14-02-2002 21:59									#391
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"Does anybody have a basic explanation of what productivity is, from an economics standpoint?"

Well what it is is simple: output/input. How to measure it and why it changes are the interesting problems. When we talk about hourly labour productivity we need the aggregate of hours worked. And that based on stats that often err up to 5 % on the nr of people EMPLOYED.

"Almost like some place for economists to put things that they can't explain fully."

No, that would be total or multi factor productivity.

"I feel at a disadvantage of understanding when discussing the numbers immediately following WW2."

Well maybe an artificial post WW2 boom ended ? There is no cast-in-stone trend productivity growth.

"So these number seem to break the 20-year mold in their duration and strength."

You also have unprecedented imbalances in the economy. Inter alia an investment boom overhang. And investment drives productivity. Malinvestment drives productivity temporarily.

"Do you have a feel for what pet projects the Brits as a whole are trying to get through?"

Brits are on board with this, it's some capital and labour market reforms and some tech projects (internet in schools, the university stuff etc). Lissabon agenda, essentially.

"That one was scary."

Which one ?

"Probably not for the US. We have a pretty clean growth trend that is supported by known variables."

No. US fertility rate is now 2, it may stay there or drop to 1.5. Immigration is maybe 0.4 % per year - could increase to 1 % if you open the floodgates, could drop to zero if you get into some serious econ trouble. Out to 2050 it is just a guess.

	14-02-2002 22:23									#392
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Dan, productivity is a measure of how much input is required to produce a given amount of output. The input could be labour, capital or land or multifactor productivity, which is supposed to measure the technological factor and is obtained by statistical black magic.
Labour productivity is preferable because labour-incomes constitute the lion-share of incomes, because it has a direct impact on wages and because it’s measured most easily by far.

Productivity is determined by numerous factors, of which the significance of many or most is hard to measure, not to mention the quality of a factor itself. (eg: Is the US education system good or bad? How much does the quality of the US education-system matter vs labour migration or quality of corporate training-programs? Etc)

You cannot assume that the rate of a given period (like 48-73) is more normal than another, and that there will be a return to when a certain factor changes (unknown in this case), because the entire environment is different now from then. There isn't a "normal" time-period, when the environment was normal, so it’s hard to me to believe in a normal trend-rate or a return towards it.

Another reason for me to stand sceptical towards trend-rates are the time-frames we use. For instance, you gave the average growth rate through 2001 starting from ’48, but why not include the war and pre-war periods (that would give you an average of about 2% IIRC), as there’s little reason to assume WW2 was an economic tabula rasa.

	15-02-2002 05:19									#393
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Is productivity adjusted for inflation? All things being equal, output is measured in $$ only, but input is measured in $$ and labor hours. Labor hours don't increase due to inflation but $$ for input and output do. Is a writer in modern times really that much more productive than a writer in Roman times?

	15-02-2002 13:37									#394
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You take real output growth for productivity growth, yes.

Deviding nominal labour cost growth through productivity growth gives unit labour cost growth.

	17-02-2002 01:36									#395
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Guys, what are the chances now that japan is getting worse and worse. They might call in there 1.1 trillion dollar debt?

	17-02-2002 18:26									#396
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Some interesting new data out from the OECD.

About this time last year the US had seemed to vastly outperform the EU over the period 1995-2000 (GDP per head in the US rose from 142% of the EU level in 1995 to 152% in 2000).

However, the release of newer data has changed this significantly.

First there was the adjustement to US GDP which lopped over 1% off the 2000 figure.

Then there was the census data for 2000 when an extra 7 million people were found in the US.

Finally has come the 1999 PPP figures from the OECD - PPP's are measured every 3 years and are adjusted for the intervening years by price deflators - these again showed that EU inflation would be much lower if measured using the hedonic deflator system the US uses.

This new data shows that GDP per head in the US was 141% of the EU level in both 1995 and 2000 (there was a small rise but it was less than 1%).


