Welcome to the Lam Lens, where we bring clarity to
the world of finance.
I'm Kelsey Berryman, senior wealth strategy associate at The Lam Group,
joined by Evans Lam, managing director, wealth management and
senior portfolio manager at UBS Financial Services, Inc.
Our team is located in Pasadena, CA, and you can
reach out to us at evans.lam@ubs.com.
Our goal is simple: to educate, debunk financial myths and
share our team's lens on the markets.
Welcome to our very first episode.
Today we're talking about productivity, its importance for our economic
growth in the current perceived crisis.
Our first question is what is economic productivity?
Well for most of us productivity simply means
it's labor productivity.
It means that, what kind of economic outputs we have
divided by the labor inputs, the hours oflLabor input.
But for the US economy there's a broader measurement which
is called a multi factor productivities which is a total
economic output divided by the labor hours input and also
the capital services,
that means all the investment that goes into the productivity,
and also the intermediate purchases.
So we can, we can call it the work in
progress.
So this goes with our productivity calculations.
Why is productivity important as it pertains to our economic
growth?
Well, you know, it is in very simple terms when
we look at the economic growth of any economy, it
is the summarization of the productivity gain and the
population growth.
So we at the US has a population growth of
around 1% after the Second World War and after the
Second World War that our productivity gain on average is
2.18, let's say 2.2%.
So in layman terms, you can count on the US
to grow at 3% a year, which is pretty impressive
for currently a $30 trillion economy.
We hear about the
productivity crisis happening in the
US, what is that?
Well, this is a very interesting observations.
Even though we look at the long term average of
2.18%, our productivity gain since the Second World War, but
then you know from 1947 to 2005 our productivity gain
average is 2.3% and then for the last 20 years
it has dropped to 1.3%.
So with that 1% drop in productivity, we also come
with 1% decline in the economic growth.
And right now we have a $30 trillion economy in
the US so that means that every year, you know,
we could have make $300 billion more output for the
economy.
How do you interpret this crisis?
Now I, that's why I've been asking my clients to
think through these issues.
Are we really, look at just ourselves, look at corporate
America, look at our behavior, you know, since 2000 the
Internet revolutions and then about 10-15 years ago the
apps economy and then last four, 3-4 years are the
AI revolutions.
Then it is very hard to understand or imagine that
we have a true decline in the productivity gain.
So my understanding is that I think this number does
not incorporate the free hours of leisure that we derive
from all this improvement in technology.
So I just want to give you, and why this
is important, because if the economy, if I'm right, if
the economy constantly understated the productivity, that means that we
may easily understated the economic growth by 1 or even
2% a year.
And that has been consistent for almost like 20 years.
And that's why you can see it almost like a
disconnect. Why, you know, we are seeing the productivity decline
and yet the corporate profits keep gowing up and then
the economy keep doing very well and then the stock
market doing very well.
So the way I see the disconnect is that I
want to use an example, is that I mean, I
just want to use my own personal example,
you can see the big picture.
I went to San Francisco every quarter and for 2
1/2 days over the weekends.
Now look at the economic inputs now, so we talk
about the labor inputs.
I spent 2 1/2 days in San Francisco, and then
in San Francisco, my typical transportation cost is around $300.
In the old days before the apps economy, before the
Uber economy, I spent, you know, the $300 in what?
Renting a car, pumping gas and parking. Now, and then
I was able to meet let's say half a dozen
clients and let's say I produce 10,000 profits or economic
outputs in this weekend.
Now fast forward, forget about the increase in my output,
but just look at I still spend the same amount
of input, but this time I do it differently.
Instead of spending the $300 in rental car and
everything, I put it, I spend it in Uber.
Now what does that mean? Is that when you look
at it, my productivity in this trip has not increased
at all.
It's the same amount of input, same amount of resources
and same amount of output.
And yet during that 2 1/2 days, I don't have
to go to wait for the car rental.
I don't have to drive for at least 6 to
8 hours and the agony of sitting in traffic and
the stress of finding a parking spot in San Francisco.
So for that 8 hours, the increase in productivity has
not been accounted for.
This is the biggest myth I want to demystify is
that when we look at productivity, I really feel that
we are missing. The gain
is that because of the improve in technology we are
doing a lot more but the statistical measures have not
able to fully calculated our increase in productivities.
So in that 8 hours I can call my associates,
I can do my research,
even if I can take a nap, that is a
personal productivity increase of mine and you cannot say that
by because of the apps economy, I do not have
one single bit improvement of my productivity.
Thank you for listening to this week's episode of Lam Lens
You can visit us at advisors.ubs.com/thelamgroup For more
information.
See you next week.
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