Saturday, 11 June 2011

Do not believe all that you read

Chicago economist William Strauss explains how rising worker productivity has led to the situation where manufacturing occupies much less of GDP than it once did.

"In 1950, the manufacturing share of the U.S. economy amounted to 27% of nominal GDP, but by 2007 it had fallen to 12.1%. The greater efficiency of the manufacturing sector afforded either a slower price increase or an outright decline in the prices of this sector’s goods. As one example, inflation (as measured by the Consumer Price Index) averaged 3.7% between 1980 and 2009, while at the same time the rise in prices for new vehicles averaged 1.7%. So while the number (and quality) of manufactured goods had been rising over time, their relative value compared with the output of other sectors did not keep pace. This allowed manufactured goods to be less costly to consumers and led to the manufacturing sector’s declining share of GDP."

Some go on to suggest that this rise in productivity also cost jobs ... but efficient productivity (as we see above) results in lower prices for goods ... which means that more people can afford them .. which changes the size of the market... which creates jobs.

I am not saying that there is not a link ... just that the link is complex and multi-dimensional

Don't believe all the blogs you read ! (Only this one of course)

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