristic mainstream economists on this issue: https://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-10.pdf https://www.rba.gov.au/publications/rdp/2003/pdf/rdp2003-10.... It's actually even more complicated than just this. But I can't really be bothered to get in to it. But good luck with that Mises Institute stuff.

RA_Fisher 10y ago
I used to "measure" productivity as part of expert witness testimony in U.S public utility rate cases, so I'm not ignorant of the difficulty of doing so (as you expand on). It's precisely that difficulty in calculation that I see as one clue among many that the optimization task the Fed attempts is not better than the market for money.