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https://bankunderground.co.uk/2016/11/17/there-are-two-productivity-puzzles/

Apparently the "Big Brains" at the BoE - the Bank’s Structural Economic Analysis Division - are thinking about the productivity puzzles... 

The puzzles are: 

1) Why did productivity not return after the big shock of the crisis passed

2) Why has productivity been growing so slowly recently

Productivity isnt something I fully understand, in so far as the way its measured and what it ultimately represents (or is intended to represent). You might say its a puzzle to me completely.

 

Anyone willing to provide as simple as explanation as possible on what it is/represents, and what the view is from HPC on the above puzzles?

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Productivity requires investment. Britain just doesn't invest as most firms can just increases the hours for a few people to make up the shortfall.

The only way to increase productivity is to remove the availability of cheap labour to encourage investment and thinking. That's probably not required though as while the Government claims record employment we don't know how much of that is full time work and how much of it is part time work where there is the capacity for productivity issues to be fixed by just giving their minimum wage workers a few more hours.

Edited by eek

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The BOE are bankrupt both in action and thought.

The BOE are pro migrant labour, the same labour that is used to get around that oh so difficult task of investing wisely in automation and efficiency improvements. So it is not only something they have trouble understanding they are also a chief promoter of the problem itself.

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May be that capital allocation is focused on equity investments and buybacks, diverting from investment in technology and thereby causing tech-based growth to decline, and equally diverting from investment in business activities, causing capital allocations to be reflected mainly in the FTSE bubble.

Another factor could be excessive dependence on the financial services sector, which having been restricted by post-crisis regulatory reform is unable to increase its share of the underlying real economic productivity at its pre-crisis rate, and on property, which couldn't meet pre-crisis productivity levels due to the problems in the financial sector, i.e. the house of cards is too fragile to support an extension.

The puzzles seem to lead back to the questionable assumption that consumers have a negligible impact on productivity. If wages are stagnant, external market share is stagnant and innovation is stagnant, why would there be any expectation of increased, or even sustained, productivity? In essence, they're asking why an unsustainable economic model is revealing itself to be unsustainable.

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Perhaps if workers could afford appropriate housing close to their jobs, they would put more effort in. Commutes of an hour plus to and from cramped accommodation isn't exactly a great recipe for being motivated at work. Anyone at the BoE think of that?

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1 hour ago, darkmarket said:

May be that capital allocation is focused on equity investments and buybacks, diverting from investment in technology and thereby causing tech-based growth to decline, and equally diverting from investment in business activities, causing capital allocations to be reflected mainly in the FTSE bubble.

Another factor could be excessive dependence on the financial services sector, which having been restricted by post-crisis regulatory reform is unable to increase its share of the underlying real economic productivity at its pre-crisis rate, and on property, which couldn't meet pre-crisis productivity levels due to the problems in the financial sector, i.e. the house of cards is too fragile to support an extension.

The puzzles seem to lead back to the questionable assumption that consumers have a negligible impact on productivity. If wages are stagnant, external market share is stagnant and innovation is stagnant, why would there be any expectation of increased, or even sustained, productivity? In essence, they're asking why an unsustainable economic model is revealing itself to be unsustainable.

thanks darkmarket - makes sense why productivity would be flat

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I lean towards the lack of investment in efficient capital.  A lot of this problem stems from weak British Management skills and the wrong sort of people in management.

Too many managers in the U.K. are drawn from non technical subjects, so when asked to improve some metric or other they invest everything in micro management of people, instead of understanding how to use technology to drive efficiency and improve working conditions. As said it is easier to slap in a few more man hours and not have to apply your brain.

Right now there is a huge opportunity to apply Operational Technology and sensors to improve everything from bin collection and fixing pot holes, to vehicle maintenance and right through things like to improving factory production efficiency and agricultural yields.

Some of my customers have saved £millions per year by automating ; and it's these recurring savings and efficiencies that really move companies and the whole economy forwards.

