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El populismo y la productividad

Jun 3, 2016 Nouriel Roubini

NUEVA YORK – Desde el estallido de la crisis financiera mundial en 2008, el crecimiento de la productividad en las economías avanzadas (Estados Unidos, Europa y Japón) ha sido muy lento, tanto en términos absolutos como en relación con las décadas anteriores. Esto se contradice con la idea que predomina en Silicon Valley y otros centros tecnológicos globales de que estamos entrando a una nueva edad dorada de la innovación que traerá consigo un enorme aumento de productividad y mejorará nuestras vidas y la forma en que trabajamos. ¿Por qué esas mejoras no han aparecido, y qué podría suceder si no aparecieran?

Hay al menos seis áreas donde son evidentes innovaciones revolucionarias:

· “E”: tecnologías energéticas, incluidas nuevas formas de combustibles fósiles como el petróleo y gas de esquisto, fuentes de energía alternativas como la eólica y la solar, tecnologías de almacenamiento, tecnologías limpias y redes eléctricas inteligentes;

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Nouriel Roubini

Writing for PS since 2007
150 Commentaries

Nouriel Roubini, Professor of Economics at New York University's Stern School of Business and Chairman of Roubini Macro Associates, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is NourielRoubini.com, and he is the host of NourielToday.com.

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Heriberto Arribas Jun 9, 2016

Productivity is a big word. It seems to be related to engineering but is a simple ratio between money spent on manufacturing and obtained from the sale. To illustrate usually keep the amount produced and reduce workers but will keep workers and double the amount produced. If the price stays productivity doubles. But if the unit price is half the total amount of money obtained it is the same. And productivity does not change although production is double.
On the other hand, it is necessary to distinguish local productivity, (company) of the total (company) .A company can increase productivity while maintaining the quantity produced and firing half of workers. But if these workers do not find another job production is not increased. But as these people decrease their consumption increases productivity. If lost wages were high, the effect will be greater, but with wages close to survival, the overall effect will be very small. Consumption can not lose a minimum society should contribute it, or let them die.

The definition of productivity is the relationship between expenses and earnings. I know, Ludd is not right but we can do a reasoning like Laffer. If he's right, what would evolution? At some point you reach the maximum, where productivity is zero. Then take negative values. In theory it would stop at zero. But as we have seen there are two productivities: social that could be negative but the company positive.
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M A J Jeyaseelan Jun 9, 2016

Unless we understand the essential differences between technological productivity and economic productivity, we would continue to use technological productivity in the wrong way i.e. in a way
that impinges on economic growth.

If we analyse the impact of information technology correctly, what would become clear is that its net contribution to economic productivity does not match the hype that is being made about it. I T is
being used the wrong way and its recent rapid growth is one of the key reasons for the global recession. I know it sounds like a ridiculous statement. But, if you understand the fundamentals of economic productivity, you will certainly ponder over what I am explaining below.

1) Applications like Twitter and Facebook are wasting the time of people by diverting time away from economically productive activities. These have negative impact on economic growth

2) Internet is resulting in extreme wasteful use of resources. There is too much redundancy. The web can be shrunk to at least half its size, if not more, by weeding out redundancy without affecting its economic and social values in any way. Redundant use of resources can never make any positive contribution to economic productivity.

3) IT applications such as ERP software and smart phones are being sold using premium pricing models with a view to mopping up maximum profits and overcoming the cost of rapid technological obsolescence. This leads to the drying up of demand for other regular goods.

Since economists do not understand the essential differences between economic and technological productivity they often use measures and analyses that mistake technological productivity for economic productivity. Most modern day economists invariably make this mistake as they have no clear understanding of what constitutes an economic phenomenon.

SAVE THE WORLD FROM PHONEY POLITICIANS AND LOONEY ECONOMISTS. Let us rewrite economics and de-link it from politics
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Per Kurowski Jun 7, 2016

Again it completely ignores the distortion in the allocation of bank credit to the real economy caused by the credit risk weighted capital requirements for banks. These have the banks refinancing the safer past and not financing the riskier future.