If you add in the expected growth rates for 2000-2002 (2.3% overall for the US and 2.9% for the EU) and use the average gap caused by US hedonic deflator methods for 1995-2000 then in 2002 the US has a GDP per head of 137% of the EU level.

The previous low was 139% in 1991.

It also alters the picture for productivity.

Using the new data the EU's GDP per hour worked went from 93.0% of the US's level in 1995 to 93.3% in 2000 - so even during the US's 'productivity miracle' it still perfromed (slightly) worse than the EU.



How many people can claim that the US still outperforms the EU?

	17-02-2002 23:21									#397
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I might note that the revised population figures throw things off substantially for the last several decades. It's not like an extra 10 million people arrived in the US just in the last 5 years. Rather, they were never counted previously, so who knows when they arrived, or even how many times they arrived. This is further complicated by the possibility that they might leave in bad economic times.

Secondly, these "found" people are mostly in the low productivity growth informal economy. This can't help but moderate the productivity growth number, whenever they arrived.

fg: Earlier in the thread I said what I thought about Japan. It doesn't look good at all. I'm sad for them.

	18-02-2002 00:29									#398
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DanS,

You may be correct that those 'classes' of people were not counted in 1990 or 1980 etc.

But the extra population only accounts for around a third of the revision in relative incomes - half comes from the 1999 PPP rates.

I have several points to make concering your statement "Secondly, these "found" people are mostly in the low productivity growth informal economy."

1. If by 'informal' you mean area's like the black or grey economies then this would have the opposite effect of actually raising productivity - as these people's hours of work would not be recorded but their spending would be.

2. In the 1990's the US's activity rate actuall fell compared to strong rises in the 1970's and 1980's - If the 'found' people were entering the economy then you would not expect this to happen.

3. If these 'found' people are only recently being included in the mid-year population estimate then you would expect either there to be a big jump in population one year in the 1990s (which doesn't happen) or, if the extra people are included over the decade you would expect population growth for 2001 to be more like the 0.9%-1.0% expected before the 2000 census compared to the 1.2% for 1990-2000, population in 2001 rose by 3.5m or 1.2%.

I therefore think that the 'jump' in population was due to real factors not the counting of people who were not counted before.

Last edited by el freako on 18-02-2002 at 01:09

	18-02-2002 01:12									#399
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I don't know how it would affect the numbers, but when I say "found" informal workers, I mean an immigrant from Mexico who works in Washington, DC as a housekeeper, for instance. She probably gets paid in cash some of the time and sends a good portion of her income back home. She may slip in and out of the country many times in her life. She may be waiting for an amnesty so that she can go legit. The job that she fills may or may not be filled if she weren't there (low value work). She will be counted differently for different things or not counted at all and for various levels of government. Lots of different scenarios.

With the last census, the gov't said that they wanted an accurate population count above all, and that niceties such as immigration law would be forgotten more than is usual. I expect that the 2000 Census was the most accurate enumeration in quite a while.

edit: looks like we did a cross-post/edit. Quickly, in 2000/2001 there were a couple of green card amnesties that went on. For instance, there was an El Salvador (?) amnesty that gave out 100,000 or so green cards. Not 3.5 million, but...

Last edited by DanS on 18-02-2002 at 01:55

	18-02-2002 15:49									#400
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El F: interesting numbers. Was about time to get back to realism over the US cooked up numbers...

Dan: What I don't understand is - how do you count illegal immigrants in the census ? We estimate about 100-300.000 here on 8 million people, but in the census, it is virtually perfectly in line with what official migration stats would suggest....

	18-02-2002 21:59									#401
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We count illegal immigrants in the census just like everybody else. That is, if they reply to the census, as they were encouraged to do in 2000. This was due to the Republicans having the power to quash statistical sampling in the census and the Democrats having control over the actual enumeration. This was a good political circumstance.