But then you only have to look at our own Government to see the general level of cr@pness in terms of managing technology. And it is fair to say 90% of our firms are just as bad including the big Systems Integrators.

My advice would be to slim down the old school management, flatten the overall business structure and employ a really good CDO/CTO who is capable of abdorbing constructive feedback from the shop floor. And instead of fixating on driving down labour cost by turning the thumb screws, look instead at how you can either eliminate or automate processes with a view to not overworking staff and perhaps trimming numbers where necessary.

The trouble is this seems to be ingrained in UK culture it's been a problem for a long time and will persist. Everyone goes on about Millennials being digital natives, but in 99% of cases  all that means is that they know how to use Snapchat. Only about 1% seem to really get the technology and of that 1% probably only 10% have the people management skills.

Basically we need to be hiring the right managers and sometimes this means promoting a good tech away from doing purely technical things. Unfortunately too many firms worry that they'll lose technical capability if they do this and so promote the useless management studies person instead. Whereas if they had promoted the right tech guy, he'd see to it that the team and his replacement were properly trained.

 

 

 

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Ah but the paradox is that in the quest for more efficiencies, this self feeds into more efficiencies, and a generally lower level of activity. The current innovations don't come from new inventions that people go out and buy, which create more jobs, but apps, that automate processes and remove jobs. This is the rubicon, and there is no turning back. I believe tech savy Japan was way ahead of us, and they crossed their rubicon 20-30 years ago, and their many years of economic stagnation is the consequence.

Let's take music for example. Before digital downloads, people would physically leave the house, and go buy an album.

This employed people in transport.

This employed people in shops. Did you know there used to be shops in every town that just sold music!

This employed people making the cassette tapes, and testing.

This employed people in transporting the cassettes, warehousing, management etc.

This employed people in making Hi-Fi equipment, because the moving parts wear out.

This inspired young people to go out and get together to create music to be the next stars of Top of the Pops. And so on...

 

It's the same with banking, bill payment etc. People would go into the high street to buy their music, pay their bills, by going to the bank or the Guildhall. People are employed to handle the cheques, count the money by hand etc. They would then buy other stuff, go to the pub, etc. All this is now at much lower level. And it's not coming back for the foreseeable future. Even with mass immigration or organic population growth, the end effect is still much lower.

I hypothesize, If 80 people in 100 went to the bank to pay their bills before 1980, then maybe 3 in 100 do so today in 2016. If you increased the population by 2, to 200, then only 6 people go to the bank. So even doubling the population will never compensate for the structural change.

I can only see productivity increases, not by driving efficiencies, but driving activity in the physical world. Building roads, knocking down buildings and rebuilding new structures, infrastructure replacement, driving tourism, sports events/entertainment. In fact in a digital world, we need to see such projects increased by 100 to 1000 fold just to stand still. Sure, it's digging a hole, and refilling it again. But it is better than digitally drawing a hole and rubbing it out again. But then the environment suffers - economic growth or environmental protection?

If you can work from home, you in theory can now "never" leave the house. You can have everything delivered once per month, have your bills automatically paid, and all your entertainment, and news streamed through a internet cable. In the new world, nobody wants to pay for anything either. Youtubes subscription service has never taken off.

---

What have been the recent IPOs? Snapchat, Facebook, Twitter, Linkedin etc? Who needs pen and paper, these days?

---

The other short term option is war.

 

Puzzle solved, now where's my fee.

Edited by 200p

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All central bank policy is about driving low rates of borrowing - this just goes to the "safest" asset classes, such as property. Perhaps they should issue money that cannot be spent on assets rather than going into negative rates. This creates a two tier level of money, and with the invention of bitcoin this could be possible.  This forces people with excess saved labour (which is what savings is) to spend it on consumables - going on holiday, buying new things, clothes, cars gadgets etc.

Creating money that cannot be spent on assets... you heard it here first.