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html
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M A J Jeyaseelan Jun 7, 2016

Productivity is the only real key to growth and nothing else can bring about healthy growth in any economy.

People still remain blinded by the prosperity achieved by countries by STEALING growth from other economies. There was a time when the developed countries achieved high speed growth by plundering resources from poor countries. Now some emerging economies have managed to reverse the flow by taking away jobs from the developed countries. Recently oil exporting countries siphoned of growth from oil importing countries. Growth achieved with the help of beggar thy neighbour trade / investment policies can never be sustained for long. This would apply equally to the newly emerging economies. Unless the world learns the art and science of achieving productivity led growth (as opposed to trade/investment/credit led growth) there can never be sustainable economic growth anywhere.

SAVE THE WORLD FROM PHONEY POLITICIANS AND LOONEY ECONOMISTS. Let us rewrite economics and de-link it from politics

https://www.linkedin.com/pulse/20140718210034-17589031-healthy-vs-unhealthy-economic-growth
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Scott Morgan Jun 7, 2016

I like this opinion because it opens the door to honest and informed responses. It does so by avoiding politics. But by avoiding politics, it opens the door for political reasons for a lack of runaway growth in productivity. While I agree that the biggest reasons is the lag time between innovation and growth ... all other slumps can be attributed to REGULATIONS, UNIONS, POLITICAL MOVEMENTS, GOVERNMENT GREED AND OVER-REACH. First ET: of oil, nuclear, wind, solar, and coal, only oil is truly mobile, immediately usable -- yet damned, and this holds it back. (Along with breakthroughs that increase MPG.) The greatest source of lives improved and saved can be attributed to oil and coal raising standards of living. BT. Again, the AMA, FDA, and big Pharma block this, pure and simple, I know because I write books and films for these breakthroughs, all of them proving the toxic laws and regs imposed by these giants and EPA. IT. Mergers need to be made, off shore movement of employees and tax saving homes need to be allowed. The USA is home to this IT miracle, yet with our Prez putting the IP home of Internet up for grabs to Russia, et al, and his Comm Czar needing to limit expansion to keep gov control, it is stifled. MT. Again, Regs keep companies from advancing beyond a stage without Union/Gov getting a bribe. FT. The one arena most damaged by Gov overreach, greed, power trips, and blaming. The USA gov plans to nationalize banks, anyone with a global eye sees this, it'll happen this year. FT can't "do it's thing" under current fear and gov hamstring moves. DT. This one is only partly hobbled, with the true advancements being kept secret by government elites. I wrote a long work on banned weapons, including ones that are now admitted to being used. Government power trips played out of the WH, more than the Pentagon. What do I do about it? I just moved over $150 mil to Singapore where they ENCOURAGE innovation, reward growth and success, and do not tax a success to death. BTW, how hard will you work if you know the gov will take your invention from you and never let your children prosper from it? That is next year.
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David Smith Jun 6, 2016

My sense is that Rubini is too quick to dismiss the second explanation for "lack of evidence."

All the areas of exploding technological innovation Rubini cites (IT, manufacturing, finance, medical, defense, biotech, energy) have one thing in common: they deliver a helluva lot more bang for the buck than the device or service they replaced in the national GDP calculation and at lower prices in the bargain. Consider the price of computers, for example: huge increase in bang for fewer bucks. My first IBM desktop PC in 1980 cost $5,000 (around $15,000 in today’s money) and sported two 64k 5 ¼ inch floppies: one for applications, the other for data — a total memory of 128,000 bytes and no Internet. Today I pay $489 for a laptop with 8 gigabytes of RAM and 1 Terabyte of ROM, Quad core 1.8 Ghz processor, DVD Burner, HDMI, superspeed USB 3.0, dual speakers and Wifi to connect to the Internet where I can instantly access information for free. That’s a huge increase in productivity for the computer user at a tiny fraction of the price.

