Proof that Being a Billionaire Doesn't Mean You Understand Economics

The Atlantic

Ken Fisher is a billionaire money manager, the author of eight books, and a columnist for Forbes. He is also living proof that being rich or successful in business in no way qualifies you to talk about economics, at least judging from a mind-bending post he's written about "why job growth is overrated."

"Believe it or not, I'm for fewer jobs, not more," he starts off, inauspiciously. "Throughout 2012 we heard politicians and pundits of all stripes yammering endlessly on the need for job growth--that we don't have enough jobs. It's pure rubbish."

How counterintuitive! How provocative! How...bizarre. Fisher thinks the U.S. economy needs to beef up its "productivity," which is the phrase economists use to describe the amount of value each worker creates per hour of labor. As companies become more productive, they learn to do more with fewer employees. So think about a car factory. General Motors needed thousands upon thousands more assembly line workers in the 1960s, when everything was welded by hand, than it does today, when robotic arms do much of the work. Its factories, in other words, have become more productive.

"There's no magic pill for productivity," Fisher writes, "but if we continue to innovate as we have been it will mean more output with fewer jobs in the future. In the long run, we will all benefit."

Well, no. If that's what happens, we'll be pretty screwed. See, when an economy is working properly, productivity increases are supposed to lead to more jobs overall, not less. When companies need fewer people to earn money, they can pay the employees they keep around more. Those lucky folks go and spend their enlarged salaries, which generates job growth elsewhere in the economy. Alternatively, as each worker becomes more profitable, some companies will go and hire more of them. Notice that, for most of our postwar history, productivity (blue) marched upwards in tandem with employment (red). 

Productivity_Employment_Fred.PNG

That virtuous cycle has unfortunately fallen out of sync. Over the past several decades, productivity has grown much faster than wages. Workers are generating more wealth for companies with their labor, but aren't getting paid any more for their efforts. That's led to the stagnation of middle class incomes, and the great increases in inequality we've witnessed since the dawn of the Reagan era (You can have a book long debate about why this is the case, but I'd personally argue that the decline of organized labor and growth of the services economy played major roles). To make matters worse, companies learned during the recession that they could squeeze even more value of out workers fearful of mass layoffs -- which is why productivity increased even as employment fell. Partly as a result, corporate profits have surged to all time highs, even as wages as a percentage of GDP are at a low.

In the long run, companies need customers who can afford to buy what they're selling. An economy where improved productivity doesn't lead to wage and job growth isn't good for anybody -- even, perhaps, billionaire money managers like Ken Fisher. 





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