Edited by 200p

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My take on productivity is simple.  workers have been treated like sh!t for the last 20-30 years.  This has speeded up since the crash of 2008.  The main things visited on workers are:

  • reduction, or at best stagnation of wages
  • reduced contractural rights at work, e.g. Zero hour contracts, short term contracts, less than full-time hours, which does not suit everyone 
  • lack of promotion. Progression and recognition 
  • increase in retirement age, significantly for women
  • Fringe benefits gone from many workplaces, such as subsidised canteens, Christmas parties etc
  • very poor and clueless management 
  • watching others play the benefits game and seemingly better off than those in work
  • not being able to afford a home

i bet most (I am) are looking round thinking feck it, I'm going to do as little as possible. 

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Lack of investment, banks no longer lend to business they lend to purchase property, something only the building societies did.....when people have what they need why would they need or want more when they do not have the income to buy anything that does not add value to their life...stagnant real wages, and yes technology means you do not have to go out.....one way productivity can increase is by forced policy, red tape and bureaucracy. For example, force people or see that in their best interest to buy new boilers, smart metres, electric cars, push bikes etc...much productivity can be made off the back of climate change, productivity can be made by throw away white goods in a throw away world, which is a contradiction in itself.....;)

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1 hour ago, One-percent said:

My take on productivity is simple.  workers have been treated like sh!t for the last 20-30 years.  This has speeded up since the crash of 2008.  The main things visited on workers are:

  • reduction, or at best stagnation of wages
  • reduced contractural rights at work, e.g. Zero hour contracts, short term contracts, less than full-time hours, which does not suit everyone 
  • lack of promotion. Progression and recognition 
  • increase in retirement age, significantly for women
  • Fringe benefits gone from many workplaces, such as subsidised canteens, Christmas parties etc
  • very poor and clueless management 
  • watching others play the benefits game and seemingly better off than those in work
  • not being able to afford a home

i bet most (I am) are looking round thinking feck it, I'm going to do as little as possible. 

Yup. It's pretty amazing this is considered a puzzle at all.

The gig economy: does anybody think that someone who gets a phone call at 8am asking them to come in to work for a couple of hours is going to acheive much in that couple of hours? They've probably not seen their colleagues for 3 days and spend 30 mins just catching up on gossip.

The sharing economy: Consumption efficiency (you heard it here first). Technology does not only create productivity. Any model that assumes it does is going to fail. The example of music downloads another poster talked about fits in here for not just the reasons given but that, legal or not, digital music is more easily shared. 

Investment: It's more complex than this, but since it's HPC: A house price bubble is never going to help allocation of capital towards productive investment. The "wealth effect" can only be temporary before a drag on the economy starts to hurt productivity, and the same goes for any non-productive asset. When the price of gold increases, you know something is going to go wrong.

The last 8 years has been an absolute total f*ckup. It's unbelievable the extent to which creative destruction has been subverted just to keep the plates spinning. Central banks have done way more harm than they have good. It doesn't matter how amplified the cycle becomes - it's cyclical nature cannot be defied, it's human nature. 

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20 minutes ago, Digsby said:

Yup. It's pretty amazing this is considered a puzzle at all.

The gig economy: does anybody think that someone who gets a phone call at 8am asking them to come in to work for a couple of hours is going to acheive much in that couple of hours? They've probably not seen their colleagues for 3 days and spend 30 mins just catching up on gossip.

The sharing economy: Consumption efficiency (you heard it here first). Technology does not only create productivity. Any model that assumes it does is going to fail. The example of music downloads another poster talked about fits in here for not just the reasons given but that, legal or not, digital music is more easily shared. 

Investment: It's more complex than this, but since it's HPC: A house price bubble is never going to help allocation of capital towards productive investment. The "wealth effect" can only be temporary before a drag on the economy starts to hurt productivity, and the same goes for any non-productive asset. When the price of gold increases, you know something is going to go wrong.

The last 8 years has been an absolute total f*ckup. It's unbelievable the extent to which creative destruction has been subverted just to keep the plates spinning. Central banks have done way more harm than they have good. It doesn't matter how amplified the cycle becomes - it's cyclical nature cannot be defied, it's human nature. 