Productivity is the quotient (or ratio) of output divided by unit of labor. In macro terms, that’s measured as gross domestic product (GDP) divided by the number of workers. Given that workers in innovation-rich areas are producing better goods and services with lower price tags, it’s not surprising that the aggregate numerator (GDP) should expand slowly, dampening the ratio of GDP/workers, i.e. productivity.

The extraordinary, exponential decreases in the prices of tech-heavy goods and services, and equally astounding increases in their capabilities, if compared to past decades of technological innovation would provide the hard empirical evidence Rubini claims is missing. I doubt prior episodes of technological innovation have ever seen the equivalent of Moore’s Law (the number of transistors in a dense integrated circuit doubles approximately every two years). Many innovations, like CAT scans, MRIs or gaming technology, for example, produce outputs that were previously non-existent. How do you factor that into the productivity equation?

Bottom line: the conventional measure of productivity doubtlessly understates the increase in consumer wellbeing resulting from technological innovation.
Another factor dampening GDP growth (and therefore the ratio of GDP to workers) is the after effect of the financial crisis and Great Recession of 2008/2009. The crisis occurred as a result of the injudicious expansion of credit by lenders with too much money to lend — a consequence of rich people gathering up virtually all the fruits of economic growth. In the aftermath of the crisis, banks have tightened their lending standards and consumers have been more interested in paying off rather than taking on new debt. Consequently, the expansion of growth-fueling credit has slowed down considerably compared to what it was prior to the crisis, undermining the borrow-and-spend engine of GDP growth.
www.davidlsmith.com
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Paul Daley Jun 6, 2016

Roubini doesn't mention poorly functioning capital markets; ultra-low interest rates and artificially inflated asset prices make it impossible to distinguish good investments from bad. Central banks need to stop using asset markets as the sole channel for monetary stimulus. The little good they do is far out-weighed by the distortions they introduce.
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Jose araujo Jun 6, 2016

Yes, it’s evident to all that the problem we are facing nowadays is low productivity…. Now how blind do you have to be to believe in that?

Productivity is not growing because total product is constrained by demand. We are not consuming nor investing while the technology limits for production is getting further away.

Productivity isn’t the problem., the problem is people that have narrow views of the world and always think that the only way to grow is to lower wages to compensate for lower productivity, not realizing that by constraining demand you are only going to aggravate the problem.
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Richard Reynolds Jun 6, 2016

Perhaps there is a fith explanation. Not sure about elsewhere but in UK poor productivity is caused by combination of minimum wage + low wage top ups via state tax credits + almost unlimited supply of labour from EU countries. I suspect most businesses have therefore prefered the low risk option of meeting increased demand through more cheap, subsidised labour, then implement new technology or business innovation. It will be interesting to see if the rise in minimum wages to the National Living Wage will incentivise businesses to invest to keep their prices down and therefore raise productivity. If they raise their prices instead then we will see just how much people really value their subsidised coffees.
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de Lafayette Jun 6, 2016

THE CURSE OF GROWTH

Knee-jerking at the altar of Growth, are we, M. Nourini?

I would like to postulate that what the world needs most, and America is my prime candidate, is not more growth, but less Income Disparity given the growth (however meager) that we have. We can do better and we should be concentrating not upon the inanities of Silicon Valley (of which the denizens seem to live on some other planet) but the work-prospects of, say, Detroit.

Fifteen percent of the American population has been incarcerated below the Poverty Threshold since 1965 - and THAT economic fact is nothing for the nation to crow about. That 15% amounts to 50 million people, or the combined populations of California and Illinois combined!

Who could not give a damn about some kids in SV inventing the next Internet Thingamajig pursuing the dream of making a quick Megabuck.

