The Productivity Myth

Every now and then, there’s a rash of commentary on national productivity. And for the British, productivity is all part of the Brexit angst, with the OECD, the Treasury, the Bank of England and Remainers all saying the average Brit’s poor productivity just goes to show how much they need the certain comfort of being in the EU. As Hilaire Belloc put it, we must hold on to nurse, for fear of something worse.

Only this week, the OECD came out with a paper repeating its disproved nonsense about the economic consequences of Brexit, even recommending Britain should hold a second referendum to reverse the Brexit decision. To back up its analysis it claimed Britain’s labor productivity is at a standstill, while that of France, Germany the United States and the OECD averages are all improving.ⁱ

Regular readers of my articles will know I have no truck with statist statistics, averages and the neo-Keynesian analysis that goes with them. The econometricians’ analysis of productivity is a prime example of why statistics derived from questionable information should be disregarded entirely, as I will show. You can prove anything with statistics, except the truth. The OECD, which is the source of the productivity statistics quoted by politicians, uses statistics not in a genuine search for the truth, but as a cheerleader for statism. Being based in Paris this institution is particularly sympathetic to the basic concepts of European statism. It’s a wonder they tolerate private enterprise at all.

This is the organization that brings official statistical analysis of economics, while being funded entirely by self-interested governments. However, on the face of it, productivity should be uncontentious, and hard to criticise. GDP divided by the number of hours worked is simple. How can it be misleading? Read on.

The OECD’s approach to productivity

The OECD’s brief paper, Defining and measuring productivity, quotes Paul Krugman:

Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise output per worker.ⁱⁱ

Krugman implies in this quote that productivity is a function of government and therefore by implication not that of the employer. This is plainly in contravention of the facts: an employee only produces if he or she is employed by an employer for profit. It is up to the employer to make that decision, not government. That the OECD quotes Krugman confirms the OECD’s economics are in line with his thinking.