[WS:] That is true by definition (output-intermediate consumption-employee compensation=operating surplus aka profit.) But it does not explain what happens to that surplus in the further production process - which allows him to claim that there is no real surplus since we need to borrow from the rest of the world to consume.
In other words, had there been a "real" surplus it would have been used to produce goods domestically that would have been sold to the RoW, thus eliminating trade imbalance.
Of course, this can be easily countered, e.g. by claiming that trade imbalances result not from low productivity (as he implied) but from oil import - which wold nicely dove tail with your argument for public investment in new energy sources. Or that the surplus is reinvested overseas, which has the effect of creating economic growth overseas rather than domestically - which is the effect of free market that he cherishes, and which requires a regulatory correction. Or perhaps that the surplus is being parked in inflated assets (real estate) and thus is not used productively - which again requires government intervention to correct.
My point, though, is that you did not seem to make any of these counter-arguments: you simply cited BLS figures which he dismissed in a loony way as "government propaganda." In other words, you could have gone a bit further and defeat him with his own weapon i.e. by accepting his premise and then claiming that it leads to conclusions that are opposite to those that he draws. I understand that free markets loons will not let logic and facts stand in the way of their ideology - so no argument can possibly convince them that free markets do not always work - but it would be more fun for the audience to see these trolls defeated with their own weapon.
As to your comments on the price index etc. - the fact that it uses item substitution and hedonic valuation - which is analogous to using a rubber measuring tape (i.e. one that contracts or expands instead of being fixed) - can raise enough suspicion whether it is an accurate measure of inflation. Mind that low inflation amounts to higher real GDP growth - which is a highly politicized issue, so there is political pressure to keep the inflation measure down.
Here is an anecdote in support of it. I raised that point some time ago with a colleague of mine, an Israeli national accountant. Her first reaction was to vehemently deny any "number cooking" but upon reflection she admitted that there might be something into it. She told me a story of her office producing figures showing a decline in real GDP (based on re-evaluation of price indices) - which resulted in the chief statistician being called "on the carpet" by the PM and asked to recant. To reiterate, I am not claiming that national accountants "cook numbers" as some right and left wing loons claim - but rather that they are using methodologies that favor low inflation figures.
Wojtek
On Thu, Oct 21, 2010 at 9:11 PM, Doug Henwood <dhenwood at panix.com> wrote:
>
> On Oct 21, 2010, at 8:58 PM, Wojtek S wrote:
>
>> He did have a point
>> that if there is productivity growth, the outcome of that growth has
>> to go somewhere. So where does it go?
>
> A profitability boom and a surge in rentier incomes.
>
>> You did not really answer this
>> question, you just made a reference to the BLS stats, to which he
>> countered that they are bogus. He did not elaborate, but if we pursue
>> his inflation claim, it follows that the value of output (i.e.
>> aggregate sales leaving industry) is inflated, which in turn inflates
>> productivity measures.
>
> What inflation claim? His assertion that the CPI is nonsense because gold is at a record high? Gold and other commodities are being driven by a surge in commodity index funds (and, to a lesser extent, real Chinese demand). Or are you saying that the BLS isn't valuing output correctly? Even if nominal output were inflated, that should be corrected when it's converted to real measures via a price index.
>
> Doug
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