Relevant and even prescient commentary on news, politics and the economy.

Productivity and Capacity Puzzles

The BLS released its revised productivity numbers for the June – September quarter (Q3), which show that productivity leapt by 9.4% over that three month period. The strongest gains in productivity were in the durable goods manufacturing sector – i.e. producers of cars, washing machines, furniture, and capital equipment. That remarkable productivity growth came from two sources. First, those businesses produced more goods. Second, they used less labor to do it. In fact, they were able to squeeze 8% higher production out of their factories while using 6% fewer workers. It’s a pretty remarkable feat.

But I think that this adds to a puzzle that I’ve been thinking about for some time. Why is there still so much excess capacity in the economy? If productivity has been growing so rapidly, and factories are churning out more and more stuff using fewer workers, then presumably that means that businesses are getting better at using the resources that they have. So shouldn’t we see that the US is using more and more of its productive capacity, since its productivity has improved so much recently? Yet total capacity utilization in the US is still incredibly low (see graph here).

There’s another facet to this capacity puzzle. On the one hand, business spending grew at a very fast rate in the third quarter. Specifically, businesses increased spending on equipment and software by 18.4%, which alone accounted for 1.4% of the 8.2% increase in GDP in Q3. That’s the fastest rate of business purchases since 1998. But on the other hand, businesses have tons of spare capacity, as the graph illustrates.

So, to sum up:

– businesses have done an incredible job of squeezing more output out of fewer workers lately, presumably by more fully and more efficiently using the equipment that they have.

– businesses still have tons of excess capacity, which means that they can produce far, far more than they actually are.

– businesses are currently buying new equipment at a remarkably fast rate.

Something here doesn’t fit together. I’m not quite sure what, but something odd is going on here.


Comments Off on | |

Looks Like Nader Might Run

Via Talking Points Memo, I see that there is a Nader 2004 Presidential Exploratory Committee website now. Not wanting to criticize Nader without cause, I first thought that this might be a site made by someone urging Nader to run, similar to the various Draft Clark sites. So I did a quick whois domain registration search (*), which reveals that the person who registered the site hails from the domain, which is registered to “Nader2000”. I vaguely recall that was the official campaign site of Nader in 2000, but it’s no longer active. Fortunately, a quick search of reveals that actually was a web site in 2000 and that it directs people to the “official” 2000 campaign site,

In a nutshell, the website is real, and Nader — not some enthusiastic supporter — does in fact have an exploratory committee. Allow me to suggest this as the official campaign slogan: “Four More Years”. And no, this post is not another attack on the Greens, but rather an appeal to Greens to recognize that Nader running in 2004 is a bad idea. Every vote counts and taking any away from the eventual Democratic nominee is perilous, unless you want more energy bills, more regressive tax cuts, more war, and so on.


(*) Ok, I was secretly hoping to find that the site is registered to the Republican National Committee. It’s not.

UPDATE: Via TBogg, I see that Eric Alterman has a post on the subject. I have to endorse TBogg’s take: “Whatever good that Ralph Nader did years ago is now gone. Vanished. Zero balance. If he runs again, he goes into the negative.”

Comments Off on | |

Bush to Repeal Steel Tariffs

The Washington Post is reporting that Bush has decided to repeal the steel tariffs. Given the growing crowd of countries that had recently announced that they would retaliate by putting tariffs on US products (as noted by AB in this post), I’m not surprised. As I argued in another earlier post, I think that the Bush administration will use the WTO ruling and the threat of retaliation by the US’s trading partners as political cover to do something that many in the administration have been wanting to do anyway.

From the WaPost story:

The Bush administration has decided to repeal most of its 20-month-old tariffs on imported steel to head off a trade war that would have included foreign retaliation against products exported from politically crucial states, administration and industry sources said yesterday. The officials would not say when President Bush will announce the decision but said it is likely to be this week…

Bush advisers said they were aware the reversal could produce a backlash against him in several steel-producing states of the Rust Belt — including Pennsylvania, West Virginia and Ohio. That arc of states has been hit severely by losses in manufacturing jobs and will be among the most closely contested in his reelection race.

I particularly liked this line in the story, though:

The sources said that Bush’s aides agonized over the options to present to the president and that they considered it one of the diciest political calculations of this term.

Notice that it was a political calculation, not an economic one. Of course all presidents make decisions based on politics, but no administration that I can think of has made economic decisions so exclusively based on political calculus rather than economic concerns.


Comments Off on | |

More Medicare

Part of the reason I made this graph of the just-passed Medicare Prescription drug benefit was to facilitate some clear thinking on the subject by commenters and other bloggers. In this post, Ruy Texiera points out that

[Seniors] will be hyper-aware of how much they will and will not be helped by the new bill. That’s why the concept that the GOP will be generally helped just because a bill with some sort of benefit for seniors–no matter how lousy!– has been passed is so ridiculous. Seniors are going to be calculating how much–“to the penny”, as one senior put it in this article–their out-of-pocket drug costs are going to be under this new bill and they’re not going to be pleased. And they are going to know there’s nothing stopping drug prices from continuing to escalate rapidly and, therefore, their out-of-pocket costs as well.

