Alan Tonelson and Kevin L. Kearns, representing small manufacturers in the US provide an interesting, if incomplete critique of our recent prosperity and productivity growth:

In reality, though, wage gains for the average worker have lagged behind productivity since the early 1980s, a situation that free-traders usually attribute to workers failing to retrain themselves after seeing their jobs outsourced.

But what if wages lag because productivity itself is being grossly overstated, especially in the nation’s manufacturing sector? Then, suddenly, a cornerstone of American economic policy would begin to crumble.

Productivity measures how many worker hours are needed for a given unit of output during a given time period; when hours fall relative to output, labor productivity increases. In 2009, the data show, Americans needed 40 percent fewer hours to produce the same unit of output as in 1980.

But there’s a problem: labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures.

The result is an apparent drop in the number of worker hours required to produce goods — and thus increased productivity. But actually, the total number of worker hours does not necessarily change.

Which is actually an interesting insight, although they have not got the economics quite right. Productivity is measured by the difference between the value of inputs and the value of the output. Right now we buy cheap inputs, mostly goods ready for market or goods that need only a small amount of final manufacturing. After some processing - mainly taking the goods off the ship and getting them on the store shelves - our corporations sell them for considerably more than they paid.

The difference between the price of the inputs and the final sale price, divided by the amount of labor employed, is productivity.

Which means that the driver of this productivity is actually buying cheap and selling dear which requires control of a national and international supply chain as well a sophisticated financial network and a great deal of capital. Rewards go to those who are in control of these things while workers wait for something to trickle down.

Wonks Anonymous supposes that this would all be wonderful if it were built on a sustainable international financial system and on international prices that reflected the true scarcity of inputs.

This is not sustainable. We buy cheap because the Capitalist-Stalinist government of China keeps its currency at a low value. Effectively the Chinese government is forcing its manufacturers to sell their output at a discount on international markets. Ultimately this means that the Chinese government is forcing its workers to sell their labor at a discount.

This can only be sustained by continuing Chinese purchases of dollars. Any amount of dollars will buy more goods if the dollars are converted to Yuan. Our current international trade consists of buying Yuan with dollars, buying Chinese goods, selling them for more dollars and then buying more Yuan.

In ordinary circumstances this would increase the demand for Yuan and eventually increase the price of the Yuan in terms of dollars. As the price of the Yuan increased the profits to be made by buying Yuan would drop and manufacturing elsewhere in the world would revive.

Instead the Chinese government has held the price of the Yuan low by buying dollars which it ultimately converted to US debt. We collaborated with this, allowing ourselves to be seduced by unrealistic estimates of the value of our assets, but this illusion has been shattered along with most of our financial markets. We save and world demand declines.

Meanwhile the rulers of China still seem to think that they can find someone, anyone but their own citizens, to borrow from them and buy their output.

Time for an intervention.