Category Archives: energy

Bureaucracy Is Stifling Innovation and Productivity

Hourly productivity rose a slender 0.4 percent on average each year over the past five years — perhaps the weakest advance in the past 30 years.

Total labor productivity, which includes a 12.9 percent rise in the number of hours worked for production and non-supervisory employees, limped along at an annual growth rate of 1.1 percent, according to the St. Louis Federal Reserve Bank.

For perspective, after World War II, total labor productivity increased 2.2 percent each year. However, the demarcation is stark: from 1948 through 1973 it grew on average at a robust 3.5 percent annual pace, but has throttled down since then to only1.8 percent, according to the U.S. Labor Department and the St. Louis Federal Reserve Bank.

The deceleration continues. Following two consecutive quarterly declines, non-farm business productivity — or the output of goods and services per hour worked — grew at a 1.3 percent seasonally adjusted annualized rate in the second quarter over the first, yet only advanced 0.3 percent from a year earlier, even lower than the most recent five year average, according to the U.S. Labor Department.

While these productivity figures are low, the Heritage Foundation estimates they may have been overstated by approximately 21 percent over the past 40 years — 16 percent due to depreciation and 5 percent due to understated import quantities.

Further compounding this issue, recent downward revisions for productivity by the Labor Department have been significant. From 2013 to 2014, these reductions ranged from 20 percent to 300 percent, according to the U.S. labor Department and the St. Louis Federal Reserve Bank, adding less credence to these data.

More employment has generated more hours worked, but low productivity has stifled wage gains and economic growth, which has stagnated recently and hovers near or below 2 percent, after adjusting for inflation, according to the Bureau of Economic Analysis.

Federal Reserve Chairwoman Janet Yellen recognizes productivity is essential to ensure robust household earnings. Yet, these weak productivity numbers suggest greater employment at modest wages may continue — a possible inflationary threat that could precipitate a hike in interest rates — the first in about 9 years. This places the Fed in a conundrum, since higher rates may squelch long-term business investment necessary for long-term economic stability.

The silver lining in all this has been the increase in productivity of the manufacturing sector. In the second quarter, durable manufacturing labor productivity rose at an annualized 3.4 percent rate over the previous quarter, and that for non-durable manufacturing grew at a 1.2 percent pace.

Michael Mandel of the Progressive Policy Institute observes that innovation has spanned many disciplines in the past, such as energy, information processing, materials, medicine, and transportation. He notes there has been a recent uptick in mining, geological and petroleum engineers due to the shale oil and gas surge, but also highlights a downturn since 2006 in biological, chemical, materials and medical scientists.

He claims, since 2000, the Food and Drug Administration has increased its oversight staff by 50 percent, from 12 employees for every 1000 in each industry it oversees to 18 now. He suggests the FDA stifles innovation by emphasizing efficacy of therapy relative to the established market participants rather than the efficiency of the new product, which can provide similar benefits at lower cost.

Productivity will be empowered when we lift the bureaucratic stranglehold on industry to innovate, create and compete. One fertile area to tap is the energy sector.

There are many well-intentioned projects underway that are developing new technologies to harness domestic energy resources. Molten Salt Reactor technology has been demonstrated to be safe, efficient and affordable. This technology can transform coal and solid waste into ultra clean diesel, gasoline and natural gas. The byproducts can be used as raw materials to produce high strength light weight steel, aluminum, and plastics. MSRs can also process radioactive material, such as uranium and thorium, in a safe and cost-effective manner, enabling the mining of rare earth elements that are essential to our aerospace industry for defense and consumer electronics.

The principle reason for slow progress heretofore has been the relative inertia on the part of the Environmental Protection Agency and the Nuclear Regulatory Commission.

America, if we want more jobs and better pay, we need our government to effect prudent regulatory oversight of the energy sector. Empower the energy sector and we empower our economy and national security.

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