Tag Archives: economic growth

July 2018 in Review

Most frightening stories:

  • The UN is warning as many as 10 million people in Yemen could face starvation by the end of 2018 due to the military action by Saudi Arabia and the U.S. The U.S. military is involved in combat in at least 8 African countries. And Trump apparently wants to invade Venezuela.
  • The Trump administration is attacking regulations that protect Americans from air pollution and that help ensure our fisheries are sustainable. Earth Overshoot Day is on August 1 this year, two days earlier than last year.
  • The U.S. has not managed a full year of 3% GDP growth since 2005, due to slowing growth and the working age population and slowing productivity growth, and these trends seem likely to continue even if the current dumb policies that make them worse were to be reversed. Some economists think a U.S. withdrawal from the World Trade Organization could trigger a recession (others do not).

Most hopeful stories:

  • Looking at basic economic and health data over about a 50-200 time frame reminds us that enormous progress has been made, even though the last 20 years or so seems like a reversal.
  • Simultaneous Policy is an idea where multiple legislatures around the world agree to a single policy on a fairly narrow issue (like climate change or arms reductions).
  • I was heartened by the compassion Americans showed for children trapped in a cave 10,000 miles away. The news coverage did a lot to humanize these children, and it would be nice to see more of that closer to home.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

best performing urban economies

Here are the world’s 10 best-performing urban economies according to Brookings.

  1. Dublin, Ireland
  2. San Jose, USA
  3. Chengdu, China
  4. San Francisco, USA
  5. Beijing, China
  6. Delhi, India
  7. Manila, Philippines
  8. Fuzhou, China
  9. Tianjin, China
  10. Xiamen, China

Here is a brief explanation of the methodology:

This Global Metro Monitor employs several key variables to assess the economic performance of metropolitan areas: gross domestic product (GDP), employment, population, and GDP per capita, all from 2000 to 2016. For static analysis and cross-border comparison, this study employs nominal GDP at purchasing power parity rates. For trends analysis, it uses GDP data at 2009 prices and expressed in U.S. dollars. Data availability and comparability at metropolitan level precluded expanding the economic analysis to other indicators of interest, such as housing prices, employment rates, unemployment rates, and income distributions.

Clearly, there is no consideration of health, ecosystem services, or sustainability here.

U.S. housing bubble starting to deflate?

This Reuters article suggests the current U.S. housing bubble may be starting to deflate, if not pop. I don’t quite follow the logic, because it seems to suggest at the same time that the rate of housing starts is not sufficient to meet demand, and that the cost of construction is rising due to rising material, land, and labor costs. In basic economics 101 class, if there is an unmet demand, prices are supposed to rise until supply equals demand. But maybe people are just not willing or able to buy houses they want at the current market prices. What do they do instead? Again in textbook economics land, they should move to less expensive locales, buy smaller houses, live with roommates, rent extra rooms on AirBnB, etc. I guess there are all sorts of legal and cultural reasons these things don’t happen enough or fast enough for the market to equilibrate. Still, even knowing that the real world is not the textbook economic world, it’s hard to buy the argument that developers aren’t building houses because there aren’t as many houses for sale as people who want to buy houses.

CIA World Fact Book: U.S. vs. Russia

Is the U.S. vs. Russia really a contest of equals? Well no, other than nuclear arsenals, it shouldn’t be. Here are some facts and figures from the CIA World Factbook, with China thrown in for good measure.

GDP (purchasing power parity)

  • USA: $19.36 trillion
  • Russia: $4 trillion
  • China: $23.12 trillion

GDP per capita (purchasing power parity)

  • USA: $59,500
  • Russia: $27,900
  • China: $17,000

Military budget

  • USA: 3.29% of GDP ($637 billion)
  • Russia: 5.4% of GDP ($216 billion)
  • China: 1.9% of GDP ($439 billion)

So compared to the U.S., China has a slightly larger overall economy spread out over a lot more people, but directs less of its economic output to the military and ultimately underspends the U.S. Russia’s economy is only 1/5th the size of the U.S., but it diverts a lot of its people’s wealth to military spending so it can be roughly 1/3rd the size of the U.S. military. So Russia really is not a worthy adversary at all, it’s a poor country whose leaders want to project an image of strength to its people as a substitute for actually making their lives better. The average American still has a much higher living standard than the average Chinese in spite of our military spending, but we shouldn’t just take this for granted as we may be still riding past momentum and slowly drifting into the slow lane.