In another post, Ruy T. gives some poll data to support his contention that the GOP may not gain much politically from this particular drug plan. Given the actual amount of non-catastrophic coverage is at most 48% (i.e., the government pays 48% of total drug costs and the senior pays the rest), and that even under catastrophic coverage the goverment only plays for more than 50% of drug costs when total drug costs exceed $8366, Ruy just might be on to something.


Comments Off on | |

Era of Big Government, Cont’d.

John McCain sums it up nicely:

“Congress is now spending money like a drunken sailor,” said McCain, a former Navy officer, “and I’ve never known a sailor, drunk or sober, with the imagination that this Congress has.”

[snip] “The administration originally supported an energy bill that would cost about $8 billion. This one is up to $24 billion, and the administration is still saying it’s one of its highest priorities,” McCain said. “I don’t know how you rationalize that.”

“Any economist will tell you cannot have this level of debt of increasing deficits without eventually it affecting interest rates and inflation,” he said. “Those are the greatest enemies of middle-income Americans and retired Americans.”


Comments Off on | |

Free Trade and Retaliation

Up to now, most of my arguments — and Kash’s — in favor of free trade have been premised on the idea that access to inexpensive imports is good for U.S. consumers and also good for the countries selling the goods. A second line of argument is that when the imports being limited or having tariffs attached are inputs (like steel), the harm to industries that use those inputs outweighs the benefits to the protected domestic industry.

There is also another element to the argument for free trade: avoiding the imposition of retaliatory tariffs on U.S. exports. If the rest of the world responds to U.S. protectionism with more protectionism, then we really hit the trifecta of higher prices for consumer goods, lost jobs in import-consuming domestic industries, and lost jobs in export industries. And it looks like that’s where we are heading:

The United States’ growing trade dispute with Europe, Japan, and China over steel and textiles is sparking threats of retaliation that may slow global investment and hurt the sales of companies such as Boeing Co., Ford Motor Co. and AMF Bowling Worldwide Inc.

Japan and Norway has joined the European Union in saying they’ll impose sanctions on US goods to strike back at the Bush administration for steel-import tariffs imposed last year.

… in March, the EU will begin phasing in $4 billion in duties on US products, from leather goods to nuclear reactors, to pressure American lawmakers to scrap a tax break that the WTO says violates export-subsidy rules.

… Products of AMF Bowling Products Inc., a unit of AMF Bowling Worldwide, are on the EU’s retaliation list. The company estimates that as much as 30 percent of its $125 million in annual revenue comes from sales of bowling alley equipment in the EU. “I would view that business as being significantly at risk if these tariffs get passed,” said company president John Walker. AMF may lose sales to Brunswick Corp., which has a factory in Hungary, and to Asian competitors, he said.

Tariffs are bad. Trade wars are really bad.


Comments Off on | |

Are Faculty in the Humanities Liberal?

Yes, almost surely so. But Stanley Fish, Dean of the College of Liberal Arts and Sciences at the University of Illinois at Chicago, has what I think is the right response:

David Brooks is only the most recent sage to point out that, especially in the humanities and social sciences, a huge percentage of the faculty is self-identified as left of center. The result, says Brooks, a columnist for the Times, is a small brave band of conservative professors and students who are the victims of discrimination and can cope only if they “keep their views in the closet.”

This is a mixture of nonsense and paranoia. In any institution I have ever taught at, conservative students are more vocal than their counterparts, especially when they are complaining loudly that their voices aren’t being heard. And as for the assertion that “faculties skew overwhelmingly to the left,” I would say first, that it is a supply-side problem — if conservatives really want to spend their lives teaching modern poetry and Byzantine art, they should stop whining and do the dissertations and write the books, and they’ll get the jobs — and second, that it’s not a problem.

It really would be that simple, but incessant whining is much easier than the hard work required to complete a dissertation in the humanities, endure years of meager pay as a post-doc, and then perhaps finally land a tenure-track position.


Comments Off on | |

Even the Pro-Free Trade Paul Krugman

Via Matt Yglesias, Paul Krugman offers some thoughts that I think a fair number of Angry Bear readers will agree with:

First and foremost, the promise of export-led growth has failed in too many places. In particular, Latin America has signally failed to replicate Asia’s success: Latin nations have liberalized, privatized and deregulated, with results ranging from disappointing (Mexico) to catastrophic (Argentina). Open world markets, it seems, offer the possibility of economic development — but not an easy, universal recipe.

Meanwhile, competition from newly industrializing economies does hurt some workers in advanced countries. I could tell you how sensible government policies could minimize this cost, but since we don’t have those policies and aren’t about to get them, free trade is, in reality, a morally ambiguous issue. And someone in my situation has to acknowledge being in a particularly weak moral position, since they aren’t yet having newspaper columns written in Bangalore.


Comments Off on | |

More Reading For Your Thanksgiving Enjoyment

This one is suitable for children, but should be digusting to everyone. Bob Novack, in the Sun-Times:

On the House floor, Nick Smith was told business interests would give his son $100,000 in return for his father’s vote. When he still declined, fellow Republican House members told him they would make sure Brad Smith never came to Congress. After Nick Smith voted no and the bill passed, Duke Cunningham of California and other Republicans taunted him that his son was dead meat.

Perhaps if they had hinted that, should Smith fail to vote for the package, the $100,000 would instead be used to take out a contract on his family, Smith would have caved.

Via Suburban Guerrilla.


Comments Off on | |