
Is productivity the victim of its own success? - jseliger
https://growthecon.com/blog/Baumol/
======
Super_Jambo
The problem is not productivity growth it's resource allocation.

Markets only optimize for good market performance. Since we do nothing to stop
all the non-market game playing (mainly regulatory capture, monopolies &
advertising), our markets have been optimizing for firms best able to corrupt
the process.

Why make an ISP that delivers good speeds at a low cost when you can bribe
local government to make you the only supplier?

Why make good smartphone hardware when you can bundle a package of hardware,
software and BRANDING! And charge vastly more?

Why sell access to information people want when you can sell access to
marketing information on peoples searches helping pervert the information
people use for their decisions?

The people in charge are too busy enriching themselves inside the existing
system and as a result some huge fraction of the population is working to
directly harm the interests of everyone else.

~~~
cousin_it
When used to allocate production, markets maximize efficiency. But when used
to allocate consumption, markets often _minimize_ happiness. For example, if
you sell a glass of water to the highest bidder, then Poor Alice who's dying
of thirst will be outbid by Rich Bob who wants to water his potted plant.
That's not just a theoretical example, you can name ten such situations in the
real world without stopping for breath. In other words, diminishing marginal
utility of money means that markets are only half of the solution, not the
whole solution. It's a pretty simple idea and I'm not sure why it isn't well
known.

~~~
jerf
If your anecdote were accurate, rich people would not have most of the things;
they would have all the things. Your model is so incomplete that it is
misleading you.

Mind you, I'm not saying you'll love everything about the market when you
understand it, but that anecdote is not a useful way of thinking about the
world, because the model that it implies clearly fails to accurately model the
world. Which is probably why it is not "well known".

~~~
asdfologist
I don't follow. The rich don't have everything because they don't bid for
everything, which is still consistent with your parent comment.

~~~
jerf
"The rich don't have everything because they don't bid for everything,"

No, they _can 't_ bid for everything. It's a critical distinction to
understanding how the economy works. It is impossible to create a single
entity that buys everything, or a single entity that has all the money,
permanently. It's literally nonsensical; the result is a form of "money" that
may have the name on it, but no longer has any of the properties we associate
with money.

You appear to be proposing a model where the rich are _voluntarily_ not buying
everything up for some reason. Which is probably just an element of your model
that you haven't examined, because my guess is that as soon as you consciously
examine that, you'll experience some cognitive dissonance because I bet you
also model rich people as intrinsically greedy, and thus having no reason to
voluntarily not grab resources.

People are _really_ bad at following through the implications of models. They
make a model, figure that the model touches reality in one or two places, then
decide the model must be correct. But reality is pretty darned big, and it's
really, really hard to fit "reality" into a simple model. Correct models must
match reality _everywhere_ , not just a few points. Useful models must match
reality in more than just a couple of places.

Follow the model's implications through.... if Rich Bob really can outbid Poor
Alice for a glass of water, then why isn't the world actually full of
dehydrated poor people? ( _Not_ that some people do occasionally dehydrate to
death, often for reasons only loosely related to wealth issues... _all_ the
poor people should be dehydrated because the rich people are, after all,
constantly outbidding them for water, apparently.)

The very act of answering that question must, with mathematical force, also
demonstrate why the model that produced the question in the first place is
irredeemably broken. If the model is that irredeemably broken, then the
question is also broken, and what it is trying to imply is also false.

(Which, again, is why this result is not "well known". It's, well, not true.
The fact that markets are not perfect does not mean that all criticisms of the
market are automatically true.)

~~~
asdfologist
I think you misunderstood my comment. Yes, the rich don't bid for everything,
and yes it's because they can't. But that's still consistent with what
cousin_it said.

The main flaw with your argument is that "if Rich Bob really can outbid Poor
Alice for a glass of water, then why isn't the world actually full of
dehydrated poor people?" is 1) a non-sequitur, and 2) doesn't make any sense
because the if condition is false.

~~~
RickHull
> doesn't make any sense because the if condition is false.

Why is it false that Rich Bob can outbid Poor Alice for a glass of water?

~~~
asdfologist
Where I live, water is free.

------
Animats
Not one word about demand.

Most of the US population is out of buying power. The savings rate is near
zero. More than half the population couldn't come up with $400 in an
emergency. The US economy is demand-limited, not production-limited

~~~
eru
Not enough demand shouldn't be a problem: the central bank can just print
money.

