American Labor Productivity More Than Halved Since 1990!

When you read the headline you might have thought “What the hell is this guy saying? Labor productivity is very strong in the US.” This way of thinking is right if you depend on conventional methods of economic data gathering and processing. However, if you change your perspective you will see a brand new and surprising world.

Today, under traditional methods labor productivity is measured by dividing a special Gross Domestic Product (GDP) to the total hours worked of all persons, in a year. So, here is the conventional formula:

Labor Productivity = Special GDP*/Labor Hours

*(Excludes the following: General government, the output of the employees of non-profit institutions and private households, and the rental value of owner-occupied real estate)

First of all, this special GDP, or annual production of a country, does not include state economy. State economy is the centre of bureaucratization and inefficient source usage in the advanced industrialized money economies. Currently, in each developed country, state controls nearly half of the economy.

By Stefan Kühn on de.wikipedia, via Wikimedia Commons

Additionally if you measure labor productivity with paper money you will not see the impact of inflation on it easily.

For example, when you measure the American labor productivity with the US dollar, as it is done today, you will notice that it is continuously increasing. Like it is clearly seen in the table below:

CLICK THE TABLE TO ENLARGE

The US Labor Productivity Measured by the US Dollar = 1971: 47.86 dollars, 1980: 55.18 dollars, 1990: 64.54 dollars, 2000: 81.17 dollars, 2014 (2Q): 105.97 dollars

According to this calculation if someone work for an hour in the US in 1971 he/she would earn 47.86 dollars. By the end of 2^nd Quarter of 2014, this figure jumps by 121.4% to 105.97 dollars. Since 1990, labor productivity rose by a significant 64.19%, in US dollar terms.

Now let’s see what happens if we radically change our perspective. How can the picture change, if we measure the US labor productivity with a real good for instance, gold? Here is a detailed table on this issue:

Period	Labor Prod in $	Gold Price per Oz in $	Gold Price per Gr in $	Labor Prod  in Gold
1960	34.60	35	1.1253	30.75
1971	47.86	35	1.1253	42.53
1980	55.18	593.75	19.0895	2.89
1990	64.54	376.3	12.0983	5.33
2000	81.17	275.05	8.843	9.18
2008	96.83	845	27.1673	3.56
2013	106.57	1202.3	38.6548	2.76
2014 2Q	105.97	1321.8	42.4968	2.49
Chg (1990-2014)	+64.19%			-53.28%

Sources: US Bureau of Labor Statistics, tradingeconomics.com, goldprice.org

In this table, we see that US labor productivity in terms of gold first crashed during 70s, than modestly recovered in 80s and 90s, but dived again during 2000s and continued falling after 2008 Crisis, despite more than 3 trillion dollars money printing. There is no continuous rise! Contrary, labor productivity collapsed during 2000s. According to the latest data it is almost halved, compared to 1990!

In other words, in 1971, by working an hour, an American worker could earn 47.86 dollars and buy 42.53 grams of gold with this money. However, by the end of second quarter of 2014, despite earning 105.97 dollars he/she can only buy 2.49 grams of gold with it! Until 1971 there was a state monopoly on gold market and gold price was artificially fixed at 35 dollars. So crash of labor productivity in 1970s was stemming from normalization of gold prices. But even we exclude this fact we see that by the end of 1990 an American worker could buy 5.33 grams of gold with his/her one hour work. However this amount fell by 53.28% to 2.49 grams by the end of second quarter of 2014. In other words, the US labor productivity lost more than half of its real value since 1990.  

So what is the meaning of this for the world economy? If the FED is expecting to gear up the US economy with a slightly rising employment, trusting that American labor productivity is so strong and even a small amount of job creation would lead to enough GDP growth, this will not happen! Real US labor productivity is going nowhere, it is collapsing. The FED needs GDP growth to lower currently unsustainable rate of public debt to GDP and pay US state debt. Otherwise it needs to create inflation and decrease the real value of public debt. This option is only possible by opening a new money printing or QE package rather than ending the current QE or hiking interest rates, as generally expected today.

There is no doubt that labor productivity situation is same in the other developed regions like Europe, Japan or Russia. So why is the labor productivity collapsing in old, matured or advanced industrial money economies.

Because these economies reached natural limits of an industrialized money economy. Aging population, bureaucratization, crumbling nuclear family, alienation, depression, excessive inefficient source utilization, rising debts and etc. spoil and lower labor productivity. Decreasing labor productivity and structural deflation are important characteristics of today’s dying advanced industrial economies.

Matured or developed money based industrial economies seem to end up with a financial crisis bigger than 2008. This worldwide shake-up would not kill money based or capitalist way of production completely but it will open gates for a new production mode, which is not based on money but information.

  

Dr FED can not Exorcise the Deflation Ghost

The major central banks of the world have fought a war against the deflation ghost which has been bothering the oldest money-based industrialized economies of the globe since 2008 Financial Crisis.  

