from the Greider article--perhaps why Greenspan needs hedonic accounting???>>
In other words, the turning point that Woodward and others have lovingly described was, in fact, an inevitability that Greenspan could not escape. If he didn't change policy and relent, he was going to commit a monumental error--the kind of mistake that would put him in the history books not as saint but as blind fool. The chairman needed to find an acceptable rationale for relaxing the Fed's restraint--one that did not require him to trash orthodox principles. Miracle of miracles, he hit upon the talisman of productivity, and it's good that he did. But the motivation, I suggest, included a strong dose of old-fashioned fear.
The heroic version of Greenspan's brilliant discovery is already quite tattered. A growing circle of economists and other critics has been punching holes in his analysis--the supposed productivity miracle created by New Economy hardware--and they started well before tech stocks swooned. John Cassidy in the November 27 New Yorker gave a lucid tour of the statistical jokers in Greenspan's deck. He pointed out that if Germany adopted the same dubious accounting methods the United States started using in the 1990s, it could claim a productivity miracle too. Others note that the miracle may belong to Asia and other foreign producers, since computers and components are largely manufactured abroad.
In truth, productivity is a kind of "black box" in economic thought--a measure with manifold meanings that can be invoked to scold the work force or to claim a company's improved efficiencies. In practice, the gains can be achieved just as readily by suppressing labor costs--less spent for workers' input means greater productivity in the output. The investment boom was real, but the labor factor--getting more from workers without paying them for it--is centrally implicated in the miracle Greenspan attributes to technological innovation. For instance, economist David Friedman, senior fellow at the New America Foundation, cites a Fed study showing that the use of temp workers doubled in manufacturing during the 1990s. The practice of mandatory overtime is now commonplace, since it's much cheaper than hiring additional workers. Corporate restructuring dumped boatloads of expensive white-collar employees.
If the rise in productivity is real, it was accomplished at the expense of the work force. In conventional economic theory, workers are supposed to gain wage increases in step with employers' rising productivity (and only then are they supposed to expect it). But wage earners have not been rewarded. Their increases remained quite modest, even tepid, during this boom--sustaining long-term inequity, further widening income inequalities. While manufacturing productivity has been growing at 5 percent a year or more, real wage growth has averaged only 0.3 percent, according to Friedman. This gap between rising wages and rising productivity is now the widest in forty years, he observed. Anyway, since Greenspan began slowing things, trying to restore his 2 by 2 economy, the growth in real wages has stopped. The boom was already over last spring for many folks, and if they haven't paid off their credit cards, they are headed for trouble.
The subject cries out for critical public argument: Was productivity boosted by New Economy innovations, or was it mainly extracted from the work force--the practice that in the olden days, before computers, was described as "sweating" it out of the workers? This is not an esoteric matter for scholars alone but a pivotal political question for establishing a different economic policy direction. When the boom is over, should government keep on favoring capital or start supporting the wage earners? If this country had an alert, focused political party (alas, it doesn't), it would launch its own spirited examination. At least it wouldn't leave the inquiry to the Fed, which is anything but disinterested in protecting its own reputation. Last July I got a phone call from Bob Woodward, who said he was at work on a book about Greenspan and asked what I thought of him. Bob seemed startled to learn I was not on board for the celebration. |
