It's still your economy

Updated Two items from the November 30 New York Times raise important questions about the "improving" economy and how sustainable that recovery is.

Stephen Roach of Morgan Stanley talks about "The Productivity Paradox."

Despite the economy's stunning 8.2 percent surge in the third quarter, the staying power of this economic recovery remains a matter of debate. But there is one aspect of the economy on which agreement is nearly unanimous: America's miraculous productivity. In the third quarter, productivity grew by 8.1 percent in the nonfarm business sector - a figure likely to be revised upwards - and it has grown at an average rate of 5.4 percent in the last two years. ...

The favored explanation is that improved productivity is yet another benefit of the so-called New Economy. American business has reinvented itself. Manufacturing and services companies have figured out how to get more from less. By using information technologies, they can squeeze ever increasing value out of the average worker.

It's a great story, and if correct, it could lead to a new and lasting prosperity in the United States. But it may be wide of the mark.

Part of the issue, Roach says, is how to measure "productivity" - defined as output per work hour - in an economy heavily dominated by the so-called "service sector," which now employs 80% of the private work force. How do you quantify the output of a waitress or a teacher or a psychologist or an artist or a nurse or a firefighter? More subtly, how do you measure work time in a "connected" society full of cell phones and laptops?

He also touches on productivity "gains" based on downsizing (one of my favorite euphemisms of the 1990s) and outsourcing (another fav). He ends by saying "With cost cutting still the credo and workers starting to reach physical limits, America's so-called productivity renaissance may be over before Americans even have a chance to enjoy it."

"The Unemployment Myth" is addressed by Austan Goolsbee of the University of Chicago.

[U]nemployment normally falls significantly in such economic boom times. The last time growth was this good, in 1983, unemployment fell 2.5 percentage points and another full percentage point the next year. That's what happens in a typical recovery. So why not this time? Because we have more to recover from than we've been told.

The reality is that we didn't have a mild recession. Jobs-wise, we had a deep one.

The government reported that annual unemployment during this recession peaked at only around 6 percent, compared with more than 7 percent in 1992 and more than 9 percent in 1982. But the unemployment rate has been low only because government programs, especially Social Security disability, have effectively been buying people off the unemployment rolls and reclassifying them as "not in the labor force."

In other words, the government has cooked the books.

What makes this so much worse, of course, is that so many people who legitimately qualify for disability can't get it because, some case workers will admit privately, they're expected to reject at least a certain percentage of applicants. I've personally known three people who applied for disability. One got it but only after a three-year legal battle. Another, who had a heart attack and was directed to lift nothing over five pounds - and in fact was diagnosed as being at risk of "sudden death" from a second heart attack - was, after a cursory exam by a physician chosen by Social Security, declared fit to return full-time to her work as a nurse in a nursing home. The third, despite having specific statements from two treating doctors that she should not work, was also rejected. Those latter two cases are being fought.

Updated some time later to add that the appeal of the heart attack survivor was ultimately successful - during the course of which appeal it was learned that the doctor chosen by Social Security recommended approval of the disability claim - but the agency not only ignored that recommendation, it claimed in its rejection letter that the denial was based in part on his findings.