Re how we could be so wrong on the numbers, there are tons of factors. Much of it has to do with the fact that counting and then tracking illegals hasn't been a high priority item. When it gets to be a big issue and when there is political will, we do amnesties to reconcile the books and make everybody honest residents and then citizens.

	18-02-2002 22:04									#402
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"We count illegal immigrants in the census just like everybody else. That is, if they reply to the census, as they were encouraged to do in 2000."

But why would they reply ? Is there a guarantee that this data won't be used against them ? Or are they simply aware of the efficiency of US bureaucracy ?

	18-02-2002 22:19									#403
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The word was sent out through the immigrant community that the info would not be used against them. Then there was an active outreach (ads in Spanish and the like).

	20-02-2002 10:23									#404
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In a companion piece to Wolf's column referenced earlier, he goes through the per head figures much like ef did a couple of days ago but comes to different conclusions (used the 149% number). Interestingly, he delineates the per head figures by country.

http://news.ft.com/ft/gx.cgi/ftc?pa...gID=FTD8OHRBONC

I'm really happy to see Ireland successful. Underdog makes good. Compelling economic story.

Here's a funny quote...

"Like many Europeans, I find the US addiction to ceaseless work appalling."

If he only knew.

Last edited by DanS on 20-02-2002 at 10:28

	20-02-2002 13:25									#405
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Here's an even funnier quote: "...citing Business Week..."

LMAO.

Anyhoo, those comparisons that obsess about 0.5 %points of productivity growth are pretty lame. Most of GDP is in the service sector, most of that is not tradeable, so PPPs come with a huge uncertainty factor. And GDP captures only a part of the economy. Then we have labour productivity... no one knows the nr of hours worked. Even the nr of people employed is a wild guesstimate. When Germany changed social security laws, 2 million part time jobs "showed up", and the nr of people employed "rose" from 36.5 to 38.5 million. The BLS uses some rather daring fudge factors, too.

Is a US waiter more productive than an Austrian one ? A high school teacher ? That would be interesting micro things to investigate...

Btw, what does he mean by conference board ? The US conference board ?

	20-02-2002 17:59									#406
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Roland, I mostly agree with your criticism but do you have reason to believe the uncertainty flatters US data in particular?

	20-02-2002 18:17									#407
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quote: Originally posted by Colon Roland, I mostly agree with your criticism but do you have reason to believe the uncertainty flatters US data in particular?

Well the gigantic service sector is "flatter". What qualifies as the final product in say legal services and education ? legal peace, a trial, or every page of paperwork ? Time spent in an institution, degrees, knowledge, social skills or "market value" of a graduate ? It is not so much whether GDP is correctly technically counted, but how well it captures welafre and how meaningful comparisons are.

	20-02-2002 18:56									#408
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Yes, but why would US data be inflated by this vs EU data? and why would the size of the service sector be overestimated rather than underestimated?

	20-02-2002 19:07									#409
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Well if you take simply nominal amounts, you get some huge chunks. Let's say we have per capita income of 33.000 $ in the US vs 25.000 € in Austria.

Health care: 4000-5000 $ vs 2000-2500 €
Legal system: 800 $ vs 150 €
Education: 2000-2500 $ vs ~1500 €

(Those are spending figures that should be a bit higher than the GDP contribution)

So this pushes US nominal GDP up cosiderably. PPPs are pretty much taken from goods production and then somewhat adjusted for differences in service prices. I think that the "bias" from the nominal numbers carries through for that reason.

	20-02-2002 20:12									#410
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Roland:

Let me see if I understand this. What you are citing is actual or purported per-capita spending figures. You are trying to make the point that the US and EU may have different efficiencies at producing whatever it is that people consume, be it health care, justice in some sense, or educational services.

If this is the case then there are at least three reasons I can think of why the numbers you cite don't get you where you want to go.

1. There can be a difference in preferences. The amount that Austrians spend per capita on skiing probably vastly exceeds that spent in the US. By your logic this would mean that the US is more efficient at producing good skiing.

