There is something far more menacing than the paradox of thrift that the United States and other industrial countries of the world are facing and that is something I’ve coined the “Paradox of Productivity.”

What is the Paradox of Productivity?

Let’s review the definition of productivity:

Productivity in economics refers to metrics and measures of output from production processes, per unit of input. Labor productivity, for example, is typically measured as a ratio of output per labor-hour, an input.

In the thrift paradox, The paradox states that if everyone saves more money during times of recession, then aggregate demand will fall and will in turn lower total savings in the population.

Similarly, in the Productivity Paradox, if a large portion of the workforce stops working and producing, then aggregate production will fall and will in turn create scarcity which may lead to hyperinflation as goods dwindle for lack of production.

While the current economic crisis is certainly impacting the work force via massive layoffs the true problem lies in the aging boomer population which will continue to drag down productivity for the United States.   Not only is productivity reduced, but also general consumption of goods and services except for critical services such as health care.

The true danger to the United States isn’t just the current economic crisis but the coming reduction of productivity as the population ages.   The current problems of the United States are merely the first wave of the tsunami, the successive waves will be much more destructive over the next decade.