Tuesday, February 09, 2016

Productivity, Earnings, and the Plight of the Middle Class

I hate being wrong.

I hate being successfully lied to by somebody manipulating me into supporting political policies and candidates that I may not favor if I knew the truth.

For a number of years, I have taken this chart - recently tweeted by the Hillary Clinton presidential campaign - as describing some important facts about the economy.

Specifically, I took it as showing that though the American workers are producing more for each our of labor, they are not getting paid more. Somebody else is pocketing the profits. This left me open to the suggestion that the very rich - using their money to purchase political power that allowed them to direct more money into their bank accounts - was behind this.

However, an article in Vox, Hillary Clinton's Favorite Graph Is Pretty Misleading, reports that this is not accurate.

The graph contains an equivocation. Specifically, one line is drawn using one standard of inflation, and the other is drawn using a different standard of inflation. Much (though not all) of the deviation between the two lines can be explained in terms of this price divergence.

This is no simple mistake. There is no simple truth that can replace this deception.

When I point this out to people, a natural question they have is what this would look like if you did it right and used the same inflation index for both productivity and hourly compensation. The problem is that there's no right way to do it. You can't feed your kids a commercial jetliner or exports of business software, so saying something like, "Real wages have actually gone up a lot as long as you count a bunch of stuff that nobody buys in the price index" doesn't make much sense.
On the other hand, making business equipment and software is a very legitimate line of work. Saying, "The economy really hasn't grown much if you don't count America's most vibrant and innovative industries" is pretty blinkered.

And there is reason to believe that, once upon a time, it was used only by those who understood it and we're not deceived.

However, somebody - recklessly or knowingly - brought it out into a public, where it has since been used and repeated, shared and retweeted, to support policies and attitudes it does not support.

Hillary Clinton decided to be among those who shared and retweeted it to support a political agenda.

To make matters worse, she added a second fiction on top of the first. She explains the "productivity" improvements in terms of "working harder". However, that is not true. productivity improvements substantially come about by improving efficiency - allowing a person to accomplish more with less time and effort.

This means either (1) she does not know that the graph is deceptive, or (2) she does know but she does not care.

If (1) is true, this is evidence against her competence. If she cannot tell the difference between manipulative fictions and fact we need to worry about her basing her policies on manipulative functions. If she actually does not know how what "productivity" is, then she cannot - as President - effectively promote policies that increase worker productivity.

My guess is that she does know, but she values manipulating others into supporting her policies more than she values truth. 

If (2) is, in fact, the more accurate description, this suggests that she will continue to keep us misinformed and manipulated when doing so will get us to support her policies and programs. In other words, we can expect her, as President, to continue to feed us fictions that she wants us to believe and have little regard for helping us, as citizens, evaluate policies based on an accurate understanding of the facts.

We all make mistakes. I am writing this post to express that I embraced the manipulative fiction embedded in this graph for years. However, I am not running for President, and I do not have a team of economists who can tell me, "This is manipulative fiction." And I would never have interpreted increases in productivity as "working harder". I do know better than that.

Even though I made this mistake, now that I have learned more about the graph, I respond by writing a post exposing this error. I do not go ahead and retweet and share the fiction because, in doing so, I can get others to support a political agenda that I favor.

Is Clinton willing and able to follow the same standard?

Is Sanders?


Doug S. said...

I'm going to nitpick the final Vox graph. They compare GDP to total employee compensation - but it doesn't say anything at all about *which* employees are getting that compensation. After all, a CEO is still an employee. What happens if you compare nominal GDP per capita to nominal median income?

Alonzo Fyfe said...

A valid point.