2. There can be differences in incomes. Consumer demand depends on income and relative prices. The percentage of total budget spent on individual goods will vary with income, unless the elasticity of demand with respect to income is the same for all products, which it obviously is not. Any differences in income between countries may result in differences in amounts or percentages spent.

3. Consumers still have a budget constraint. So if incomes are roughly equal, and US consumers spend more on this commodity than Austrians do, then they must spend less on some other, such as skiing.

You need a more detailed analysis (ie., a system of demand equations for each country) to make the point.

	21-02-2002 15:56									#411
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AS, I have to sue you! The moment I wanted to reply to your post my PC exploded!

I wonder why...

I'm not sure about your points - maybe I should try to clarify mine. I'm representing a working thesis that simply says PPPs may be skewed. Let's forget those spending categories and look at output p.c. (ignoring agro):

Austria: 25.000 € - industry 8.000, services 17.000
US: 33.000 $ - industry 8.000, services 25.000

Now for goods we roughly have 1 €= 1 $. I wonder how the 25.000 $ in US services translate into €. Some estimates put them at 25.000 €, some at 22-23k, some may go down to 20.000. But all those estimates stick quite closely to the parity that goods suggest. I wonder - maybe there are radical differences ? Maybe 90 % of US lawyer activity is waste, vs just 70 % here ?

"You need a more detailed analysis (ie., a system of demand equations for each country) to make the point."

I think I'd need a better definition of output wrt services to make proper PPPs. Differences in preferences and price structures would be the next issue. For example, what do I compare in education ? What is the US equivalent of an Austrian HTL or HAK ? Average Public highschool, or good (public or private) highschool + college ?

When I look at the spending - are you USAers really so much healthier and more educated as the spending suggests ?

	21-02-2002 16:10									#412
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Hmm... remember that I ranted about Fannie Freddie, the bubbly housing bubble sponsors ? Seems people are slowly waking up - and the crooks running the schemes appear a bit nervous...

2 bloomberg stories:

quote: Fannie Mae, Freddie Mac Face Risk Similar to Enron's, WSJ Says By Todd Zeranski Washington, Feb. 20 (Bloomberg) -- Fannie Mae and Freddie Mac, which own the majority of home mortgages in the U.S., have been increasing their debt at an annual rate of 25 percent and depending more on derivatives, the Wall Street Journal said in an editorial that suggests the two institutions face risk similar to that of Enron Corp. The Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., both government-sponsored corporations, have $2.6 trillion in outstanding debt, the Journal said. Last year, Fannie Mae's debt to equity ration was 60 to 1, more than five times the average for commercial banks, the newspaper said. The two companies hedge interest-rate risk using derivatives, and their combined derivative position was valued at $780 billion at the end of 2000, the Journal said. Last year, Fannie Mae had to write down $7.4 billion in shareholder equity following changes in the value of its derivatives' holdings, the newspaper said. Neither lender is required to file financial statements with the U.S. Securities and Exchange Commission, the Journal said. While the New York Stock Exchange requires they report to shareholders, the two companies keep disclosure and clarity to a minimum, the Journal said.

