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November 30, 2003

Is Growth Real III?

Steve Roach, chief economist at Morgan Stanley, is almost the designated head of the skeptics of the "New Economy" and in this oped, he summarizes his view that the economic statistics showing massive productivity gains are bunk.

Essentially, his argument is that folks aren't producing more stuff each hour-- the statisticians are just missing a lot of work time:

For example, in financial services, the Labor Department tells us that the average workweek has been unchanged, at 35.5 hours, since 1988. That's patently absurd. Courtesy of a profusion of portable information appliances (laptops, cell phones, personal digital assistants, etc.), along with near ubiquitous connectivity (hard-wired and now increasingly wireless), most information workers can toil around the clock. The official data don't come close to capturing this cultural shift.

As a result, we are woefully underestimating the time actually spent on the job. It follows, therefore, that we are equally guilty of overestimating white-collar productivity. Productivity is not about working longer. It's about getting more value from each unit of work time. The official productivity numbers are, in effect, mistaking work time for leisure time.

And to the extent that "growth" means firing some people and making the rest work longer hours, it's a dead end strategy that will exhaust itself quickly:

When better earnings stem from cost cutting (and the jobless recovery that engenders), there are limits to future improvements in productivity. Strategies that rely primarily on cost cutting will lead eventually to "hollow" companies — businesses that have been stripped bare of once valuable labor. That's hardly the way to sustained prosperity...

With cost cutting still the credo and workers starting to reach physical limits, America's so-called productivity renaissance may be over before Americans even have a chance to enjoy it.

Also, read "The Unemployment Myth" for how much the unemployment stats miss people who are not working-- especially those now receiving disability payments and not counted.

Posted by Nathan at November 30, 2003 10:14 AM