Today we got the official numbers for Q2 Non-Farm Productivity and the consensus was that it would increase for the first time in 3 quarters; the prior 2 quarters we saw a decline in productivity

So analysts were looking for a .5 increase in the second quarter

Instead, we got a decline of .5

More importantly, this is the first 3-quarter consecutive decline in productivity since 1979

That was the Carter years - stagflation, the misery index, sky-high inflation, sky-high interest rates

That was the last time we had a 3-quarter drop in productivity and President Obama is bragging about how great the recovery is and Hillary Clinton promises more of this

If you look at the actual size of the decline over those 3 quarters, it's the biggest drop in productivity since 1993

If you look at the year-over-year decline, this is the biggest decline in productivity in 3 years

Productivity is extremely important

Politicians are all talking about higher wages - "We need higher wages!"

You can't get higher wages without higher productivity.

That is where higher wages come from

Now, a lot of politicians want to substitute government decrees - they want to mandate higher wages

Like minimum wage - we're going to force employers to pay this minimum wage

All that does, is raise the bar; it makes it harder for unskilled workers to get a job in the first place

Now employers are forced to pay a wage that may be well above the productivity that they can deliver

In that case, they can't get the job

Mimimum Wage doesn't just raise wages, it raises the bar

Another popular way that politicians try to mandate higher compensation is by mandating benefits such as health care, sick leave, paid vacation days, or overtime

The idea is that you're getting something for nothing - I voted for this guy and he delivered

That's not how it works

When an employer hires somebody, they look at the overall cost of employing that person, relative to the productivity required for the job

If I am mandated to provide certain benefits, the costs associated with them are also mandated

If you force the employer to provide benefits at a certain cost, how is he going to pay for it?

What happens is, the compensation becomes a mix of wages and benefits

Maybe the worker doesn't perfer that, maybe the worker just wants the higher wage

The worker can't have it because the government took that decision away by mandating that a portion of the pay include benefits, whether the worker wants them or not

The politicians hope the voters fall for the idea that they got something for nothing

That's government for you.  They always want you to think you're getting something for nothing

But the something for nothing costs a lot more than you think because the nothing is not nothing

In this case, wages go down so the benefits can go up

Everybody would be better off if the government stayed out and let each worker negotiate independently with the employer for a compensation package that is most valuable to that worker

But productivity is really the holy grail of higher wages

If we really want higher wages we need to raise productivity and that's not happening

If productivity is going down, wages are going down

If you want wages to go up, you have to have higher productivity

How do you get that?  Less government, lower taxes, higher interest rates so we get more savings and more investment and less of all this speculation and paper-shuffling that we have in this bubble economy

I want to talk also on this podcast about Donald Trump's economic speech yesterday

I just want to focus on one aspect of it that has been getting a lot of press: the estate tax

After you die, the government comes in, and if you have a sufficient amount of money, they take half of it

Donald Trump is promising to repeal the tax, which is a great idea

The inheritance tax is probably the single worst tax we ha...