Summary: * Today we got the official numbers for Q2 Non-Farm Productivity and the consensus was that it would increase for the first time in 3 quarters; the prior 2 quarters we saw a decline in productivity * So analysts were looking for a .5 increase in the second quarter * Instead, we got a decline of .5 * More importantly, this is the first 3-quarter consecutive decline in productivity since 1979 * That was the Carter years - stagflation, the misery index, sky-high inflation, sky-high interest rates * That was the last time we had a 3-quarter drop in productivity and President Obama is bragging about how great the recovery is and Hillary Clinton promises more of this * If you look at the actual size of the decline over those 3 quarters, it's the biggest drop in productivity since 1993 * If you look at the year-over-year decline, this is the biggest decline in productivity in 3 years * Productivity is extremely important * Politicians are all talking about higher wages - "We need higher wages!" * You can't get higher wages without higher productivity. * That is where higher wages come from * Now, a lot of politicians want to substitute government decrees - they want to mandate higher wages * Like minimum wage - we're going to force employers to pay this minimum wage * All that does, is raise the bar; it makes it harder for unskilled workers to get a job in the first place * Now employers are forced to pay a wage that may be well above the productivity that they can deliver * In that case, they can't get the job * Mimimum Wage doesn't just raise wages, it raises the bar * Another popular way that politicians try to mandate higher compensation is by mandating benefits such as health care, sick leave, paid vacation days, or overtime * The idea is that you're getting something for nothing - I voted for this guy and he delivered * That's not how it works * When an employer hires somebody, they look at the overall cost of employing that person, relative to the productivity required for the job * If I am mandated to provide certain benefits, the costs associated with them are also mandated * If you force the employer to provide benefits at a certain cost, how is he going to pay for it? * What happens is, the compensation becomes a mix of wages and benefits * Maybe the worker doesn't perfer that, maybe the worker just wants the higher wage * The worker can't have it because the government took that decision away by mandating that a portion of the pay include benefits, whether the worker wants them or not * The politicians hope the voters fall for the idea that they got something for nothing * That's government for you. They always want you to think you're getting something for nothing * But the something for nothing costs a lot more than you think because the nothing is not nothing * In this case, wages go down so the benefits can go up * Everybody would be better off if the government stayed out and let each worker negotiate independently with the employer for a compensation package that is most valuable to that worker * But productivity is really the holy grail of higher wages * If we really want higher wages we need to raise productivity and that's not happening * If productivity is going down, wages are going down * If you want wages to go up, you have to have higher productivity * How do you get that? Less government, lower taxes, higher interest rates so we get more savings and more investment and less of all this speculation and paper-shuffling that we have in this bubble economy * I want to talk also on this podcast about Donald Trump's economic speech yesterday * I just want to focus on one aspect of it that has been getting a lot of press: the estate tax * After you die, the government comes in, and if you have a sufficient amount of money, they take half of it * Donald Trump is promising to repeal the tax, which is a great idea
