“The paradox of thrift” was coined by John Maynard Keynes to explain the idea that if one person saves instead of spending, that’s good, but if everyone does it, that’s bad.
A similar, but reverse, paradox applies to productivity. An improvement in it in aggregate is a national good -- economists and community leaders constantly urge the nation to lift productivity, even when it’s fine. Productivity can always be better.
But each individual worker’s experience of higher productivity is bad. Either he or she must work harder and do more with less, or yield the job entirely to a machine or a lower-paid, harder-working person in another country.
Just as national wellbeing requires each individual to sacrifice their long-term wellbeing by spending, not saving, national productivity growth requires each to sacrifice short-term wellbeing for the greater good.
Yes, we all want to be more productive individually because that’s the way we get pay rises and promotions, except that it means taking less breaks, working longer hours, sacrificing family life and getting stressed. And eventually you just get replaced by a machine or an algorithm anyway.
Consumer sentiment is now at the same low level it was during the last recession in 1991, even though gross domestic product has grown four-fold in those 23 years of no recessions.
As many have observed before me, GDP is no measure of happiness. People are working harder now than ever, and are more stressed and anxious about their jobs than ever.
But it’s OK because according to the latest National Accounts, productivity (gross value added per hours worked) grew by 1 per cent in the March quarter and the annual rate of growth improved from 1.9 to 2.7 per cent.
Meanwhile real unit labour costs fell by 1 per cent in the March quarter and 1.3 per cent in the December quarter.
In other words the benefits of higher productivity are flowing through to profits, not wages. As a result, the wages share of GDP fell from 53.2 to 53 per cent, and is nearly 10 percentage points lower than 30 years ago. Those 10 percentage points have been added to the profit share, now 27.4 per cent.
So the winners in the modern world are investors and those who service them, not workers.
Measurements of productivity are now getting a spurt because of automation, since the hours worked by robots are not counted in the national accounts. And there’s a further wave of efficiency now underway from big data and artificial intelligence, which is replacing white-collar workers with software “machines”.
The only antidote, and I do mean the only one, is public spending on infrastructure to improve human efficiency -- mainly through better transport facilities.
Eventually, of course, the roads and railways will be used by driverless trains, cars and trucks, just as the publicly-funded ports are already used by driverless cranes, but for the moment better roads mean more efficient people.
None of this is bad. Rio Tinto, for example, is rightly celebrated for its driverless trains in the Pilbara that are controlled from a high-tech centre in Perth. As a result of them, profits, taxes and national income all go up.
Companies are not employment and wage machines, they are profit machines, and an “economy” is essentially the collective product of companies and other forms of businesses, plus governments.
Increased output and sales by businesses of goods and services produced at the same cost equals greater national good, but not necessarily greater individual good -- the “paradox of productivity”.
And pretty soon the paradox of productivity will meet the paradox of thrift, when the nation is unhappily richer, with everyone either out of a job, or working like crazy, and desperately saving for a long, long retirement instead of spending to keep the online shopping algorithms and driverless parcel vans employed.