- Today we got the official numbers for Q2 Non-Farm Productivity and the consensus was that it would increase for the first time in 3 quarters; the prior 2 quarters we saw a decline in productivity
- So analysts were looking for a .5 increase in the second quarter
- Instead, we got a decline of .5
- More importantly, this is the first 3-quarter consecutive decline in productivity since 1979
- That was the Carter years – stagflation, the misery index, sky-high inflation, sky-high interest rates
- That was the last time we had a 3-quarter drop in productivity and President Obama is bragging about how great the recovery is and Hillary Clinton promises more of this
- If you look at the actual size of the decline over those 3 quarters, it’s the biggest drop in productivity since 1993
- If you look at the year-over-year decline, this is the biggest decline in productivity in 3 years
- Productivity is extremely important
- Politicians are all talking about higher wages – “We need higher wages!”
- You can’t get higher wages without higher productivity.
- That is where higher wages come from
- Now, a lot of politicians want to substitute government decrees – they want to mandate higher wages
- Like minimum wage – we’re going to force employers to pay this minimum wage
- All that does, is raise the bar; it makes it harder for unskilled workers to get a job in the first place
- Now employers are forced to pay a wage that may be well above the productivity that they can deliver
- In that case, they can’t get the job
- Mimimum Wage doesn’t just raise wages, it raises the bar
- Another popular way that politicians try to mandate higher compensation is by mandating benefits such as health care, sick leave, paid vacation days, or overtime
- The idea is that you’re getting something for nothing – I voted for this guy and he delivered
- That’s not how it works
- When an employer hires somebody, they look at the overall cost of employing that person, relative to the productivity required for the job
- If I am mandated to provide certain benefits, the costs associated with them are also mandated
- If you force the employer to provide benefits at a certain cost, how is he going to pay for it?
- What happens is, the compensation becomes a mix of wages and benefits
- Maybe the worker doesn’t perfer that, maybe the worker just wants the higher wage
- The worker can’t have it because the government took that decision away by mandating that a portion of the pay include benefits, whether the worker wants them or not
- The politicians hope the voters fall for the idea that they got something for nothing
- That’s government for you. They always want you to think you’re getting something for nothing
- But the something for nothing costs a lot more than you think because the nothing is not nothing
- In this case, wages go down so the benefits can go up
- Everybody would be better off if the government stayed out and let each worker negotiate independently with the employer for a compensation package that is most valuable to that worker
- But productivity is really the holy grail of higher wages
- If we really want higher wages we need to raise productivity and that’s not happening
- If productivity is going down, wages are going down
- If you want wages to go up, you have to have higher productivity
- How do you get that? Less government, lower taxes, higher interest rates so we get more savings and more investment and less of all this speculation and paper-shuffling that we have in this bubble economy
- I want to talk also on this podcast about Donald Trump’s economic speech yesterday
- I just want to focus on one aspect of it that has been getting a lot of press: the estate tax
- After you die, the government comes in, and if you have a sufficient amount of money, they take half of it
- Donald Trump is promising to repeal the tax, which is a great idea
- The inheritance tax is probably the single worst tax we have
- And it will deliver the most bang for the buck if we eliminate it
- The government doesn’t collect much money in the estate tax, but the estate tax itself does an enormous amount of damage
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