Good analysis 

 

re your second para, the gig economy, sounds like dockers in years gone by. Turn up at the gates "we'll have you, you, and you.  The rest of you come back tomorrow ". Calling it a gig economy does not hide the exploitation. 

 

Re your last para, it has speeded up over the last eight years, and forgive me for this, but it started with thatcher and Reagan in America, deregulating and setting free the "free market" which is anything but. 

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27 minutes ago, winkie said:

Lack of investment, banks no longer lend to business they lend to purchase property, something only the building societies did.....when people have what they need why would they need or want more when they do not have the income to buy anything that does not add value to their life...stagnant real wages, and yes technology means you do not have to go out.....one way productivity can increase is by forced policy, red tape and bureaucracy. For example, force people or see that in their best interest to buy new boilers, smart metres, electric cars, push bikes etc...much productivity can be made off the back of climate change, productivity can be made by throw away white goods in a throw away world, which is a contradiction in itself.....;)

What happens though, when all the efficient boilers, smart metres, and electric cars are bought? It's consumption efficiency again. We're in a world where planned obsolescence is the norm, a terribly inefficient thing, yet efficiency is something we all strive for, yet it's inefficiency that drives growth - growth should not be needed when all basic needs and a few luxuries are attainable but our economies are not designed that way.

It's the shoe event horizon: http://hitchhikers.wikia.com/wiki/Shoe_Event_Horizon

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30 minutes ago, One-percent said:

Good analysis 

 

re your second para, the gig economy, sounds like dockers in years gone by. Turn up at the gates "we'll have you, you, and you.  The rest of you come back tomorrow ". Calling it a gig economy does not hide the exploitation. 

 

Re your last para, it has speeded up over the last eight years, and forgive me for this, but it started with thatcher and Reagan in America, deregulating and setting free the "free market" which is anything but. 

Yes there is nothing new about "the gig economy" and the name undeservedly romanticises it.

No need to ask for forgiveness, I agree. I'm a libertarian. A socialist libertarian, but a libertarian nonetheless. Therefore I must support at least the "free market" part of Thatcher and Reagans legacy because anything that reduces the role of the state appeals to my libertarian sensibility. The socialism part of that alignment, I think, would occur naturally if the state didn't keep on preventing it. True free market capitalism would lead to libertarian socialism - but as you say, we have anything but. The state gets in the way on both, to my mind.

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2 minutes ago, Digsby said:

Yes there is nothing new about "the gig economy" and the name undeservedly romanticises it.

No need to ask for forgiveness, I agree. I'm a libertarian. A socialist libertarian, but a libertarian nonetheless. Therefore I must support at least the "free market" part of Thatcher and Reagans legacy because anything that reduces the role of the state appeals to my libertarian sensibility. The socialism part of that alignment, I think, would occur naturally if the state didn't keep on preventing it. True free market capitalism would lead to libertarian socialism - but as you say, we have anything but. The state gets in the way on both, to my mind.

Yes, therein lays the paradox.  Whilst chasing free market ideologically driven policies,  there was a massive move to centralisation. Whilst there was the rhetoric of rolling back the state, state involvement grew and moved, quite frankly, into areas it had no business messing with.  As the economy has withered, so there has been ever greater rigging of both the market and the political system

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Massive amounts of people work the minimum to get the maximum benefits.Probably 3-5 million.Others,sick of paying for said benefits work the minimum to not pay tax so that they dont pay for the rotten system.Business owners decide not to buy an expensive bit of kit,but instead hire cheap workers to do the job because they dont need to pay them much,tax credits do it.Massive amount of capital sucked into houses instead of equity and investments in production.Manufacturing industry seeing massive cuts and the nail technician on the tax credits doesnt have the same incentives to increase productivity.

The BOE has made it all worse by printing so the government and all the public sector can carry on without a gilt strike.Free markets would of solved the problems by now,but we havent had free markets for a long time.