(I write "shouldn't" not "isn't" for good reason.)

~~~
x5n1
The central bank is printing tons of money and continuously pumping it into
the economy. Americans don't feel the effects of that as everyone uses
American dollars. So it's almost as if the central bank is creating gold,
which is suppose to be a finite quantity. It does nothing.

At the end of the day corporations must borrow that money and corporations are
sitting on tons of their own money, they don't want more money to hire
employees. They don't know what to do with the money they have. They can make
goods, but no one will buy them at the levels of profit they need. So they
just sit on the money.

When the fact is the economy is efficient and they should be making goods even
if they are not profitable, i.e. at cost... just to create employment, give
people money, with which they can buy things. But that's not how the profit
motive works. The management consultants and management theory have pushed
this idea in their heads, and they are sticking to it, that they need to
create profit always. Shareholders demand it! But profit is hard to come buy
these days. So they sit around and do nothing instead. Jobs don't get created,
people are starved for money and that vicious cycle ensues and consumption
goes down.

~~~
eru
The Central Banks are simply not creating enough inflation, if demand is a
problem.

In the most extreme case, the central bank can either just buy any assets
under the sun, or start dropping cash from helicopters (slightly more
realistically: give every citizen a bunch of money).

In any case, have you heard of nominal income level targeting?

Ie the central bank instead of targeting inflation, targets what's more
important: the aggregate income of all workers. (Targeting Gross Domestic
Income instead of just the wage share is also possible.)

They set a target of eg 5% nominal growth a year, and announce it. Then do
everything necessary to make it happen.

~~~
marcosdumay
If the post-2008 world isn't proof enough that printing money does not
automatically increase aggregate demand, I don't know what would count as
proof in Econ.

By the way, I'm not saying it can increase AD, just that it does not
automatically does so, for some reason that is widespread now.

~~~
eru
The central bank can always inflate. If printing lots of money isn't enough,
they just need to print some more money.

And, if they manage to buy all of government debt without creating any
inflation, that's awesome on some level as well: they just managed to monetize
all the public debt without any adverse side effects. (And for sovereign debt,
monetization is about as good as eliminating it.)

------
Bartweiss
This is tangential, but it's an interesting choice to pick a URL which parses
as "Grow The Con" just as well as "Growth Econ".

------
SFJulie
So basically you have money, you build a plant and you an produce goods with a
marginal cost of 0 and just get rich because you had access to capital mostly
by birth.

Hug, it will not help most citizens to access the production sphere.

It will not help fair competition, hence innovations. It is just about who has
the most capital. Are we back in XVIIth century were lords owns the lands and
the production?

Does it strikes no one that most of western so called democracy were built to
fight exactly this situation and the social inequalities raising from this
case?

Especially when all countries are trying to make it impossible for citizens to
produce on their own in their private habitation.

Regulations are creating an economy where the poorest cannot neither sell
their workforce by lack of demande, nor produce by themselves, nor offer
services.

~~~
amelius
> Does it strikes no one that most of western so called democracy were built
> to fight exactly this situation and the social inequalities raising from
> this case?

The problem has been identified _many_ times. What is left is to find a
solution ...

~~~
cmdrfred
We have a solution [0]. It just has its own issues and has to be redone every
100 years or so.

[0][http://youtube.com/watch?v=exnaY0l4XsM](http://youtube.com/watch?v=exnaY0l4XsM)

------
darawk
> New services cannibalize time from old services. If I come up with a new way
> to use worker’s time, by necessity it must subtract from the time they spend
> doing something else

This is not universally true. It is possible for technology to allow one
service worker to service more people simultaneously. Consider the increased
productivity of tech. support workers due to the introduction of asynchronous
communication like chat as opposed to voice.

~~~
dredmorbius
The model assumes that time spent on services is perfectly efficient, or rolls
this into the service quality measure.

In reality, a potential service period can be divided into utilized and
unutilized segments. The model of a CPU's run queue and time slots may be
useful here.

If you're under-provisioning services, you'll stack up customers (processes)
in the run queue. If yo're overprovisioning services, you'll have high idle
times. Most likely you'll see a bit of both. If you have a perfect allocation
system, the queue length is always one (the job running) and there's no idle
time.

Technology allows you to approach that ideal. Waiting customers can be paired
with idle servers. But it's not perfect, especially with services that have a
physical component and travel. And you're left with the hard limit of there
being only one hour per hour.

Scheduling and dispatch systems are also already aggressively persued. See
Lyft.

