Professor Mark J. Perry's Blog for Economics and Finance
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Wow! Neat visulazation of an amazing company...Thanks for posting it...
I think you may have posted this back a couple years ago too, Mark. Coincidentally, I was just thinking about this video the other day but just hadn't tried to look it up yet.
New firms, like Walmart, strengthened the U.S. economy more than some people realize, in part, because inflation has been overstated, at the height of the Information Revolution from 1982-07.Although, real wages didn't rise much, real compensation rose substantially, but the gains were almost completely absorbed by excessive regulations in health care.The productivity paradox Robert Solow: "You can see the computer age everywhere but in the productivity statistics." The paradox has been defined as the discrepancy between measures of investment in information technology and measures of output at the national level."Investment has gone into our 'unmeasurable sectors,' and thus its productivity effects, which are likely to be quite real, are largely invisible in the data."
The chart below shows U.S. productivity was substantially higher in the 25 years from 1947-73 than in the 25 years from 1982-07.The 80 million U.S. Baby-Boomers (born between 1946-64) reached "prime-age," i.e. their peak productive years of 35-54 between 1982-00, which coincides with the greatest structural bull market in U.S. history (the second most productive group is the 55-64 age group, based on education, training, and experience).The chart also shows even lower productivity over the past four years, and low productivity over the "long-wave" bust cycle from 1973-82.http://www.bls.gov/lpc/prodybar.htm
Who Really Robbed the Middle Class? Maybe It Was Health CareThe AtlanticOct 13 2011"Wages have fallen from 51 percent of the economy to 44 percent of the economy in the last 50 years. Compensation...includes your health care, pension benefits, and employer contributions to Social Security, Medicare and other government programs...as a share of the economy hasn't changed more than a percentage point since 1960. As it turns out, all those things have increased from about 4.5 percent of the economy in 1960 to about 11 percent of the economy in 2009. As a result, they have eaten into wages.Health care and other benefit costs have more than doubled as a share of GDP since 1960. Corporate profits have not." (*Chart showed an average general decline in corporate profits as share of GDP from 1947-2010, falling from roughly 11% to 9%).
I suspect, investment as a percentage of GDP increased, and labor earned higher returns on assets.
So, real compensation kept up with real (domestic) growth, and the U.S. was able to consume up to $800 billion a year more than produce, since around 1980 (through trade deficits), while real assets increased substantially (e.g. reflected in household net wealth of $60 trillion).
@peak - re: health care costsin some respects, rising health care costs do similar damage to buying power as increases in gasoline prices do.right?
Well PT I would have to say that IMHO both 'Robert Solow and Erik Brynjolfsson' were wrong regarding the productivity paradox... Could IT be used more efficiently? Well yes but then again what technology couldn't be?So regardless of the problems with measurment errors, lags, redistributions, etc the end product is normally produced faster and more economically with the use of computers...Here's an example, even forty plus years before Solow made his comment computers were almost infinitely more crude, more expensive, and more prone to breakdown than they were in '87...Still for all of that a single troublesome and expensive computer was infinitely better and faster at generating artillery trajectories and bomber flight paths than rooms full of people armed with pencils, paper, slide rules, and books of algorithms...
I'm a bit skeptical about the "not much productivity" claim given the massive dramatic changes that has occurred to many industries including manufacturing.the things that have powered WalMart and Sam's Club are in large part - computerization of everything from logistics, to inventory control, to electronic transactions.While the checkout lines are packing customers bags full of goods - a computer is actively building a replenishment shipment from the distribution warehouse than will likely be on a truck the next morning.this is how WalMart kills the local retail. They are superior (and more productive) in virtually every measurement.
Juandos, I wonder how much faster a computer and printer are compared to a typewriter and copier, for example, and what about quality, e.g. being able to create charts with a computer?
Juandos says: "Robert Solow and Erik Brynjolfsson' were wrong regarding the productivity paradox."How does that explain the productivity paradox? An Air Force bomber today is much more productive than the Air Force bomber in your example.
" I wonder how much faster a computer and printer are compared to a typewriter and copier, for example, and what about quality, e.g. being able to create charts with a computer?"...You know PT I was thinking that very thing when I was putting my initial comment together after reading your comment...Consider how relatively cheap it is now a days to do a presentation with charts and data and to be able add a bit of dazzle to it (audio clips and or video clips) because all one needs is a laptop, some office software, and one of those cutesey little projectors...Now a days you can get both a laptop and projector for somewhat less than the cost of an IBM Selectric II when it was brand new...It all can be done in hours instead of weeks...Remember the amount of lead time one needed to have the services of a print shop and the costs of four color charts, graphs, and hardcopy print outs?Now a days you can shoot the whole thing you've generated to everyone's smart phone or tablet and skip all that time consuming, materials hogging expense...We'll probably always have some need for copiers and printers but it won't be like it was even five years ago...In fact Linotype-Hell doesn't make printers and scanners so much as they make 'image setters' now...
