There seems to be a good deal of confusion about what "productivity" is arising from that fact that distinction between labour productivity and multi-factor productivity is not always apparent.
Typically, adding capital will mechanically raise your output (real GDP), and therefore, since you're holding labour constant, raise labour productivity.
However, whether this is desirable or not is entirely dependent on what the return is on that capital investment. So while it is true that lack of capital depth is a partial explanation of why our labour productivity is lower than Australia, that information does not imply that New Zealanders would be better off with a higher level of investment (investment is costly after all).
When economists talk about productivity, they're normally referring to multi-factor productivity - that is, growth in output holding labour and capital constant. Now increasing this kind of productivity is fairly unambiguously desirable - a free lunch of sorts. But there's no reason to assume that capital deepening would have any impact on multi-factor productivity.
As an aside, since we're measuring real inputs and outputs, there is no direct impact of a change in nominal wages on productivity either.
Australia has its own productivity commission, I imagine we're heading towards something similar here.
That Chile had neo-liberal reforms under the auspices of Chicago-trained economists is, as you say, part of the historical record.
But as far as I could see, Klein never actually makes an empirical argument along the lines of "undemocratic governments are more likely to make pro-market reforms". Her argument consists of guilt-by-association anecdotes. Democratic governments have also made pro-market reforms, and undemocratic governments have made anti-market reforms.
No one is disputing the murderousness of the Pinochet regime. But stating that Pinochet regime is evil does not constitute an argument that giving advice to the Pinochet regime was wrong. This seems especially true if you believe, as Friedman apparently did, that your policy advice would both improve the economic circumstances of Chileans and hasten the transition back to democracy.
I can't see any rigour to the principle being advocated here. Would it be wrong to give Mugabe economic advice on ending hyperinflation in Zimbabwe? Is it wrong to provide relief aid to North Korea? As I said before, it seems that the nature of the advice Friedman gave is what people really object to.
Big difference between not vehemently opposing and actively helping out - Friedman did the latter
But that seems even weaker. Since when is it a sin to give policy advice to any country that isn't a liberal democracy? I doubt you or Klein would have had any problem with this if his advice had been to establish a Nordic-style social welfare state.
And "actively helping out" consists of a few public lectures, one meeting with Pinochet, and a letter, all of which featured exactly the same policy prescription that Friedman gave everywhere throughout his life.
I think Norberg argues quite convincingly that Klein has no real grasp of Friedman's political or economic philosophy. But really, shoudn't Klein's omission of the fact that Friedman opposed the Iraq war from the beginning be enough of a WTF for Klein's thesis?
Attacking Friedman for not vehemently opposing Pinochet's regime seems kinda weak to me, on par with criticizing Noam Chomsky for being an apologist for the Khmer Rouge (to give a comparable example).
I suppose it might be an excuse that Norberg was only nine years old at the time, but it's very hard to take anything else he writes seriously.
Norberg footnotes that claim, the paper is here (gated unfortunately). The abstract follows:
Mrs Thatcher's decisive and determined stand during the Falklands crisis in 1982 has been widely credited with restoring the electoral fortunes of the Conservative party in the run-up to the 1983 general election. This article argues that the Falklands war produced a boost to Conservative popularity of at most three percentage points for a period of only three months. Government popularity was already accelerating as a result of macroeconomic factors before the outbreak of the Falklands crisis, in particular 'personal economic expectations' proved to be of critical theoretical and empirical significance, and can be modelled satisfactorily on the basis purely of objective macroeconomic indices. Thus macroeconomic factors were at the root of the revival of Mrs Thatcher's political fortunes, and most of the boost to government popularity which occurred in the spring of 1982 derived from intelligent (or cynical) macroeconomic management. The Falklands crisis merely coincided with a jump in government popularity which would have occurred anyway in the wake of Geoffrey Howe's 1982 Budget.
This scathing critique of "The Shock Doctrine" is also worth reading for a wider-ranging review of Klein's thesis.
Idiot Savant today:
I find it difficult to see the level of sheer pooiness in the left's discourse.
Idiot Savant yesterday, on plans for a state funeral for Margaret Thatcher:
On the plus side, it will at least give her victims a final chance to throw excrement and rotten fruit at her as she goes past
Quick reply to Terence:
1. Yes there is an income effect, however there is a rich body of literature estimating the elasticity of labour supply and the usual finding is that it is low but positive. So on average higher taxes leads to a (small) reduction in hours worked. However, although the income effect reduces the negative impact on GDP, it doesn't change the fact that there is still a dead-weight loss to social welfare from the income tax, and as you said, it's the latter that we should be concerned with. A fuller explanation is here
Gareth, if you search for "dynamic scoring", you'll find what you're after. The wikipedia page for that topic has a link to a technical paper by Mankiw, in which he estimates the long-run off-set to tax cuts to be 17% for labour and 50% for capital (in the US context).
People tend to confuse two channels in which taxes could impact on GDP. The first channel, as in the paper above, is the level shift in output associated with the fact that capital and labour are both responsive to tax-rates. And the GDP level effect alone doesn't capture all the dead-weight losses associated with taxes. Although there is argument about the magnitude, I don't think there is much serious dispute about the fact that raising $1 of tax revenue costs society more than $1.
The second, and more controversial, channel is the idea that higher average or marginal tax rates lead to permanently lower rates of productivity growth. I'd concur that the evidence here is not compelling. However, my suspicion is that the cross-country studies that have been used to investigate this channel simply lack the power to determine whether there is an effect one way or the other - it's hard enough to explain differing productivity growth rates full stop. Of course, assuming we accept the first channel holds, it's hard to believe that productivity growth is completely independent of resource allocation.
I believe the US adjusts tax thresholds for inflation automatically.
New Zealand, and I suspect most countries, makes long-term fiscal projections on the assumption that the tax-to-gdp ratio will remain constant, which implies threshold adjustments or tax cuts at some point. If we value fiscal transparency, there is no reason not to inflation-adjust the brackets annually, rather than just assume they will be adjusted at some future date.
Contra the previous post, wage growth is usually stronger than inflation so adjusting the thresholds for inflation alone wouldn't stop the tax-to-gdp ratio rising over time.