Thursday, March 4, 2021

Europe productivity -- and US too

 

 Source Stephan Schubert


Source: Chad Jones "straight out of the Penn World Tables, and I first learned about it from Lee Ohanian and Jesus Fernandez-Villaverde"

In the top graph you get the impression that German and French workers are using up to date technology, including both machines, firm organization,  opportunities to trade in a wide market, etc. but that they simply choose to, are incented to, or forced to work fewer hours than US workers. Italy and UK are still plodding along 20% or so inside the frontier.

The bottom graph points a bleaker picture. I'm not an expert, but if labor productivity is high and total productivity is low, that means that the productivity of other inputs must be atrocious.  Chad (amazing expert on all things growth) "It is stunning to me that Spain and Italy have had negative TFP growth for 20 years." 

I remember when real business cycles came out, and many were incredulous at the idea of negative productivity shocks. How can you forget how to do things? Well, maybe not for business cycles, but a society clearly can forget, and retrench. For centuries, remember, Italians looked up in wonder at the cupola of the Pantheon, the arches of the dry aqueducts, and wondered how they had been built. 



Source: Eli Dourado.  

Before you get all "go USA", let us not forget the largest economic disaster of our own times. These are all relative to the US. How is the US doing? Productivity slowed down suddenly, sharply, and it seems permanently around 2000. 

In the long run, nothing else matters. GDP buys you health, advancement of the disadvantaged, social programs, international security, and climate if you are so inclined. Without GDP, you get less of all.  Economic policy should have one central goal -- get productivity growing again, or (in my view) get out of the way of its growth. This is the one little hope that has not been let out of the policy Pandora's box, focused on everything else right now. 

Update: 

John Fernald and Bing Wang date the recent slowdown at 2003. The end of the first tech boom has something to do with it -- but why hasn't the second tech boom shown up in more productivity? 

Ed Prescott's famous Ely Lecture* looked at US vs. France and concluded high marginal tax rates reduced French working hours. 

Many commenters chalk it up to culture and a preference for leisure. I'm old enough to remember when French people worked Saturday mornings and chuckled at the lazy English who took the whole weekend off. An important work of social science on this question here.  

An excellent Vox Post by Fadi Hassan and Gianmarco Ottaviano on Italian productivity. Too much investment in the wrong places, not enough computers. I speculate also too-small companies. Labor laws, regulations and taxes make it desirable to stay small, private, family-run -- and thus local, non-financialized. 


*BTW, looking up the citation, I learned that the AEA canceled Ely of the Ely lecture, and renamed the lecture series. 

24 comments:

  1. I just can't figure why it is that way in Italy, Spain, and France. Retrenchment is a vague term so not sure what it means. Thanks.

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  2. Somewhere else I remember seeing the comment that 30 years of currency union has undone 50 years of development among southern European nations. Pre-Euro, currency differences meant that low productivity items made in Spain and Italy were cheaper than German goods. Now they have to compete with high-productivity, high quality German manufacture on the same monetary basis. No surprise, they can't. In the Eurozone, you're either part of the German manufacturing chain (looking at you, eastern Europe) or a sales target.

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    1. What has happened to Greece in the last 10 years---a 25% drop in GDP, and then no real growth---is a daily disaster.

      ECB and IMF principles for prosperity seem to misfire more than not.

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    2. and? wages in Italy and Spain ar lower than in Germany, so the southern or eastern European firms have competitive advantage - lower labour costs. Northern Italy and eg Catalonia are also part of supply chains of German exporters, on top of that they have also their own high-tech exporters which you cant say about Eastern Europe

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    3. If they wanted to, southern Europe could sell those items at a lower price as before, if they wanted to, subsequently entailing a lower wage. I think the single currency reveals this as the subsequent lower wage is not obscured by the different currencies, as so they are less inclined to do so.

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  3. "GDP buys you health"
    No it doesn't.
    https://randomcriticalanalysis.com/why-conventional-wisdom-on-health-care-is-wrong-a-primer/
    Once you get to the level of southern Europe, additional spending doesn't appear to affect actual health.

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  4. if the Fed - or any other central bank - had productivity growth on its mandate, what would the implications for the monetary policy be?

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    1. A central bank would refuse to fund non-productive enterprises like wars, government orchestrated bank bailouts, or just paying people not to work.

      And by the way, the U. S. Fed does have productivity as part of it's mandate - see:

      https://en.wikipedia.org/wiki/Federal_Reserve_Reform_Act_of_1977

      "The Federal Reserve Reform Act of 1977 enacted a number of reforms to the Federal Reserve, making it more accountable for its actions on monetary and fiscal policy and tasking it with the goal to promote maximum employment, PRODUCTION, and price stability."

      https://en.wikipedia.org/wiki/Humphrey%E2%80%93Hawkins_Full_Employment_Act

      "The Act explicitly instructs the nation to strive toward four ultimate goals: full employment, GROWTH IN PRODUCTION, price stability, and balance of trade and budget."