America, and most of Europe, have (or should have) other growth priorities than pursuing the wealth-objectives of the 1Percenter class ...
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Michael Muoio Jun 5, 2016

What's your guess? Mine is--with weak growth CAPEX spending is a second choice to hiring more marginal employees as it is far easier to dismiss employees in the short run, than to endure a 20 year payback on new capital equipment. This seems to fit with our good employment statistics and profit erosion.
- Steve Hurst Jun 6, 2016
  
  @de Lafayette
  
  Robot software is already stripping out labour in the banking system, just to name one sector. As for hospital care, it has already been suggested major operations are enabled by shipping patients to cheap 3rd world locations, India was top pick for that at one stage. Felt to be a step too far politically, however if budgets get tight enough if as a patient you were told it was a choice of shipping out or a very long wait, maybe never, then what choice would you make. The concept of a universal wage - just rejected by ballot in Switzerland - is to try and deal with the forthcoming job problem, a way of addressing inequality; to try and address being born into debt and unemployment. Because if you are unemployed you are not going to be paying much debt down, which is one of the next big issues
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- de Lafayette Jun 6, 2016
  
  Automation in an economy that is already 60/70 percent services? How does that happen to effect in a major way job-prospects.
  
  If you will explain how automation of services displaces jobs, then OK. So, we have robots taking care of people in hospitals? That's not an idea that will appeal to most sick-people.
  
  Automated tellers are stupid enough as they are, but they do the job. Maybe we could automate High Finance?
  
  Let's just concentrate on getting enough of our kids into a Tertiary Education program that will allow them the skills/competencies to get employed. And it would help enormously if the kids did not have to graduate, as they do, with a debt-albatross around their necks of $30K to be paid. (Which I might add, never ever happens in Europe because postsecondary schooling is damn close to free, gratis and for nothing in most countries!)
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- Steve Hurst Jun 5, 2016
  
  @Micheal
  If you look it up I think you will find every recession is followed by automation, hence the jobless recovery syndrome or fear
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Mike Holly Jun 5, 2016

Productivity is limited because corrupt governments have used regulation to monopolize major industries and pick winners and losers for special interests, especially in finance, energy, health care, agriculture, telecommunications and manufacturing. Innovation in manufacturing has been slowed by moving to countries with lower labor and medical costs and weaker environmental laws.
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Keith Johnson Jun 5, 2016

You neglect the great sweep of history, economic geography and predatory nationalism: The futurological forecasts of Stanley Fisher (The New Global Economic Geography) and Angus Maddison (extensive work for the OECD) are sobering.

In 1900, the West (Western Europe, USA and ‘Western Offshoots’, i.e. Australia, New Zealand and Canada) held around 51.8 percent of World GDP. By 1950, this had risen to 56.8 percent but it fell to 46.8 percent in 1990 and 44.9 percent in 2001. It is estimated that it will have fallen to 33.2 percent by 2030. If you project this out to 2070, the share will have fallen below 20 percent.

And most Western innovations can be easily copied and appropriated thanks to globalism and the ruthless mercantilism practiced by China.

It is no wonder that many Westerners are fearful and confused, less well-off and less hopeful than they were - and therefore easy political prey to the establishment oligarchs who have thrived under Neo-liberal policies and who are using their wealth to subvert democratic institutions - and populists who promise revival and redistribution.
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Piero Thor Jun 5, 2016

you have forgotten 2 reasona, the most important of all.
1) market are saturated so revenues are stable even if the potential production could be higher (see i.e. the trend of capacity utilization in the longer term)
2) because labour productivity measure is falsificated by the great number of employee that do quite nothing of truly usefull, in many private businesses because if a BPR process would be really implemented they will become new transparent unemployment (i.e. less power of purchase and even less demand then now)
CONCLUSION : we have to wait greater and greater unemployment & debt default to be forced to leave to fly to the helicopter => this is only the beginning of the decline of the past/present form of capitalism..
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Ben Leet Jun 5, 2016

Bad distribution is a far more important problem than slow productivity gains. The Economic Policy Institute published a paper that showed the income of the 1% tripled over 30 years while the income of 99% increased by 19%. The price of housing, medical care, education have exceeded wage increases leaving little for households to spend or save. Edward Wolff reports that 50% of households own less than $10,000 in "non-house" assets (and 31% own zero), and that indicates poverty in my book. Another shortcoming of this essay is a failure to recognize the threat of global warming. Humanity may be extinct. Read what the NASA scientists are saying, what Lester Brown has been saying. Transferring energy sources is not an issue of productivity. The Populists are not against productivity. They are against misplaced priorities.
- Piero Thor Jun 5, 2016
  
