Doug Henwood Responds to Comments
A few words about some of the comments that have been posted here and around the web.
First, someone pointed to a critique of the productivity stats from John Williams of Shadow Government Statistics. Williams is a real piece of work. I spend a lot of time tearing into these numbers and talking to the people who collect them. I really don’t think that Williams does. His stuff often reads like he just pulls it out of the air. When he writes about the technicalities of putting together the official data, Williams frequently sounds like he doesn’t know what he’s talking about-and he rarely discloses his own methodology. Officialdom discloses its techniques at great length.
Some specifics. Williams’ productivity critique http://www.shadowstats.com/article/productivity-miracle comes along with a silly essay on the Federal Reserve’s flow of funds accounts, their quarterly taxonomy of financial assets and liabilities, from 2006. He mocks the downward revision to the Fed’s earlier estimates of foreign holdings of U.S. Treasury bonds for late 2005, and its apparent shift to U.S. households.
But almost all stats are regularly revised, sometimes up and sometimes down. But he treated this as a confidence trick to hide the government’s indebtedness. But five years later, the rest of the world’s holdings of U.S. Treasury bonds have increased by almost half, a huge increase that no one’s tried to revise away.
Williams did similar stuff with employment stats early in the recession, when the job losses were pretty small. A few months later, the Bureau of Labor Statistics had no problem reporting huge, sustained job losses, the worst in modern history.
On productivity, Williams revises the official number for “methodological gimmicks that were added over time.” He doesn’t tell us any more-what these gimmicks are, or how he did his magical revisions. There are some complicated issues with how to adjust price changes for quality changes. The crux of the problem: today’s computer is more than twice as fast as 2008’s, but probably costs the same or less. Since you’re getting twice as muich computer as you were, what happened to its price? But do people really take advantage of all that speed? There are a lot of products like this-and it’s not easy to measure what their value is over time. The BLS tries to adjust for it. You can disagree with the way it’s done, and I have, but it’s not bullshit. Williams certainly doesn’t know any better.
The BLS is staffed by serious people who are independent of political pressure and try their best to do a good job. It’s hard, conceptually and practically. No one ever said they’re perfect, but they’re pretty good.
And here’s an important political point: these stats are collected not for the broad public, which has no idea what they mean, but for elites in business and finance. They want honest accounts, not bullshit. Why would a ruling class’s government lie to that ruling class?
I’ve long said that the official stats are damning enough as they are. The notion that productivity is up and wages aren’t, which has allowed for a massive increase in profits and upper-bracket incomes, is hardly at odds with most people’s experience. Everything we want to know about poverty, inequality, overwork, bad health, you name it, is in the official stats. Why some guy with a website and an attitude is more credible than statistics collected by thousands of serious, dedicated people is beyond me. But people believe what they want to.
There’s also a frequent attempt, usually coming from the right, to erase the gap between productivity and pay. (Sample, from Mark Perry: http://mjperry.blogspot.com/2008/06/real-compensation-has-risen-with.html.) First of all, it’s important to point out that the graph I sent you, made from pure BLS data, uses total compensation as its pay measure, one which includes fringe benefits along with direct pay. If you used direct hourly pay, the gap would have been even wider. The value of fringe benefits has been swollen by health insurance premiums, much of which is pure medical inflation and not real quality of care. If you took out fringes and looked only at direct hourly pay, the gap would have been much wider.
And second,this analysis uses a single price deflator (presumably the GDP price deflator, which covers the entire economy) to adjust both output and pay. That’s not what the BLS does. It uses a price index for the things that businesses have to purchase (raw materials, low-cost stuff sourced from China, capital equipment like machinery) to deflate output, and the consumer price index for things that people have to purchase. The prices things from China and capital equipment (especially computers and other high-tech gear) have lagged consumer prices a lot. Raw materials prices have spiked over the last couple of years, but before that, their prices had mostly been declining for decades. (And their share of economic inputs has declined over time.) So this revised measure of real compensation has absolutely nothing to do with the prices of stuff that actual workers have to buy.
It’s a fact that incomes for people in the middle and at the bottom of the income distribution have stagnated for decades, while those at the top have soared. Another way of putting this is that returns to capital (profits, interest, dividends) have sprinted ahead while labor income has limped along. In other words, almost all the benefits of economic growth have gone to the richest tenth of society. That’s where the proceeds of the productivity miracle have gone. I’m sure there’s some wiseguy who’d like to revise this away, but that would involve even more fiction writing than the efforts of Williams and Perry.