Good and bad news

productivity

The good news is that the US Gross domestic product, a broad measure of goods and services produced across the economy, expanded at an inflation- and seasonally adjusted 2.9% annual rate in the third quarter, the Commerce Department said Friday. It is good that our economy is growing and credit goes to President Obama who brought us back from the brink of the Great Recession, into continued growth in employment and exports. Energy rich America is looking a lot stronger, and can afford to spend more on its infrastructure, to provide even more investments and employment.

The bad news is that Hillary Clinton’s supporters expect her to carry on progressive policies, for the US economy and trade.  She will push Federal policy makers to bring their long-term fiscal house in order, invest in infrastructure, and enact policies that make America a great place to do business. Hillary, May and Angela will make the new alliances, post Brexit and TPP. We can hope to return to a time, where higher productivity will also raise median incomes, and average salaries will rise higher. We could raise the living standards of the middle class tremendously, by just increasing hourly compensation, and steadily increasing productivity. In fact wages should grow faster than inflation for quite some time, as the economy continues to expand, driven by cheap energy.

We need to spend money to create an educated population, pools of skilled labor, have strong investments in infrastructure, and greatly increase basic R&D. To lead the emerging innovation economy, we need massive amounts of clean energy, computing power and technology. In the SMAC revolution, massive investments need to be made, and trillions to be gained from the new economy. Productivity as I describe it, is the art of making something out of nothing. It makes the middle class and the rich richer, while lifting up the poor. Electric cars, green energy, smart cities, eco living will all transform our future, at a faster rate than in recent years.

 

The relative stagnation in hourly compensation since the time of Carter is due to the new progressives, who took over from the greatest generation of leaders. American inequality has gone through the roof, in these years as the rich have just gotten richer. The top 1 % earned most of the income and the bottom 50% made a pittance in comparison. Wealth inequality grew tremendously in the past decades. Wide spread poverty in Asia, Africa and the Middle East is talked about, but the hidden poverty in America is growing. There are more people falling through the safety net, as the economy progresses and there is a resentment, that things are not as good as they appear. Clinton can reverse the “WELFARE STATE FOR THE 1%, by ending welfare for the poor, attitude,” which her husband glorified. Instead she has to spread the safety net, and start a virtuous self-sustaining period of rapid productivity and wage growth. The aim is more and better employment, and the solution is Infrastructure and alternate energy spending from the Government. The Private Sector will also expand on the back of a growing middle class as less income equality, means more demand for goods and services.

Business and government must combine their efforts to take steps to build a skilled workforce, ready to do tomorrow’s jobs. Massive R & D will, upgrade local suppliers, foster innovation and reinforce education. The productivity gains enable firms in the U.S. to win in the global market place, while also help in creating jobs, which lift living standards. The government and business need to work hand in hand, to more equitably distribute the fruits of productivity. We need to return to the policies which encouraged a more evenly distributed income, as seen in the chart from 1948 to 1973. Median wages and productivity rose together, to make the great middle class of US consumers, who in turn drive our economy forward.  In 2017 we will have a new president, a new vision and a growing GDP.

Happy Diwali and wishing a very prosperous and healthy year ahead, to everyone!

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