Productivity, Prices, and Paulson

Today’s report of a high 4.9 percent third-quarter gain in productivity, or output per hour, strongly suggests that the commodities boom is not inflationary.

In relation to booming economic demands worldwide, commodity supplies are scarce. Over time, high commodity prices will stimulate big increases in commodity investment and production. But in the short run, the high commodity-price signal means that commodities are still scarce. It’s a relative price adjustment, not a true global inflation.

As U.S. growth picks up next year — following a likely slowdown in the next 3 to 6 months — the U.S. dollar will begin its long-awaited rally. (Incidentally, foreign political turmoil in Pakistan and Iran is reducing the demand for all currencies and raising the demand for gold.) However, it would be useful if Treasury man Henry Paulson responded to China’s concerns over a weakening dollar. Some official dollar support would be very useful right now.

Additionally, White House economic advisor Al Hubbard told me last night on CNBC’s Kudlow & Company that the administration will soon be unveiling a corporate tax cut. That is very good news — not only for economic growth and worker wage increases, but also for the dollar exchange rate.

Perhaps Mr. Paulson will soon confirm Al Hubbard’s statement.