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To: paul ross who wrote (38192)	8/2/1999 8:20:00 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 116753

Guess we can't trust Armstrong's accuracy with regard to gold.... :0) But I think he on to something with regard to Japan. Regards, Ron

To: paul ross who wrote (38192)	8/2/1999 8:37:00 AM
From: Rarebird	Read Replies (1) \| Respond to of 116753

Did the US have a productivity miracle? By Gerard Jackson No. 128, 2 - 8 August 1999 So many economic commentators consider the performance of the American economy so remarkable that they find themselves constantly struggling to conjure up ideas that can satisfactorily explain it. One notion that has gripped the thinking of many is that information technology has been so pervasive that it has permanently altered the structure of the economy, if not economic laws, giving birth to economic stabilisers that keep the economy on a steady inflation-free growth path. Therefore the country can thank IT for the low level of unemployment and the surge in productivity. Attractive as this view is it cannot pass muster as any kind of theory. Moreover, there is nothing at all miraculous about the American economy's recent performance, odd as that might appear to some considering all the hype they have read and heard. But hype is all it really amounts to. Unable to provide a theory these commentators have adopted a Panglossian attitude instead. Now I for one would never underestimate the extent to which what we loosely call IT will transform the American economy. On the other hand, basic economic analysis clearly demonstrates that IT is not responsible for America's alleged economic miracle or even its so-called productivity take-off. I think a closer look at productivity growth will neatly illustrate this point. Most people have jumped to the conclusion that productivity has been growing across the whole range of economic activities. This is not so. Robert Gordon of Northwestern University found that since 1995 more than 10 per cent of the rapid growth in productivity came from computer manufacturing, which only comprises about 1 per cent of the economy, while elsewhere is has been lacklustre to say the least. What one must, in my opinion, look at manufacturing productivity. (It is not generally realised the extent to which services depend on manufacturing, which also includes food processing.)1 If the IT enthusiasts were right then productivity in manufacturing would have leapt. This, as Gordon discovered, is simply not so. It has been suggested that though firms are wiring themselves up this is not producing additional output but only maintaining market share. That no evidence is supplied to support this argument is why it has little credibility. It also ignores the fact that the best way of expanding or even holding one's market share is to compete on price and quantity. And that mean investing in the means of production, not fancy web sites. Let me make it clear that we are talking about physical productivity per worker. No economist disputes the fact that giving workers more efficient tools raises their productivity. This is why a man with a bulldozer is more productive than a man with a shovel and a wheelbarrow. One of the Austrians important contributions to economic theory is production structure analysis. They stress that production takes place in stages. The more advanced an economy the greater the complexity and number of stages. It therefore follows that so long as per capita investment exceeds the growth in the labour force productivity will rise as will real wages. It also follows that if investment lags behind population growth real wages and productivity will fall. What would cause such a lag is a fall in savings. This leads me to suggest that America's abysmal savings performance is making itself felt. None of this means that productivity in particular production processes cannot rise, only that a general rise in productivity will not occur. So even as American savings have virtually collapsed productivity in computer manufacturing has risen. This indicates to me that insufficient savings are available for the rest of the economy, otherwise other manufacturing processes would have experienced productivity increases.2 As we can see, there is no miracle in America's productivity record. As for the country's employment record. This is a testament to its flexible labour markets that allows labour costs to adjust to market conditions. It has nothing to do with IT investment. newaus.com.au