Major central banks afraid deflation too much cause paying government debts in an environment where prices, earnings and of course tax revenues are falling is very hard. Deflation increases the real value of public debt.

That’s why especially the American central bank FED and Japanese central bank BOJ are targeting to induce inflation. Inflation causes real value of debt to fall and makes it easier for the government to pay back.

"Saintfrancisborgia exorcism" by User Gerald Farinas - Licensed under Public domain via Wikimedia Commons

Due structural problems in old money-industry economies like inefficient and excessive source utilization, debt burdens amounted to unbelievable levels especially after 2008. And more importantly, already high ‘public debt to GDP ratios’ have continuously increased in all advanced economies since 2008. To make the matters worse, the IMF forecasts that except Germany led Europe debt to GDP ratios will keep rising for developed countries even until 2018.

If we consider that interest rates are expected to rise again in the US soon and push cost of debt up further, the situation is unsustainable for the US to repay debts and maintain the reserve currency position of the US dollar.

Amid these conditions, today bad news came on the inflation side for Dr. FED who is already trying to exorcise the deflation ghost with dropping trillions of dollars from helicopters. The US consumer prices fell for the first time in nearly 1-1/2 years in August. The CPI increased 1.7% in the 12 months through August after rising 2% in July. This is not good for Dr. FED who targets 2% inflation because the main reason for the fall in prices is decreasing oil costs and global oil prices are going down due cooling Chinese economy.

As general structural deflation in the developed countries leaves no room for Chinese exports, red dragon’s economy slows down and this lowers demand for oil and creates another circle of deflation. O ooo!! Major central banks of the world desperately print trillions of dollars paper money to cover the structural deflation in developed economies but since 2008 they are unsuccessful to reverse this trend and create sufficient inflation to get rid of unbearable debt burdens.

It seems, major central banks would need to take new measures in order to avoid this new wave of deflation and prevent collapse of their money supplies. Recently, Eurozone and China announced that they will print money. Under Abe administration, Japan started the largest money creating operation in the history. However, it would not be enough. I guess both the FED and the BOJ could also go for new extra measures.

NATO's Real Enemy: Deflation!

NATO is the intergovernmental military alliance of the US, Europe, Canada and Turkey. The US and Europe are the areas where money based production or capitalism born and raised first. In capitalism production is organized with money and leads to industrialization. Europe and the US - which we can call 'the West' together - are the oldest capitalist industrialized societies on the world. So, NATO is the military alliance of the oldest capitalist-industrialized nations of our planet. Younger industry nations like Turkey or eastern European countries are on supportive roles.

Today, NATO sees Russia and ‘terrorism’ as its initial enemies. ‘Terrorism’ generally refers to extremist, aggressive groups who take ‘Islam’ as basis of their ideologies.  

"Rodriguez at Italian command change in Herat" by MSgt. Matthew Millson - US Air Force, through ISAFmedia. Licensed under Public domain via Wikimedia Commons

However, NATO’S real enemy is not at outside! We can define the real threat as follows: The oldest money-based economies of members of the organization have already reached their natural limits and they are actually dying.

In Europe and the US:

- Populations are aging, taking medical and social spending up

-Centralization and bureaucratization are lowering efficiency and productivity

-Nuclear family breaking up is spreading alienation and depression

-Excessive and inefficient use of resources cause debts to rise to unbelievable levels

-The society fails to offset maintenance costs of infrastructure and other critical elements of the system

As a result of all of these facts top rulers of the West, big international capital owners, try to preserve their leading positions. They corrupt money itself with the Federal Reserve System which is based on paper currencies that could be printed without any limits.

Actually the facts showing us that money-based economy is dying at the West are also bringing a severe deflation to the oldest capitalist-industrialized nations. Demand for real goods, real prices and money supply contract. That’s why the FED or other central banks of the NATO members are printing so much money. They want to prevent the collapse of the corrupt paper money supply.

"Marriner S. Eccles Federal Reserve Board Building" by AgnosticPreachersKid - Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

Military or intelligence actions of the core NATO members are not separate from economic or financial actions. Trying to pull of Ukraine from Russian influence or fighting against Taliban and Al Qaeda in Afghanistan are parallel desperate movements to ensure some relief to especially dying European money economy. Ukraine has a lot of resources and a large market to exploit which cannot be handed over to Russia, another old but also rival industrialized society. All Muslim countries in North Africa and Middle East have young dynamic populations, abundance of resources, strong demand and most importantly newly and quickly developing money economies and even industries.

Labelling Muslim countries as ‘terrorists’, ‘bringing democracy’ to them, doing nothing against armed uprisings in developing Arab countries or even provoking them, would stop or at least slow down development of money and industry economies of Muslim states which is real threat especially for Europe. Thus core NATO members aim to ensure breath taking time for old capitalist-industrialized nations.

However, the result will not change. The core NATO will not be hit by Russian or Islamist rockets but by a very big new global financial crisis, before the end of this decade.