Following the wrong stars?


“The lacklustre level of productivity growth in the UK, commonly measured as the level of output per hour worked, has been evident ever since the financial crisis in 2008/09 and has, as of yet, shown so signs of coming to an end”
So claimed an article by Eleanor Stevenson, written for Ebury Partners UK Ltd, where she proved her point with the following two charts, saying they ‘best highlight what has been dubbed the UK’s productivity crisis
Figure 1: Output per worker & output per hour 
Her conclusion – The traditional measures of output per worker and output per hour worked both remain very weak (around 0.1% year-on-year growth)

Figure 2: UK Labour Productivity vs. trend line

Like most others, her conclusions were:
  • The upward trend witnessed in total UK productivity prior to the financial crisis had been pretty consistent since the data began in 1960
  • Since then, however, this upward trend has clearly flattened
  • Had the pre-crisis trend (between 1985 – 2007) continued, UK productivity would be approximately 17-18% higher than it currently is



Note that Stevenson, again like most others, takes the official statistics to be ‘gospel truth’, painting a true and fair picture of the overall health of the UK economy

But what if these statistics are fundamentally flawed – what if they don’t paint the correct picture – what if they even miss much of it?

For example, consider both the national outputs and inputs used which determine national productivity levels:

  • Outputs – GDP is widely known to be seriously flawed – much national output is not counted – other outputs are miscounted – and the outputs of free public sector services are included by valuing them at cost, so the more profligate they are, the greater the assumed value of their outputs
  • Inputs – Labour numbers or hours worked are easily countable and so measured – however, capital and material inputs are not – hence we are only offered national labour productivity statistics as if they were a proxy for national productivity levels – this may have been acceptable once, when labour dominated input costs but, as Paul Krugman might say,  it’s no longer ‘almost everything’


So the above graphs are very probably giving us the wrong impression of what’s been happening in the UK economy

In particular:

  • As national outputs become cheaper and/ or better at supplying all our needs, wants and likes, so we demand less new stuff at less cost to replace old stuff – so GDP growth is bound to slow down, even fall, unless there’s additional, completely new stuff coming down the line, something which many experts think is no longer happening – hence, SoLs (Standards of Living) are said to have stalled also
  • However, much of the new stuff on offer is free, albeit highly valued by all – this means it goes uncounted by GDP so SoLs appear significantly less than actual – efforts by some economists to put a value on such freebies and so increase GDP are, to date, limited to asking a sample of people what they would pay to avoid losing access to the likes of Facebook, Twitter or What’s app
  • In many ways, SoL is an old-fashioned way of assessing the success of any economy – it’s largely determined by all the tangible stuff people could and can afford
  • But QoL (Quality of Living) has been coming up fast on the rails in recent times with many considering QoL already to be of equal importance
  • But there’s no generally accepted formula for quantifying QoL of any nation at any one time


So we’re all left with having to accept GDP per capita and GDP per labourforce-numbers as the main measures for national wealth and productivity

So the doom and gloom currently being peddled by just about every economic expert or commentator, not just Stevenson above, is plain wrong – misleading even

So national economic policies and investment plans, based on such ‘sand’, will be lucky to be effective

We’re currently measuring G7 economies using old-world error-prone measures – our leaders and their advisers thus have only a partial picture – one which will become more and more unrepresentative of the total picture

We need better stars for our wise men to follow



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