  I agree.. but the STRUCTURAL market saturation = low productivity are the cause of the great inequality
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M A J Jeyaseelan Jun 5, 2016

There is no 'Productivity Puzzle' Mr. Roubini; there is only an utter lack of understanding of the very concept of 'economic productivity,' which is very different from
'technological productivity'

The time is not too far off, when everything in economics becomes only a puzzle because every economist is busy theorising without a proper understanding of the underlying 'economic phenomenon'. issues. Since there is no common agreement on what constitutes the 'economic phenomenon', there can never be a consistent understanding of anything in economics.

First, economic productivity must be measured in in 'net' terms. While technological advancements and innovations benefit its adopters, computation of economic productivity must take into account its net impact on the economy as a whole. Every technological advancement results in the destruction/disuse of previously created capital assets (real assets and not paper assets). Every capital asset has a shelf life and anything that is retired prematurely leaves a negative impact on overall economic productivity. Also technological productivity often minimises resource use leading to contraction in the demand for such resources. In addition, there is also the contraction in overall demand brought about by premium pricing policies adopted by some innovators. Given static incomes, a purchase of a smarter phone will certainly eat into the budget for buying other goods. There is an array of strategies that will need to be adopted to translate technological productivity into economic productivity. Unfortunately, continuing mismanagement of economies has only managed to destroy most of the growth potential created by technological advancements.

Second, economic productivity must be computed in terms of 'economic values' and not in terms of just physical output. Technologies enter economies in the form of machines, systems, products and services. Economic values depend not on the extent of their production but consumption. particularly the type of consumption. Rise in productivity can be turned into profits that get locked up in gold or paper assets or just squandered away. On the other hand, it can be reinvested. The latter process adds to economic values while the former destroys economic values. Also every technology asset has a shelf life and its contribution to economic productivity must be computed on life cycle basis.

Save the world from phoney politicians and their crony economists
- Bala Subramanian Jun 7, 2016
  
  M A J Jeyaseelan: Is there a source of reference that would enable the readers of your comment to understand the distinctions you have made? I am of the opinion that the paper currencies issued by the central banks/currency boards need to be aligned with the societal-productivity growths resulting from technological and sociological innovations of the past 20 centuries without which those instruments have become ineffective. If for example the US$ could be realigned to capture all of the 20 centuries of economic productivity by a factor of 1:100 (meaning 2016 penny equal to 2016 US$ along with all the other currencies of the rest of the world by the same factor)) then, it would enable all the global economies to successfully move forward. All debts could be repaid in full by the increased value of such newly aligned currencies and new investments could be made to employ the younger generations in new technological productivity endeavors.
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David Neunuebel Jun 5, 2016

"But if weak productivity growth persists – and with it subpar growth in wages and living standards – the recent populist backlash against free trade, globalization, migration, and market-oriented policies is likely to strengthen. Thus, advanced economies have a large stake in addressing the causes of the productivity slowdown before it jeopardizes social and political stability."

I find this last comment interesting and maybe confusing. Why would populist backlash to unfair policies jeopardize social and political stability, especially if it were populist.? Why is fair trade (as opposed, perhaps to "free" trade) something that would jeopardize our social and political health? Why would solving income inequality, expecally between men and women be a bad thing?
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Efrén Gutiérrez Jun 5, 2016

What about Circular Economy and Sharing Economy (Organizational Technology -OT)? Other breakthrough innovations area
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George Balella Jun 5, 2016

The technological innovations that improve productivity also take many people out of the labor force and cut over all wages. They also concentrate wealth at the top such that we see trillions of dollars stashed out of the economy for a rainy day. Seems to me we need to figure out how to get wages to grow along with productivity since our current global economics is failing in doing so.
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Henrik Petersen Jun 5, 2016

Cheap labor costs makes investment in new tech a bad idea. As long as there is cheap labor to be had in asia there is no reason to implement new cost cutting tech.
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Victor Morris Jun 4, 2016

In Alfred Tofflers book "The 3rd Wave" he predicted the changes we are beginning to see.
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Doug Huggins Jun 4, 2016

Project Syndicate claims it "...produces and delivers original, high-quality commentaries to a global audience." Is there an original thought in here that I missed, Mr Roubini?
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Philip George Jun 4, 2016

A simple reason is that although a lot of new innovative technologies exist firms are not investing in them. See the graph at https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=4Dcc showing net private domestic investment to GDP.

