Monday, May 28, 2007

Productivity matters 

Play the interesting little movie that Steve Conover has put together. Then check out the latest data on multifactor productivity. It's worth noting that multifactor productivity removes two items that can cause increases in output per hour of labor (which I think Conover means by productivity): an increased reliance on capital services per worker to produce output, and increasing skills of workers. Both of these are subject to diminishing returns (when thinking about Conover's point about covering public debt service.) The 1.1% growth of MFP is above the average for the 1980-1995 period, but below the level of the last ten years.

I have never given up the idea that measuring debt service as a function of potential rather than current GDP would be more useful.