[Southack]

"Actually, productivity is a two-edged sword: increases can result in a situtation where resources that were previously well-allocated become misallocated, because they are no longer needed given the new, increased level of productivity."

No, that's not a two-edged sword.

Productivity is NOT a zero sum game. If resources are better allocated/used, then the sum total of our society is better off (read: more profitable, better quality, longer lives, richer, and quicker in every sense of the word but dead).

Our "jobless" recovery is better for society than it would have been to have had no layoffs but lower productivity.

Let me give you an example.

Some decades ago my father went to India/Asia where he was consulting with some local muckity mucks on a rather large construction project. There were 200 or so Indians who were digging a ditch with shovels. Later he was shown several hundred Indians who were pounding rocks into dust for cement, and they were using hammers.

My father told the chief contractor that he could dig the ditches faster and for less money by bringing in a backhoe for an hour, to which the man told him that "we don't want to do that because we want to employ as many people as possible".

My father replied "then you should take away their shovels and give them and another thousand workers spoons to use for digging"!

Well, a "jobless" recovery is when you bring in the bulldozer or backhoe and get the job done faster, for less money, with fewer workers (i.e. you're more productive).

India would still be in the Middle-Ages if it had continued to "employ as many workers as possible". That's the wrong goal.

The goal is to become as efficient as possible. The more efficient you are, the more productive you are. The more productive you are, the more you advance your society at large.

Digging ditches with spoons and pounding rocks into dust with hammers might employ a lot of people, but it won't advance your society and it won't raise the standard of living for everyone.

Believe it or not, those workers were eventually better off being fired and replaced. India is now a technological powerhouse with a vastly higher standard of living than it had 50 years ago. Smashing rocks into dust by hand was never going to get them anywhere but dead and broke.

And they finally figured that truth out...

[sourcery]

Your argument rests on the assumption that "productivity gains" necessarily are achieved by actual strategic improvements in the infrastructure of production. Unfortunately, that has not recently been the case. Instead, the gains in productivity over the last few years have largely resulted from tactical measures that are penny-wise but pound foolish. Businesses are cutting expenses to meet profitability estimates, without much regard for long term (strategic) concerns.

Your argument also rests on the assumption that the heart of our economic problem is lack of productive capacity, where an increase in productivity would be helpful. But that, unfortunately, is not at all the problem that confronts us. Rather, the overriding strategic issue is overcapacity and other deflationary pressures. In such an environment, increases in productivity make the situation worse, not better. Otherwise, we would all be rejoicing over the extra supply of inexpensive goods coming from China, and inexpensive services coming from India (for example.)

Even in the case where strategically-beneficial productivity gains are occurring, there is still the high probability that the short-term (over the next dedade) consequences can be quite negative. Putting a lot of people out of work may eventually result in a much stronger economy, but will surely result at first in a recession or depression.