"The Great Productivity Delusion"

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Came across this item at the Silicon Investor site. My thanks to Bill Fleckenstein for providing the link and especially to Jim Grant for allowing this excellent analysis to be published free to the Web:

The great productivity delusion

"A crisis of faith for the acolytes of the New Economy may be just around the corner. On May 4, at 8:30 a.m. on the dot, the Labor Department will report on the growth in nonfarm productivity for the three months ended March 31. The number stands to be hugely disappointing-just as disappointing, in fact, as last year's third and fourth quarter data were uplifting..."

-- DeeEmBee (macbeth1@pacbell.net), April 11, 2000


(Please note: the document requires Adobe Acrobat)

Have you ever wondered about that nifty "productivity" number that gets bandied about ever so often and which is often used of late to justify some of the sky-high stock valuations we're seeing? Ever seen what goes into that "3.7%" or whatever the latest number may be? If you haven't, Mr. Grant's analysis may be a real eye-opener.

"For the past five years, there has been no productivity growth acceleration in the 99% of the economy located outside the sector which manufactures computer hardware." --- Robert J. Gordon, Professor of Economics at Northwestern (cited on page 2 of the article).

Now guess what happened in the last six months of 1999? Well, Y2K didn't, true, but industry-wide preps for it sure did, including just a whole mess of hardware acquisition and beaucoup IT overtime. Now if that's the only industry sector showing productivity gains and it goes into overdrive, productivity looks incredibly good. However... What happens when that sector downshifts?

Wouldn't that be the height of irony? All that Y2K work may have seriously skewed the economic data (especially the "productivity" calculations), resulting in a rather unpleasant surprise in 1Q2000.

Hope you enjoy the article.

-- DeeEmBee (macbeth1@pacbell.net), April 11, 2000.

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