Look at the two stories captured in this clipping from today’s Google News at 1o:15 AM EST. The first article reports that the U.S. trade deficit increased sharply in October, according to The Wall Street Journal, while U.S. News and World Report tells us that U.S. productivity increased by 3.1 percent in October.
The juxtaposition of these two articles indicates the confusion that excess or non-essential data is creating all around us. Readers of the first article, could come away with the impression that the U.S. economy is being sucked deeper into the toilet, while readers of the second article might be convinced that the economy is improving.
The Concept of Excess or Non-essential Data
What is excess data? Excess data is any information that you don’t actually need to conduct your affairs in your daily life. Example: what difference do the quarterly reports about trade deficits make to you, as a consumer or a taxpayer, in the course of your daily existence from the simple standpoint of what you could possibly do about them? Or, what difference does a 3.1 percent increase in domestic productivity make to you as a worker and consumer?
(If you are sitting there thinking how crazy it is for someone not to want information, ask yourself how knowing this information is going to make your life better, or how not knowing it is going to make your life worse.)
When the news media report these stories, they are always responding to a press release from some agency or other group. They are stirring the pot. The information is absolutely useless to the vast majority of Americans who are not business moguls, Wall Street investors, bankers or government policy makers, but the good numbers make us feel good about ourselves and the bad numbers make us feel bad. It’s all part of the manipulation of our national consciousness, and the oscillation between good and bad reports is needed to keep anxiety levels up. The recent election is a good example of what happens when anxiety levels are artificially heightened by the news media.
What matters to the rest of us – the rank and file of humanity – are long-term trends, trends that cover years or even decades, because those long term trends affect quality of life. Long term trends are rarely reported on because, well, because the news is almost always bad. We are living in an age of negative entropy and we are all having a very hard time getting used to it.
The Trade Deficit Roller Coaster
The WSJ story, “U.S. Trade Deficit Widened Sharply in October,” by Ben Luebsdorf, leads off with a statement sure to strike fear into the hearts of American workers: “The U.S. trade deficit widened sharply in October as exports weakened following a summer surge, and imports jumped, setting up a likely drag on overall economic growth in the final months of 2016.”
In this article, Luesdorf acknowledges the blip in productivity in the third quarter of 2016, which appears to have coincided with downward pressure on the trade deficit in that quarter. The reason for that is simple. Given an expansion in the availability of trade goods in the third quarter, it is reasonable to anticipate that the wholesale prices for those good might have softened, leading to increased export sales.
The question is, “which is the cart and which is the horse?” Businesses typically increase production when inventories fall below the minimum required to meet demand. If businesses wait until demand increases beyond their shipping capabilities, they have already missed the sweet spot in the sales curve for that cycle, which is why things snap back to their former levels right quick. The only time that production drives demand is when new products are being released, which is the reason companies from auto makers to video game developers are constantly releasing new products, to generate demand after demand has fallen off for existing products.
How Does Productivity Improve While Labor Costs Decline?
The US News and World Report story, “U.S. Productivity Is Up,” by Martin Crutsinger, tells us that “The productivity of American workers rose in the July-September quarter at the fastest pace in two years while labor costs slowed after a big jump in the spring.”
The first questionable statement here is the assumption that the productivity of American workers rose when, in fact, it was the productivity of American companies that improved, while labor costs decreased. How is that possible? This article is telling us that American companies produced 3.1% more stuff while labor costs went down. This is a actually a function of efficiency, not productivity.
The only way that labor costs can go down – other than pay cuts, which aren’t happening right now because the economy isn’t demanding them – is by using fewer workers or having workers work fewer hours. The ONLY ways that a company can increase production without increasing labor costs is by forcing workers to work faster (called a “speedup” in union jargon) or through increased automation.
Crutsinger goes on to suggest that productivity is the key factor that supports rising living standards. How, exactly, is that supposed to work? Crutsinger explains that rising productivity means increased output, suggesting that this allows employers to boost wages without triggering higher inflation.
There are only two problems with those statements. Employers do not generally gift workers with increased wages because they happened to sell more product because, if the increased production comes at the cost of increased labor costs, there are no increased profits to share with workers. The other problem is that increasing labor costs always results in inflation. This is why that adjustable interest rates – the rates that are most sensitive to inflation – always increase when employment increases because the additional wages paid to the new workers causes an upward pressure on prices and, hence, inflation.
The bottom line on this kind of economic reporting is that it is like “air pudding with wind sauce” information that doesn’t nourish the conversation.