Thursday, June 9, 2016

Productivity Growth: It's the Investment, Stupid

As a side note, I've seriously started thinking Izabella may be working on a master plan to single-handedly save the entire newspaper industry.

From FT Alphaville:

You can see the computer age everywhere but in the investment statistics
In case you missed it on Wednesday, Andrew Smithers’ letter to the FT offers a delightfully simple explanation to the productivity puzzle that continues to baffle the world.

It’s all because of a lack of investment.

Or, as Smithers puts it:
Sir, Productivity is not, as you claim, “the puzzle that baffles the world’s economies” (editorial, May 30). It is caused by low investment, which is essential to make technology effective. Productivity is not lower in China than in the US because good technology is unknown but because the capital stock is much lower. Equally US productivity does not reflect the use of the best technology. The average company is less productive than the best and cannot catch up without more investment.
Mervyn King, the former governor of the Bank of England, recently and correctly wrote that the main reason for the disappointment over productivity “ . . . is that there has been a sharp fall in the growth rate and perhaps even the level of the effective capital stock in the economy” (The End of Alchemy. Money, Banking and the Future of the Global Economy ).

Failing to recognise that poor productivity is the result of low investment is very damaging, as it deflects attention from why investment is so low....MUCH MORE