I for one couldnt care less about productivity,and fully intend to be just productive enough to live happily,no more than that.

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I've got an idea for central bankers, on how to distribute QE.

They could invent Net Positive Outcome Casinos (NPOC). In the traditional sense, the house always wins. In the new casino, the odds are altered so over time the house always loses. The central bank pays out on all loses via state owned casinos.

You can only play by visiting the physical casino. This will create jobs, because new casinos will open. Hotels will open. Shops will open. Transport wins. The drink and food industry wins. Tourism wins, because people all over the world will visit to "win". These casinos can be placed all over the country, so it won't be London centric.

Radical, no?

It'll be better than negative rates!

 

And when the economy is back on track, the odds at these casinos can be altered to become either net Neutral or even back to traditional net Negative.

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Productivity is a financial calculation - the total wealth produced divided by the amount of labour put into it. Increased employment can actually lower productivity even if overall people are better off . Sacking people to replace them by machines actually improves productivity even if it causes a lot of people to be worse off. 

It works the other easy too . Automated car washes were once the only to have your car washed. But now you can have your car washed by a gang of men with hoses in a car park. This is a huge drop in productivity but a big increase in employment and it clearly satisfies a demand. 

Who back in the 80s would have guessed that in 30 years time the manual car wash would have overtaken the automated car wash? 

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5 hours ago, 200p said:

I've got an idea for central bankers, on how to distribute QE.

They could invent Net Positive Outcome Casinos (NPOC). In the traditional sense, the house always wins. In the new casino, the odds are altered so over time the house always loses. The central bank pays out on all loses via state owned casinos.

You can only play by visiting the physical casino. This will create jobs, because new casinos will open. Hotels will open. Shops will open. Transport wins. The drink and food industry wins. Tourism wins, because people all over the world will visit to "win". These casinos can be placed all over the country, so it won't be London centric.

Radical, no?

It'll be better than negative rates!

 

And when the economy is back on track, the odds at these casinos can be altered to become either net Neutral or even back to traditional net Negative.

Brilliant - I love it!

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9 hours ago, Ah-so said:

Productivity is a financial calculation - the total wealth produced divided by the amount of labour put into it. Increased employment can actually lower productivity even if overall people are better off . Sacking people to replace them by machines actually improves productivity even if it causes a lot of people to be worse off. 

It works the other easy too . Automated car washes were once the only to have your car washed. But now you can have your car washed by a gang of men with hoses in a car park. This is a huge drop in productivity but a big increase in employment and it clearly satisfies a demand. 

Who back in the 80s would have guessed that in 30 years time the manual car wash would have overtaken the automated car wash? 

Good point......the answer is to wash your own car and buy quality and fix it yourself see YouTube for directions or pay a local small business person to repair it, and the washing machine, shoes and tv......now TVs are all digital flat what will they think of next.....or most of them are, the boxy type still work perfectly.......what people chuck away in local dump is an eye opener, expensive vacuum cleaners that just require unblocking good to go!!! ;).....

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17 hours ago, Digsby said:

What happens though, when all the efficient boilers, smart metres, and electric cars are bought? It's consumption efficiency again. We're in a world where planned obsolescence is the norm, a terribly inefficient thing, yet efficiency is something we all strive for, yet it's inefficiency that drives growth - growth should not be needed when all basic needs and a few luxuries are attainable but our economies are not designed that way.

It's the shoe event horizon: http://hitchhikers.wikia.com/wiki/Shoe_Event_Horizon

Agree with that.......that is why we have had to increase our population to increase consumption, what happens when the level is reached when consumption declines?...needs and wants met, sharing resources also reduce productivity, buying used, recycling, intergenerational living etc......do people really need to turn on heating remotely, how far can improved technology actually improve productivity........growing inequality will only get worse when certain skills and talents are no longer valued nor rewarded......growing lack of skills training that can be put into immediate use..... because if you don't use it you lose it. ;)

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