quote: Fannie Mae Calls Editorial on Its Risk `Egregious' (Update2) By Robert Burgess Washington, Feb. 20 (Bloomberg) -- Fannie Mae shares fell after a Wall Street Journal editorial criticized rising debt and use of derivatives at the company and Freddie Mac. Fannie Mae called the editorial ``egregious'' and ``irresponsible.'' Fannie Mae and Freddie Mac, the two largest buyers of mortgages, have been increasing their debt at an annual rate of 25 percent and depend more on derivatives to keep earnings growing, the editorial said, adding that the two institutions face risk similar to that of Enron Corp. The editorial ``is so replete with factual errors that it undermines anyone's ability to agree with its assertions and conclusions,'' Fannie Mae Chairman and Chief Executive Officer Franklin Raines wrote in a letter to investors. The ``editorial was so egregious in its disregard for the facts and irresponsible on its assertions that it is crucial to set the record straight.'' The Washington-based company's shares fell $1.26 to $77.19 in late trading, after dropping as low as $75.40. Freddie Mac, based in Arlington, Virginia, fell 77 cents to $63.15 after touching $61.30. A Fannie Mae spokeswoman, Janis Smith, confirmed the contents of the letter. A Freddie Mac spokeswoman, Sharon McHale, said the company will send a letter to the paper seeking to rectify what it describes as inaccuracies. The two companies are government-sponsored enterprises and together own or guarantee more than 40 percent of the roughly $5.8 trillion in outstanding U.S. mortgage loans. Echoes Concerns The editorial echoes concerns raised by some analysts. In December, Fannie Mae was rated ``sell'' in new coverage by Fulcrum Global Partners analyst Sean Ryan, who said there may be a ``dangerous beast'' lurking in the company's mortgage portfolio. Ryan said the company's $23 billion in equity supports $767 billion in assets, mainly mortgage loans and bonds. Earlier this month, U.S. Treasury Secretary Paul O'Neill said the Bush administration is considering whether to support moves to more closely regulate Fannie Mae, Freddie Mac and other government- sponsored enterprises, weighing concentration in the mortgage business against the benefits of strong institutions that finance homeownership. ``We're aware of the concerns that people have and we're looking with them to see if there are ways that we could reduce the anxiety that people have without hurting the process of home ownership accumulation in the country,'' O'Neill told the Senate Budget Committee on Feb. 7. No congressional hearings are scheduled on Fannie Mae and Freddie Mac and several Washington-based analysts said they don't expect any legislation affecting the companies this year. ``The headline risk outweighs the political risk,'' Steven East, managing director for economic and policy research at Friedman, Billings, Ramsey & Co. Inc. in Virginia. Oversight of Fannie Mae and Freddie Mac is sufficient, said Raines, who denied the companies have similarities to energy trader Enron, which last year filed the biggest-ever U.S. bankruptcy. Constant Examination ``After constant, on-site examination by our regulator and 11 congressional hearings over the last two years, no company including Enron has been more closely scrutinized, more frequently, than Fannie Mae,'' Raines wrote. Some investors said they are more concerned about the perception of increased risk at Fannie Mae and Freddie Mac than they are about the quality of their businesses. ``Our motivation for reducing exposure is not based upon the fundamental credit risk but a clear perception that headline and political risk exists and is increasing,'' said Marc Seidner, who oversees $40 billion in fixed income at Standish Mellon Asset Management in Boston. Mellon has reduced its allocation to so-called federal agency debt over the past month to zero from 8 to 10 percent. $2.6 Trillion Debt Fannie Mae and Freddie Mac have $2.6 trillion in outstanding debt, the paper said. Last year, Fannie Mae's debt-to-equity ratio was 60 to 1, more than five times the average for commercial banks, the newspaper said. Raines countered that the size of the companies' debt was overstated by more than $1 trillion, and their leverage was overstated by a factor of 100 percent. Fannie Mae and Freddie Mac hedge interest-rate risk using derivatives, and their combined derivative position was valued at $780 billion at the end of 2000, the Journal said. Last year, Fannie Mae had to write down $7.4 billion in shareholder equity following changes in the value of its derivatives' holdings, the paper said. ``The claim about a write-down of shareholders equity is a gross mischaracterization of a well-known effect of implementing the new'' Financial Accounting Standard 133 ``and in now way impairs our regulatory capital,'' Raines wrote. Neither company is required to file financial statements with the U.S. Securities and Exchange Commission. While the New York Stock Exchange requires they report to shareholders, the two companies keep disclosure and clarity to a minimum, the Journal said. Raines said the claim about limited financial disclosure was ``ridiculous.''

Such strong words...

	21-02-2002 20:10									#413
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Franklin Raines? A crook?