A more detailed explanation can be seen at http://www.philipji.com/item/2015-06-29/making-sense-of-the-productivity-puzzle
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Procyon Mukherjee Jun 4, 2016

Mr. Roubini, when the base has grown to such high levels in the developed world, it is only natural that percentage change is a wrong metric; going by absolute change, the developed economies are still growing at a higher absolute level than in the past.
- KC LOH Jun 5, 2016
  
  Excellent point!
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dan baur Jun 3, 2016

Just look at the productivity formula: https://en.wikipedia.org/wiki/Productivity#/media/File:Productivity_model.png

Prime suspects for lower productivity are trade/finance saturation, declining demographics, the increasing state bureaucracy, the cost of regulations (including min wage and nonsense such as sarbox and doddfrank).

From your list, it seems ET is canceled by higher taxes, IT and BT reduce demand, MT if offset by regulations and min wages, FT and DT have little impact.

Why don't you get one of your students to do the proper research? In addition productivity doesn't take into account the bureaucracy and unemployed/nonparticipating that produce nothing.
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Stephen Stanley Jun 3, 2016

Problem is that instead of creating jobs - employment at the consumer level that increases overall wealth and consumption - the following is happening: ET innovation is employing people producing solar cells and wind towers, sure, but once those things are produced and sold, only maintenance activities are required so a large number of jobs in oil and coal are replaced by a small number of jobs in the new energy sector. IT innovation is also displacing a large number of highly paid workers for a smaller number of lower paid ones, as is manufacturing technology. Financial technology seems bent on extracting rents rather than creating value, adding another destructive element into the vicious cycle of innovate-and-lay-off. I see the net result as a destabilization of the base of the economy - consumers - with net benefits, at least temporarily at the top of the economy. Carried to its illogical extreme, we see a lot of the poorly thought out dystopian science fiction scenarios of the last few years playing out.
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Steve Hurst Jun 3, 2016

'Breakthrough innovations..'

All of which focus on removing labour from activity

'... the view, prevailing in Silicon Valley and other global technology hubs, that we are entering a new golden era of innovation..'

Innovation which is predonimately digital and actually involves a small percentage of the population. Which is being advised by those involved as the answer, hardly uninterested opinion

Meanwhile income in real terms in the West has steadily dropped for some considerable time, decades, and measurably the middle class has shrunk in size in the US; and youth unemployment everywhere has tracked upwards. There are strata developing in society and mobility is dropping

Productivity is just a measurement so the question is does it mean anything, right now probably not much. I can't say I get excited about opinion from Silicone Valley when it appears they cannot see a world outside the Apple iPhone, do not understand far more people use Android phones and even more worldwide use dumbphones; and thats before we get onto other tech
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Petey Bee Jun 3, 2016

A good starting point.

On technology and productivity:
Consider process X or product X. New tool or tech makes it possible to do X with less skill, less resources, less capital, etc. Cost of X goes down. Same or greater amount of X is done with less economic activity. There may be situations where this results in negative growth, in economic terms. However, even if no other economic activity replaces what used to be the effort that went into X prior to new tech, there is still more free time that was created, which is a positive resource.

Conclusion: Growth, in economic terms, not automatically good.
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Colin Campbell Jun 3, 2016

Perhaps there is no demand, at least among those with money to spend, for increased productivity, and therefore no reason for productivity to increase. Isn't "surplus capacity" a relevant issue? Perhaps it will take either a shift of money to those who have none (on a scale never-before seen), or a massively destructive war (such as WWII) to bring demand back.
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