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  5. The first tech boom was using computers to run businesses and do engineering and science. The second tech boom was sending pictures of cats and who we were hanging with. Fortunately, there is another tech boom under way: space, medicine, deeper application of computing to business, agriculture, and more.

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  6. If with the Euro you eliminated that exchange-rate escape-valve your own currency allows for; and you hold that Italian bureaucrats know better what to do with bank credit they’re not personally responsible for than Italian entrepreneurs where can TPF go?
    https://perkurowski.blogspot.com/1998/11/burning-bridges-in-europe.html

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  7. Italy: Oil, the Euro and Populism

    https://www.princetonpolicy.com/ppa-blog/2018/12/12/italy-oil-euro-and-populism

    The issue through an oil lens

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  8. Luigi Zingales, as one would expect from an Italian Economist, has kept a close eye on Italy. His work seems to attribute problems to management. This paper says the main culprit is ineffective use of IT. https://www.nber.org/papers/w23964 I've also heard him speak of the two cultural factors like nepotism.
    Italy is overly dependent on small, family-owned firms in large part because Italian culture is highly reliant on building personal/familial circles of trust from which everyone operates. Thus, firms have trouble growing beyond these circles. It also tends to push incompetent, but well connected people into leadership/power.
    I spend half my time in Italy and I see it every day, especially in offices that you must navigate (e.g., getting your electricity turned on, getting an ID card). Imagine that you work in one of these offices and you (and by extension your family) can trade preferential treatment in your office/agency for better access to healthcare, services, what have you. You therefore have myriad disincentives when it comes to making your office run more efficiently - it would destroy your personal power.
    I have, on the other hand, found self-employed Italians, especially tradespeople, to be incredibly resourceful and hardworking as their incentives are fully aligned towards efficiency and effectiveness. They want to get your job done with minimal fuss and time. AND, they want the referrals that you might give to your circle of trust.

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    1. But I'm guessing Italy's business culture has always been like that, why would it only start being a barrier to productivity growth in 1995?

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  9. Do these analyses take into account the relative or fluctuating values of the commodities and services provided? For example, if I pump a barrel of oil at a market price of $25/barrel on Tuesday, and on Wednesday the price of the a barrel is $50, have I become 100% more productive?

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  10. ... and that the resulting list be expanded to include worthy economists from marginalized classes.

    Does this mean that the AEA has not sufficiently recognized lecturers from marginalized classes? If so, who?

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  11. Is mitigating climate change a goal?

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  12. Let's not forget that Italy, Spain, PIGS countries were severely hit by the global financial crisis especially the same time when EU started digging their statistics more and found out deficits, public debt, private debt, corruption, trade deficits, and a bleak macro picture for EU average standards. What to do with productivity when labor is unemployed and businesses are closing down? Greetings from Athens.

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  13. US productivity growth. If we're not counting the additional output - as we're not with digital goods, Google, Facebook etc - then it'll look like productivity flatlining. My favourite example being that WhatsApp turns up as a reduction in productivity. There's no measured output - no ads, no fee - but there are measured costs - couple of hundred engineers. So, a billion people gaining some of their telecoms services for free turns up as a reduction in productivity.

    It's true that Italy etc are doing worse than that but still....

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    1. The shopping cart is the classic example of technical progress that is like Facebook and other such nonsense. Both contribute a minuscule amount of GDP by their own production. The shopping cart frees workers to work in now more useful things, at a lower wage, of course. That extra output is measured! Facebook lets workers have fun on the job, reducing hourly productivity, or substituting for television and other moronic things. Thus, it reduces other output. Better have a high consumer surplus! :-)

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  14. I find that extremely hard to believe. I don't buy that there's been no or even negative technological progress in France, Spain, or Italy. I think TFP is a meaningless measure.

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  15. Not sure gdp but innovation buys better lives. Industrial Rev had low gdp

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  16. Opiates, video games, social safety net = this

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  17. My take is that world is massively overcapitalized and lacks sufficient demand to realize potential productivity improvements. If you built a factory to make ten billion cars a year, even with everyone buying a new car every year, you'd be running well under full efficiency. A lot of companies know they are overcapitalized, so they buy back their own shares. Meanwhile, the prices of cash flow producing assets have soared. Interest rates near zero and stock prices at new highs are further signs that we have more capital than we need to meet demand.

    Fix the demand problem and productivity will soar.

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