The Best Years of Our Lives

I am neither a statistician nor an economist. But I am a believer; I believe the economic statistics the Labor Department distributes for public knowledge are true and correct.
The Department recently reported that the nationÕs productivity gained 5% in the last quarter. These results were described by most authorities as unbelievably good. On August 29th this achievement was revised upward to 6.2%. Following that upward adjustment, the Labor Department raised the figure, a few days later still higher to 6.8%. It seems the calculation is becoming more and more difficult to measure.

I suspect, the results have been nothing short of phenomenal.
Everyone agrees that laborÕs gains have been generated by greater use of high speed computers and more advanced software applications. Office workers with computers are at last becoming proficient at their work. Experts also agree that the service sector of the economy is the principal beneficiary of these productivity gains. ThatÕs where labor costs are largest in percentage terms. But somehow no one seems to realize how powerful a stimulus to the economy is taking place. The service sector of the economy, which now surpasses eighty percent of the gross national product, is reducing labor costs dramatically, but it remains an increasingly difficult benefit to measure.

If an insurance company improves the speed of claims adjustments with new software, how does the Labor Department calculate the cost savings? When two banks merge and 10% of the employees are discharged or reassigned, how is the productivity improvement calculated. In both cases the answer is Ôwith great difficultyÕ. ThatÕs why the gains in productivity keep rising. Improved efficiency is reaching the service sector of the economy; the biggest part of the economy by far.

Once upon a time, young executives in business had full time secretaries. Today only the top executives have an "executive assistant." Almost everyone else gets along more efficiently without an assistant. Only a few years ago, bank tellers nearly outnumbered the depositors. Today, the ATM machines have supplanted them. Loan officers now occupy the main floor and do their own loan application chores with computers. Every office has its own story to tell of employee attrition, and higher salaries for those remaining.

Despite the small loss of employment, the overall economy is improving as this evolution evolves. Product prices are being reduced, new products are being developed while better quality merchandise crowds the shelves of our supermarkets and malls. Most of the unemployed, cast aside by technologyÕs advances, soon re-enter the job market in new careers after retraining, with government support.

Somehow this message of progress and economic betterment is not shared by most Americans. They do not believe our nation's economy is enjoying a resurgence; that better margins are in progress. The public is focused on other factors. Americans are overly concerned with the continued threat of terrorist attack, the Iraq war and the rising number of unemployed. The growing strength of our economy is lost to view in the streams of pessimistic reports flowing from the news media.

In my recent note of August 31, I tried to put a dollar figure on the annual gains in productivity that we are just beginning to enjoy. I suggested that a 5% annual improvement in worker efficiency produced a very large saving. As I rethink my suggested figure of $100,000,000,000, I am beginning to believe I understated it by a wide margin.

The World Almanac claims we have 135 million employed in the U.S. The average yearly income is said to be $30,000. If worker efficiency on average is improving 5% per year, then the annual saving is closer to $400,000,000,000, not the$100,000,000,000, I had first imagined. That is more than the estimated annual cost of the Iraq War. It is 80% of the estimated Federal budget deficit. And it makes up for the loss in personal savings formerly generated. Furthermore, it is probably a growing source of financial benefit for the foreseeable future.

People who fail to keep in perspective the improvements we are just beginning to enjoy are focused on headlined daily events. It is difficult to believe our good fortune in the light of so much reported suffering around the world. While the loss of life in Iraq is an inestimable human tragedy, it is well to remember that the death toll in all of Iraq is not as great as the death by violence in our nationÕs capital. Yet no one considers the crime rate in Washington, DC, more serious than the American war effort in Iraq.

I look forward to the day when our Labor Department estimates the dollar value of productivityÕs improvements to our daily lives. Maybe then Americans will accept their good fortune and realize we are entering the Best Years of Our Lives.
Richard E. McConnell September, 2003