Interpreting Declining Productivity Trends

A week or so ago, Stuart Staniford wrote a piece regarding declining productivity gains in the US economy.  I draw different conclusions.  Stuart's chart of the data is shown here, and he concludes that there is a long-term trend of decreasing productivity gains, which will have serious consequences in the not-too-distant future.



Before fitting a simple linear regression to this data, there may be adjustments that have to be made. In this case, the quarterly data is strongly autocorrelated; the growth rate in one quarter tends to reflect the growth rate of the previous quarter.  This type of data problem has been recognized for a long time: it was part of the time series course I took in graduate school in the 1970s.

With an adjustment for autocorrelation made, the decline in productivity growth looks much less drastic.  My version of the chart is shown here.  While the trend line ends up in about the same place, it starts from a much lower level in 1950 (my chart starts from the beginning of the data in 1947; Stuart discarded the first couple of years of data for innocuous reasons; including the earlier data does make a difference).  While the negative trend is not as steep as Stuart's graph suggests, it is still statistically significant.



But that's not the end of the story.  Suppose that you asked the same question -- is there a statistically significant long-term negative trend -- at different points in time.  In particular, suppose you asked that as each quarter's data was added over the last 30 years.  The next plot shows an answer to that.  Each bar represents the calculated linear trend, with adjustment for autocorrelation, using all data from 1947 to that point, but only if the t-value for the coefficient is significant at a reasonable level.  What this appears to show is that during and following most recessions¹, the long-term trend looks like it has a negative non-zero coefficient; except for those periods, the linear trend coefficient is not significantly different from zero².  In effect, what we see is a variation on Friedman's "plucking" model for business cycles and long-term growth, originally published in 1964.




While I may disagree with Stuart's statistics, I don't disagree with his concern about declining productivity growth.  There are a number of reasons to believe that productivity growth will slow in the future, and that such a slowing will have consequences (eg, see here).  It's a critically important topic, particularly in an era with declining energy availability.  But I don't believe that the data show that it's happening just yet.

¹ The recession of 1991-2 was, according to most measures, a very modest one. The trend coefficient estimate was negative during that period, but was not significant.

² There are a few quarters where the estimate for the coefficient is positive rather than negative. However, none of those estimates are statistically significant at the level used.

Colorado's Fiscal Future

A non-energy topic today.

I live in Colorado, a state where it is easy for citizens to place issues on the ballot.  It is equally easy to put proposed statutes and proposed amendments to the state constitution on the ballot, so we see a lot of proposed amendments.  After all, why bother with a mere statute, which might be revised by the General Assembly at some point, when you can put what you want into the constitution where it is beyond the legislature’s reach?  I want to talk about three of the proposals that have been approved for inclusion on the 2010 ballot: amendment 60, amendment 61, and proposition 101.  The text of the proposals is available here.  The changes would be phased in over a period of years.

Taken together, these three would substantially reduce tax rates and fees at both the state and local level, and drastically restrict all levels of government’s ability to borrow.  Further, the state would be required to backfill, from its General Fund, the decreased revenues that K-12 school districts would see as a result of property tax rate reductions.

Every voter receives a copy of the “blue book,” an explanation of the effects of each ballot issue.  The blue book is prepared by legislative staff, and the final language is approved by the Legislative Council Committee, a group of 18 of the legislature’s majority and minority leadership.  The analysis is required to include arguments both for and against the proposal, and staff’s estimate of its fiscal impact.  The staff’s cumulative analysis if all three proposals pass suggests that 99% of the state General Fund would be transferred to local K-12 school districts, leaving about $38 million for other programs such as prisons, higher education, and human services.

A majority of the Republican members of the legislature have signed a letter against passage of these proposals.  County Commissioners all over the state have come out in opposition.  So have a variety of Chambers of Commerce.  Opponents of the proposals have raised $4.1 million in funding so far.  But a recent poll indicated that the for/against numbers are currently 51/33 for proposition 101, 36/34 for amendment 61, and 32/45 for amendment 60.  It is worth asking whether these measures have any real chance of passing.

In 2005, the Colorado ballot included Referendum C, a measure which allowed the state government to retain revenue that would have otherwise been returned to taxpayers.  As a referred measure, two-thirds of each chamber of the Republican-controlled General Assembly approved the measure.  Then-Governor Bill Owens campaigned actively for the measure.  Business organizations all over the state supported the measure.  Proponents spent almost $8 million dollars.  The final tally, though, was 52.1% for and 47.9% against.  Referendum D, a separate measure that would have allowed the state to borrow money for a variety of projects, was narrowly defeated.

Colorado has a peculiar electorate.  We probably have as large a share of voters who are simply opposed to government on general principles as any state.  We have an inordinate number of newcomers -- the Front Range area population has increased by over a million in the last 20 years, and is forecast to add another million in 15 -- who have not put down real roots.  As a result, we don’t give much to charity -- a 2007 study found that the state ranked 5th nationally in personal income, but ranked 36th in charitable giving.  Many of the newcomers are young and/or single, with little interest yet in the quality of the local schools.  A disproportionate number of our college-educated got that education before they moved to Colorado, and so have little attachment to the local institutes of higher education.

I always figure that an anti-tax proposal will always draw at least 40% approval.  In tough economic times, when many are worried about their houses (for the last couple of years, Colorado has pretty consistently been in the top 10 for percent of houses with negative equity, and for foreclosures), the percentage is probably a couple of points higher.  Proponents need only convince another 8% or so of the voters in order to get the measures passed.  I predict that all three will draw at least 45% in November, and that at least one will pass.

What are the probable consequences if one or more pass?  Colorado will, over the next several years, become a much less pleasant place to live if you are poor, disabled, looking for higher education opportunities, or any combination of those.