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Productivity growth gets the most discussion: > But the most important piece of data against Yang’s thesis is slow productivity growth. If companies are adding

by aazaa 7y ago

Productivity growth gets the most discussion: > But the most important piece of data against Yang’s thesis is slow productivity growth. If companies are adding robots, AI algorithms or other automation to their production processes, it should show up as accelerating productivity. But labor productivity growth has slowed to a crawl since 2010... The article presents a graph going back to 1980 in which productivity spikes as high as 4% but hasn't broken that level since 2010. Two points: 1. Productivity, as measured by the government, could be a lagging indicator, as Yang notes and the article doesn't address. 2. Productivity growth (as seen in the chart) spikes after recessions. This could be because underperformers get fired during recessions. There hasn't been a recession since 2009. No recession means no pressure to cull the workforce. Are there any forward-looking measurements of productivity?

wahern 7y ago
It's not just productivity that hasn't grown, it's also investment. Here's a graph plotting net capital formation and net share buybacks back to 1960: https://americanaffairsjournal.org/wp-content/uploads/2018/12/Share-Buybacks-768x451.jpg https://americanaffairsjournal.org/wp-content/uploads/2018/1... (article at https://americanaffairsjournal.org/2018/12/share-buybacks-and-the-contradictions-of-shareholder-capitalism/ https://americanaffairsjournal.org/2018/12/share-buybacks-an...) Share buybacks crossed investment earlier this decade, the former on a 60-year uptrend and the latter on a 60-year downtrend. We would expect investment to track productivity growth, and it apparently does, which suggests productivity growth is trending down, rather than simply being hidden or lagging.
- aazaa 7y ago
  I didn't read the article, but a quick scan showed no mention of "interest rate" or quantitative easing. I'd be wary of any discussion of buybacks that didn't mention that the price of money has been kept artificially low for a long time now.
  - wahern 7y ago
    Sure, money is cheap. So cheap, in fact, that companies are borrowing money to fund buybacks. But that begs the questions--if you're not only using free cash for buybacks, but borrowing cash for buybacks, then what does that say about capital investment opportunities and the willingness of private investors to pursue them? Maybe there's just so much free cash that companies can keep investing normally while also doing buybacks. But few people would deny that America has a serious infrastructure problem, both in maintaining our existing infrastructure, and failing to meet demands for new infrastructure. So there are plenty of investment opportunities--to the extent public infrastructure could maintain and boost productivity--and nobody is disputing that these opportunities aren't being pursued. The question is, how do we direct that cash to fund those capital improvements? The old argument was that share buybacks returned money to shareholders, who are better capable, writ large, of discovering new investment opportunities. But they're not. All we're seeing are more buybacks and more cash accumulation. Investors aren't investing, they're just cashing out, which because there has been so much cash floating around[1] has become a persistent trend rather than cyclical. [1] IMO more because of global industrialization, not because of injection of dollars by the Fed. Reduced capital investment is a global trend. Because of the structural position of the U.S. in the global economy, much of that cash is funneled to the U.S., at least for the time being.
  - perl4ever 7y ago
    How can you say it's artificially low without inflation? Relative to what? Interest rates are low historically in the US, but haven't they been conspicuously higher than in much of the developed world?

by aazaa 7y ago

wahern 7y ago

It's not just productivity that hasn't grown, it's also investment. Here's a graph plotting net capital formation and net share buybacks back to 1960: https://americanaffairsjournal.org/wp-content/uploads/2018/12/Share-Buybacks-768x451.jpg https://americanaffairsjournal.org/wp-content/uploads/2018/1... (article at https://americanaffairsjournal.org/2018/12/share-buybacks-and-the-contradictions-of-shareholder-capitalism/ https://americanaffairsjournal.org/2018/12/share-buybacks-an...) Share buybacks crossed investment earlier this decade, the former on a 60-year uptrend and the latter on a 60-year downtrend. We would expect investment to track productivity growth, and it apparently does, which suggests productivity growth is trending down, rather than simply being hidden or lagging.

aazaa 7y ago
I didn't read the article, but a quick scan showed no mention of "interest rate" or quantitative easing. I'd be wary of any discussion of buybacks that didn't mention that the price of money has been kept artificially low for a long time now.
- wahern 7y ago
  Sure, money is cheap. So cheap, in fact, that companies are borrowing money to fund buybacks. But that begs the questions--if you're not only using free cash for buybacks, but borrowing cash for buybacks, then what does that say about capital investment opportunities and the willingness of private investors to pursue them? Maybe there's just so much free cash that companies can keep investing normally while also doing buybacks. But few people would deny that America has a serious infrastructure problem, both in maintaining our existing infrastructure, and failing to meet demands for new infrastructure. So there are plenty of investment opportunities--to the extent public infrastructure could maintain and boost productivity--and nobody is disputing that these opportunities aren't being pursued. The question is, how do we direct that cash to fund those capital improvements? The old argument was that share buybacks returned money to shareholders, who are better capable, writ large, of discovering new investment opportunities. But they're not. All we're seeing are more buybacks and more cash accumulation. Investors aren't investing, they're just cashing out, which because there has been so much cash floating around[1] has become a persistent trend rather than cyclical. [1] IMO more because of global industrialization, not because of injection of dollars by the Fed. Reduced capital investment is a global trend. Because of the structural position of the U.S. in the global economy, much of that cash is funneled to the U.S., at least for the time being.
- perl4ever 7y ago
  How can you say it's artificially low without inflation? Relative to what? Interest rates are low historically in the US, but haven't they been conspicuously higher than in much of the developed world?