"How does that explain the productivity paradox? An Air Force bomber today is much more productive than the Air Force bomber in your example"...Yes it is PT and considering the complex calculations that go into making say a B-2 bomber for instance, that work could've never been done without the use of computing power...Consider the payload of those bombers...Kalman filtering algorithms are needed to make that payload 'precision ordnance work its magic...That needs all kinds if computations...There's almost an endless string of examples one can present just on this particular topic of bombers and payloads...So what's the 'real' paradox here?
Juandos, yes, but that doesn't explain why productivity was so low in the Information Revolution.For example, before the quick and massive creative-destruction process, mostly from 2000-02, more inputs, e.g. labor and capital, flowed into Information-Age firms (resulting in the tech bubble), although output (measured in revenues) also increased.However, after 2002, output increased much faster than inputs. Yet, although productivity increased a little, it was still lower after 2002 than between WWII and 1973.It seems, there should've been much higher productivity in the macroeconomy, because of the Information Revolution.
Juandos, your implication of high-skilled labor has something to do with the productivity paradox.It's less productive to invent and build new technology, the way productivity is measured, than to operate and maintain it.The U.S. increasingly offshored low-skilled work and shifted resources into high-skilled work, which would slow U.S. productivity, although accelerate U.S. living standards.
"It seems, there should've been much higher productivity in the macroeconomy, because of the Information Revolution"...You're absolutely right PT but I'm guessing you're not taking into account an externality in with your guesstimate on increased production and its the cost of government interference...If David Boaz at Cato is right, its only going to get worse...Why Is the Recovery Slow? "It's less productive to invent and build new technology, the way productivity is measured, than to operate and maintain it"...No argument but doesn't that only hold over the short run?When new technologies mature don't they get cheaper over time? Doesn't the learning curve level out somewhat?
Juandos says: "When new technologies mature don't they get cheaper over time? Doesn't the learning curve level out somewhat?"Yes, I agree. However, the trend has been it takes longer and more effort to acquire higher skills. Fortunately, incomes are higher, for the higher skills, and Americans are living longer.
Productivity has been understated. So, inflation has been overstated. Except for the temporary oil shock, from the global economic boom and peak oil, the U.S. economy continued to generate disinflationary or deflationary growth:Why the Economy Is a Lot Stronger Than You ThinkFeb 13th, 2006""As we've become a more knowledge-based economy," says University of Maryland economist Charles R. Hulten, "our statistics have not shifted to capture the effects." The BEA doesn't want to move too fast. It plans to publish supplementary accounts for R&D in the next few years, which will track R&D spending without adding it into the official GDP numbers. Other intangibles, though, remain below the radar. "No one disagrees with this conceptually," says BEA chief Landefeld. "The problem is in the empirical measurement.""
'Other intangibles, though, remain below the radar. "No one disagrees with this conceptually," says BEA chief Landefeld. "The problem is in the empirical measurement.""'...Hmmm, just a stray thought here PT but wouldn't some companies loathe giving out any sort of real production numbers for fear that the competition might find a way to use it either directly or indirectly?So wouldn't 'empircal measurment reports' always be suspect?
Larry, rising health care costs and rising gasoline prices both reduce purchasing power. The difference is you can better control how much gasoline you purchase based on price.
Juandos, one problem is how can you measure quality differences, e.g. between a cell phone and a smart phone? (the difference in price doesn't fully capture the quality difference).
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It was not only the invention of the product itself, in the Information Revolution, it was also the speed of improvements to the invention and the increase or decrease in price.For example, how much better was a 2005 computer compared to a 1985 computer?How much better was a 1975 typewriter compared to a 1955 typewriter? And what were the price differences?
"The difference is you can better control how much gasoline you purchase based on price."That's right, for gas you ask what the price is, because you pay for it with your own money. Few ask the price of medical care, because someone else pays for it.
Peak: "...one problem is how can you measure quality differences, e.g. between a cell phone and a smart phone? (the difference in price doesn't fully capture the quality difference)."First you need to define quality. Does quality mean durability, aesthetics, mean time to failure, functionality, or just what?Remember, all value is subjective, and comparisons are ordinal.
"one problem is how can you measure quality differences, e.g. between a cell phone and a smart phone? (the difference in price doesn't fully capture the quality difference)"...I think ron h brings up some valid points regarding 'quality'...I think about what a cell phone is for vs a smart phone...They both make and receive calls and the quality of those calls are actually more dependent on the service provider one has than on the phone itself...Now my $15 LG Acolade is nothing compared to my brother's Samsung Galaxy S II Skyrocket (a very slick & clever bit of hardware) but the call quality is about the same...Now there's no way my LG could help my brother with his work like his Skyrocket does...When work is done he can kick back and watch a movie or read a book on it and it looks real good doing it...I watched a bit of the blu-ray edition of Avatar on the Skyrocket and it was phenomenal both the video and the audio...That could never happen on my LG...:-(So the long and the short why does one buy one over the other?
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Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.
Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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