Nonfarm business sector labor productivity increased at a 2.8 percent annual rate during the first quarter of 2010, the U.S. Bureau of Labor Statistics reported today, with output rising 4.0 percent and hours rising 1.1 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.) From the first quarter of 2009 to the first quarter of 2010, output increased 3.0 percent while hours fell 3.0 percent, yielding an increase in productivity of 6.1 percent (tables A, and 2). This gain in productivity from the same quarter a year ago was the largest since output per hour increased 6.1 percent over the four-quarter period ending in the first quarter of 2002.
My post the other day noted the concern by some that we were entering a period of deflation and how we need to reinflate to combat this. This is a position that some on the right find indefensible, noting that inflating our way out of trouble is not really a path to prosperity.
But what about monetary policy in a time of productivity growth? Isn't it acceptable for the money supply to increase to match this growth? If we were under a commodity money system and productivity rose without a corresponding increase in money, wouldn't we have more goods chasing less gold? Under these circumstances, I think, even the Mises people are OK with a monetary expansion.
I realize this is basically a bunch of questions, which makes for a lousy blog post, but I really am wondering what the implications are for monetary policy during a time of productivity growth.