A few months ago I wrote about Lakshman Achuthan nailing the Fed for raising the Federal Funds rate (a shortcut term to describe a set a mechanisms used to raise short term nominal rates in the Fed Funds market) during a cyclical slowdown.
Last month Achuthan gave a presentation at the Hyman P Minsky Conference that consisted of a general analysis of the state of the economy, and he posted the slide deck on his Economic Cycle Research Institute website for anyone to view free of charge. While he does not appear to subscribe to the market monetarist theory of the Great Recession, he appears to agree with the MM bottom line about the present.
The part in the slide deck that I found particularly interesting is the analysis of productivity growth (pages 5-6 – You will need to open up the slide deck to see it, as I have not been given permission to use his material.), because productivity growth has been quite the buzzword as of late with no real golden threads of logic attached. But Achuthan presents a pretty convincing picture that even though the contribution to productivity from workers themselves is down slightly, capital intensity has taken a huge hit since 2010.
Please recall that the ratio of capital to hours worked defines capital intensity. What’s happened is that economic growth, such as it is, has been skewed toward growth in the number of hours worked, largely in lower-wage service sector jobs, while capital investment has taken a huge hit [1.4 percentage points since 2010]. Basically, without a revival in capital investment, we are unlikely to see much of a recovery in labor productivity growth.
Imagine that. The economic growth we have is largely due to growth in hours worked. More people, more shifts, on the same equipment. Perhaps the equipment sidelined by the 2008 demand shock is slowly being dusted off and put to work. And now I know the reason the laptop I have been using for work for the last 3 ½ years was a hand-me-down. The thing must be at least six years old, and nearly everything at work predates me, with the refresh on our servers being put off for another year.
The entire slide deck is good information that I have bookmarked for future reference. I am always in need of specifics to “shove in the faces” of the Phillips curve priesthood.
PS: Achuthan’s “Purple Squirrel” article about the recent surge in job openings is also very much worth reading.