Thursday, November 02, 2006

There goes one excuse for deficits....

Latest economy figures show that productivity was flat last quarter and per unit labor costs went up. This is renewing concerns that inflation is on the way.

Here’s my take on it based on the little I know: Per unit labor costs are going up, which means labor is consuming more capital to do its work. We get this capital from abroad as foreigners find new and interesting ways to invest in the US.

That is all fine and dandy so long as we can find interesting ways to use their capital; put another way, an argument can be made for trade deficits if we use the capital coming in to up our growth rate, which is intrinsically tied to our growth in productivity.

Productivity doesn’t grow, the US economy doesn’t grow, and those deficits look more and more worrying.


U.S. Productivity Idles As Wage Pressures Rise - WSJ.com

2 comments:

Paul H. said...

Ron, I'm starting to worry about you. You were a perfectly respectable PR guy and now you are turning into an Economist-quoting Junior Veitch clone. Brrr! Scary!

Ron said...

did you say "respectable PR guy"? first time i've ever seen those words strung together. Anyway, last couple of days have been hectic but stay tuned... more "junior v" material is on its way!