A Minsky Recovery?
By Arnold Kling
As always, there are conflicting views on the economic outlook. Daniel Gross is optimistic.
In the third quarter, productivity–econospeak for companies doing more work with the same amount of labor–rose at a 9.5 percent annual rate… But just as hamsters can run only so fast on their treadmills, there are limits to productivity growth. “If you look at economies over many centuries, you can’t grow productivity for 7 or 9 percent for more than two or three quarters,” said Lakshman Achuthan, managing director at New York-based Economic Cycle Research Institute, whose leading employment indicators are looking up. “At a certain point, people will start to collapse at work.”
Pointer from Mark Thoma. I think that this is a misleading way to look at productivity. Remember Garett Jones’ point that workers are building organizational capital, not producing widgets. We can get increased output without much increase in labor input.
Meanwhile, Nouriel Roubini writes,
The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.
So we can expect that job losses will continue until the end of 2010 at the earliest.
I am leaning toward the optimists. I do think that the productivity number is important, because it signifies profits. Profits are an important precondition for recovery, particularly if one takes the Minsky model seriously. Recall that a year ago people were talking about a “Minsky moment.”
Hyman Minsky’s view is that in good times, firms get more and more confident and willing to use leverage. In bad times, they resist borrowing and instead fund expansion out of profits.
I am sympathetic with Minsky’s view. In the Garett Jones world, hiring a worker is as much a capital investment as is buying a machine. I think that as profits continue to improve, firms will be willing to make more investments in both equipment and workers. This will produce a recovery in employment. So, although I do not exactly agree with Daniel Gross’s reasoning, I share his optimism based on the recent productivity trends. Contra Roubini, I would bet that jobs will be increasing by June.
The Recalculation does not happen quickly. But it does not take forever, either.