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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (14313)10/29/2004 5:12:22 PM
From: GraceZ  Read Replies (3) of 116555
 
I believe this statement to be idiotic. It is higher productivity rates that leads to the need for fewer workers and leads to less money in the hands of workers and more competition for jobs etc. Ultimately this is what the FED needs to understand.

Nope. What you express here has been expressed since the beginning of the industrial revolution and it has been proven over and over to be dead wrong. Rising levels of productivity ultimately lead to higher aggregate wealth, increases in income, expanding markets and rising standards of living as well as a greater value being placed on capital (money, capital goods, raw materials, knowledge and human capital).

Consider if we take the inverse of the statement and say, falling productivity leads to higher incomes and increases in wealth. You know this to be false so why do you think the inverse is true?

From John Steel Gordon about the productivity boost that occurred subsequent to the invention of the sewing machine:

Singer's sewing machine was an immediate hit. It is not hard to see why. A shirt that took a seamstress fourteen hours and twenty-six minutes to sew by hand could be produced in one hour and sixteen minutes with the new machine. Many clothing workers (there were an estimated 5,000 shirt makers in New York alone in 1853) feared for their livelihoods at first. But, as usual with laborsaving devices, the effect of the sewing machine was to enlarge their business, not to destroy it. As the price of ready-made clothes dropped, the increasing market for them made up for it many times over, one of the fundamental reasons capitalism has made the world a richer place.
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