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URL:  http://boards.fool.com/so-costs-get-squeezed-out-of-the-system-to-stay-27430233.aspx

Subject:  Re: OT: Man in the White Suit Date:  2/11/2009  8:32 AM
Author:  Lokicious Number:  25936 of 35400

So costs get squeezed out of the system to stay in business. Productivity gain is a price of doing business.

Paul,

One more step and you've got Marx.

Here's the irony of increased productivity (or Marx would call it a contradiction, but he apparently didn't fall asleep reading the first sentence of Hegel).

Not only does increased productivity mean lower labor costs, but when labor gets paid less, labor has less money to buy goods and services, so the cost of goods and services must go down and/or companies must sell less, meaning lower profits despite decreased labor costs.

The way capitalist economic theory gets out of this contradiction is by assuming the increased productivity will be accompanied by the creation of new goods and services that will provide better jobs, so labor can keep buying. The problem is, this is not really an economic law, just wishful thinking, and the attempts to prove it using historical evidence are bad history.

What I'm suggesting is in recent years, certainly since computing got good in the mid-eighties, there have been enormous improvement in productivity but not enough new and better jobs to compensate for lost old ones. It sounds like your boss kept people around who were no longer needed (true at the university, too, largely because of the clerical union and lack of mean bosses). The auto-industry had its own way of doing this, including the Jobs bank. The impact of on-line shopping is only now being felt, as more and more people are comfortable doing this (heaven help the malls if "going to the mall" stops being a social event instead of a place to shop, and if people like my mother-in-law, who likes to go to the store because she is bored and lonely, are replaced with people like me, who go to the store only when there is no other choice).

Anyway, it seems to me that increased productivity leading to loss of well-paying jobs (and even low-paying jobs) in the private sector has been a creeping time-bomb, because those new and better jobs have not materialized. What has kept the consumer shopping has been borrowing and Greenspan's equivalent of the WPA: putting people to work building, selling, and furnishing houses. This was a house of cards that has now collapsed, so we are left with productivity gains and not enough private sector employment, even if the economy turns around (your boss isn't going to hire back redundant workers and Linens and Things, Burlington Coat Factory, and CompUSA aren't going to be replaced in my local mall.
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