	21-02-2002 20:14									#414
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Running a pyramid scheme qualifies.

	23-02-2002 20:05									#415
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DanS,

By the look of Mr Wolf's Data he is using the old 1996 PPPs - but bear in mind that the 1999 PPP data only came out in January.

It is also interesting to note that he uses figures for 2001 - but we only have GDP data for the USA, UK, Germany, Spain and Holland for the whole of 2001 and for population data only the US has released data so obviously the data he puts forward are forecasts.


Using the latest data here are the GDP per head figures for 1990 and 2000 as a % of the USA.

Country, 1995, 2000

Canada: 81%, 81%
Mexico: 25%, 26%
United States: 100%, 100%

Australia: 74%, 76%
Japan: 80%, 75%
South Korea: 32%, 43%
New Zealand: 60%, 59%

Austria: 79%, 78%
Belgium: 73%, 75%
Denmark: 74%, 84%
Finland: 71%, 72%
France: 77%, 72%
Germany: 72%, 75%
Greece: 41%, 49%
Iceland: 76%, 85%
Ireland: 51%, 84%
Italy: 71%, 73%
Luxembourg: 104%, 135%
Netherlands: 72%, 80%
Norway: 76%, 87%
Portugal: 42%, 52%
Spain: 53%, 59%
Sweden: 77%, 72%
Switzerland: 93%, 87%
Turkey: 20%, 19%
United Kingdom: 70%, 70%

EU-15: 69%, 71%


It is interesting to calculate the underlying growth rates for the US, EU and Japan - using the US's growth rate form 1990-2000 and the shares of US GDP at PPP's of the EU and Japan in 1990 and 2000, also using OECD estimates of the output gap for 1990 and 2000 then it appears that the US's underlying growth rate for the 1990's was 3.1%, the EU's was 2.9% and Japan's was 2.0%.
As US population growth was 1.2% compared with 0.3% in the EU and Japan then whilst the US and Japan had underlying Growth per head of 1.8%-1.9% the EU managed 2.7%.



I have also attached a Zipped Excel file showing how I calculated the data for 1995 and 2000

Attachment: gdp data.zip
This has been downloaded 5 time(s).

Last edited by el freako on 23-02-2002 at 20:43

	04-03-2002 21:43									#416
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ef: The bulletin board mangled your zip file--it probably uploaded the file as ascii when a zip file is binary. If you have the zip handy, please send it to dschmelzer@hotmail.com. Thanks! I'm interested.

	06-03-2002 20:21									#417
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I just learned that FT's website is going to switch to paid-subscription... I knew this would happen one day, but damn this sucks...

	08-03-2002 20:43									#418
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Colon: That's a shame, but that's actually one publication that might be worth it, if they don't charge too much. One thing that I've noticed that I don't like about FT is that they are covering US news too much nowadays. It makes FT less worthwhile for me...

Anyway, I might note that I probably hit the high of the unemployment rate on the head--5.8%. And no, I'm not going to put any stock in peoples' whining that the numbers should be higher because the # of people seeking work dropped precipitously.

The economy is doing some screwed up stuff. Productivity revised up to 5.2% in Q4. Spending growth is staying robust. The dollar still strong.

But at least it isn't as bad as what the Japanese are doing to their economy.

	08-03-2002 21:57									#419
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Yeah Dan, FT may be worth it, but nowadays I don't use the site the read the daily current affairs, only to read analyses and comments and do some looking-up. I’m afraid the charge will be too much for just that, but I’ll see I suppose.

The US economy scares me, the recession was hardly worthy of its name and all the imbalances remained or were exacerbated.

And if anyone still has any doubts in money supply as an indicator, it predicted this upturn since long ago.

	08-03-2002 22:27									#420
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quote: Originally posted by DanS But at least it isn't as bad as what the Japanese are doing to their economy.

Yet.

Colon: Let's wait what final demand does. So far we're essentially in the inventory cycle.