~~~
eru
Yes, though Lyft and Uber are on the verge of replacing their labour inputs
with capital. Ie self-driving cars are around the corner.

~~~
dredmorbius
Fair point.

What their _present_ model shows, though, is the increased efficiency of high-
bandwidth signalling between customer (rider) and provider (driver).

Taxis had previously relied on radio dispatch, which was better than on-street
hailing, but essentially had a single blocking communications stream between
drivers and central dispatch, with high wait times for channel space,
relatively high error rates in transmission, and (compared to digital
dispatch) low total bandwidth and precision.

The Uber/Lyft model is famous for bypassing medallions (though I suspect those
will re-emerge). But it also replaced an obsolete dispatch channel which
incumbents had failed to innovate on (reasons for which might be worth
investigating).

~~~
eru
I don't know whether the dispatch was the bottleneck. How would we figure that
out?

(But having to talk to a human dispatcher over the phone would eg put me off a
bit. More than checking how much the uber is on my smartphone. And once I'm in
the app to compare prices to my other options, ordering is only a tap away.)

------
eru
There's lots of little and big reforms possible to help the productivity of
the economy. Of course, most of them are politically infeasible in most
countries.

I wonder about the long term effect of these reforms. I am afraid there will
be mostly one-off linear factors, and not contributing much to higher future
growth.

(My argument rests on the observation that eg the poster child Singapore is
rich, but not pulling ahead more-and-more.)

------
ktRolster
There are so many potential places to find more productivity in our society,
automation, AI, self-driving cars, and that's just the big, obvious stuff.

~~~
eru
Yes, so the question is: why doesn't it show up in the statistics? (Please
read the article..)

~~~
ktRolster
It will when AI is invented.

~~~
eru
Perhaps. But that's not an answer to the "why don't we see all the technology
that has already happened recently in the productivity stats?" question.

------
dredmorbius
Reading this post is like walking into the middle of an old family dispute and
thinking you've heard all of it. This is just one wrinkle of a _much_ larger
and older discussion that's been ongoing in various forms for at least the
past 240 years, going back to Adam Smith, though the modern concern with
economic growth dates largely to the Great Depression and post-World War II
period.

The model here is looking at the _question_ of economic growth (which is
distinct from the question of distribution, though not unrelated), and of a
simplified economy in which _only_ mutually exclusive goods and services can
be offered.

The conclusion (under artificially but not un-usefully simplified terms) is
that even with continued growth in efficiency of _goods_ provision, _services_
are ultimately constrained by the requirement of _time_ as the ultimate input.

It's possible to quibble in various ways about the model, but it's essentially
correct. A services-based economy is limited by the element of time _in both_
production _and_ consumption. Media already has the problem of there being
only so many consumption-hours per day, _and people are already consuming more
than 24 hours of media per day_ through the mode of multitasking.

A key problem, of course, being that multi-tasking reduces the total
capability to incorporate any given media stream.

Going more broadly:

There's the question of what accounts for economic growth. The traditional
economic answer is "technology", though that answer itself is flawed and
raises the question of what technology _is_ , and more specifically, how
different types of technology _operate_ and _act_ , as well as what kinds of
production or services they enable, and how.

Robert J. Gordon's book, _The Rise and Fall of American Growth_ looks at this,
in detail, though imperfectly.

One of the book's better points is that the innovations of 1870 - 1950,
generally, addressed very fundamental human needs: food, housing, clothing,
transportation, and safety. With tremendous impacts on these: food and diet
(both quantity and quality), health, work and productivity, communications,
and transport.

The innovations of 1950-2015 have been far less fundamental. They've been
concentrated in information and communications, _which yes, have changed and
improved tremendously_ , but they _don 't_ address needs and capabilities at
the base of human wants. A term not used anywhere in Gordon's book is Maslow's
Hierarchy of Needs, among several disappointing deficiencies. The 1870-1950
innovations largely addressed the _base_ of the pyramid. The 1950-2015
innovations have largely addressed the higher elements. This isn't entirely
useless, but it's _not_ foundational. And Maslow's Hierarchy cannot be built
from the top down.

The discussion's been going on for a long time. Adam Smith, Thomas Malthus,
John Stuart Mill, Thorstein Veblen, Joseph Shumpeter, John Maynard Keynes,
John Kenneth Galbraith, Robert Solow, and more. My sense is that mainstream
economics has rather lost the thread, though it does some work of interest.
Gordon's book stumbles over the truth then picks itself up and walks on. It
_does_ however point to several factors, including education, which _don 't_
account for growth. In that, it's useful.

