Comment on critique of ‘productivity’

[max gr]

Blair Fix wrote a well-articulated critique of the economic concept of ‘productivity’. In it he criticizes a popular EPI (Economic Policy Institute) paper, which is still being circulated in left-wing circles.

In the paper we can find a reply to one of Blair’s points: the “shenanigans” regarding price indexes. Blair writes “While most of the apparent ‘productivity-pay gap’ has been caused by income redistribution, part of this gap is caused by price index shenanigans. In Figure 1, the EPI uses two different price indexes to ‘adjust’ for inflation.”

On page 17 the EPI researchers respond with what seems to be mainly a power-based explanation. They write: “…But again, because these differences in deflators are real characteristics of data and of our economy, it would be wrong to ignore them or dismiss them as a mere technical issue. One last example can help illustrate why. Say that recent decades saw a rise in monopolization in American industries that supply consumption goods. This could allow firms to charge a higher mark-up over fixed costs (wages and intermediate inputs), and this would lead the CPI to rise more rapidly than the IPD. This would not be irrelevant information to those seeking to figure out how to allow rising productivity to translate into higher living standards for the vast majority.”

Let’s accept this rationale for the sake of argument. Even so, does it not end up in ‘double-counting’ of inequality measures? If the relative power of consumption goods suppliers is increasing, shouldn’t it already manifest itself in the redistribution of income directly (as higher prices translate into higher profits)? Why use different price deflators on top of that?

• This topic was modified 3 years ago by max gr.

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