WTO withdrawal could spark recession…or not

Axios quotes economists who think a U.S. withdrawal from the World Trade Organization could spark a recession…and economists who do not.

Thus far, Trump has mostly damaged U.S. prestige with his anti-globalization actions, including withdrawing from the Trans-Pacific Partnership and the Paris climate agreement, as well as threatening to pull out of NAFTA. He’s also caused global stock markets to gyrate by imposing tariffs on Canada, Europe, and China; and oil prices to rise by pulling out of the Iran nuclear deal. But “the financial shock would be very, very large” should he withdraw from the WTO, said Gary Hufbauer of the Peterson Institute for International Economics…

“Business confidence in the system would be severely shaken,” Hufbauer told Axios, and there would be “quite a hit” to long-term investment in plants and equipment. “You don’t need much of a slowdown in these areas, and you have recession…”

The White House seems to be showing little understanding of the WTO’s history, originating in 1947 along with the World Bank and the International Monetary Fund as vehicles to prevent any future global war by buoying the economies of the world.

Not everybody likes the WTO, but it seems to be the best of many imperfect options for resolving trade disputes, and for not letting trade disputes escalate to be about more than trade.

Trumponomics – just plain made up

Trump claims recent economic growth is unprecedented. The claim is demonstrably false and just plain made up. According to Politifact:

Trump said, “Watch those GDP numbers. We started off at a very low number, and right now we hit a 3.2 (percent). Nobody thought that was possible.”

This is inaccurate two ways. First, the most recent saw GDP growth of 2.0 percent, not 3.2 percent. And second, exceeding 3 percent GDP growth in a quarter is not an unusual achievement — Obama accomplished it eight times. The real achievement would be a full year at 3 percent, which hasn’t happened under Trump yet.

We rate the statement False.

Much more interesting is that the U.S. has not managed a full year of 3% growth since 2005. Politifact has a much more interesting article here that explains why most economists think a sustained 3% will not be achievable in the foreseeable future.  In summary:

  • Growth in the working-age population is much lower than it was (political response: prevent willing workers from entering the country, oppose measures to provide childcare to working age adults…)
  • Productivity growth has also slowed significantly (political solution: underfund infrastructure, education, research and development; although to be fair, some of the recent changes to corporate tax policy might help if companies choose to invest the savings in plants, equipment, research and development rather than just letting executives pocket them)

 

our world in data

This video from OurWorldinData.org is a reminder of how much things have improved for human beings over the past couple centuries or even the past 50 years. It’s a reminder that the disspiriting reversals we are feeling over the past decade or two could be just a bump in the road when you take a longer-term perspective.

However, we shouldn’t just assume that doing more of what we have done in the past 50-200 years is the way to keep the trend going for another 50-200 years, because it may not be. Part of the trend is about a few key technological breakthroughs, such as vaccines, electricity and water disinfection. If we want more of those, we have to invest in R&D, infrastructure and human capital, and we are underinvesting in all of those. Part of the trend was due to mining of natural capital, and fossil fuels in particular. We know that we can’t just keep mining more and dumping more forever without eventually hitting a plateau or worse, triggering a major reversal in our fortunes.

Nonetheless, we should take a moment to celebrate this progress.

stranded fossil fuel assets

An article from Cambridge (University, not Analytica) in Nature Climate Change estimates potential losses if renewables were to lead to a sudden drop in demand for fossil fuels.

Our analysis suggests that part of the SFFA would occur as a result of an already ongoing technological trajectory, irrespective of whether or not new climate policies are adopted; the loss would be amplified if new climate policies to reach the 2 °C target of the Paris Agreement are adopted and/or if low-cost producers (some OPEC countries) maintain their level of production (‘sell out’) despite declining demand; the magnitude of the loss from SFFA may amount to a discounted global wealth loss of US$1–4 trillion; and there are clear distributional impacts, with winners (for example, net importers such as China or the EU) and losers (for example, Russia, the United States or Canada, which could see their fossil fuel industries nearly shut down), although the two effects would largely offset each other at the level of aggregate global GDP.

So coal subsidies might be “making America Great Again”, but not for long. And they might not even have the desired effect according to this article, which argues they would primarily benefit nuclear. And solar energy, it turns out, is a growth industry creating jobs in many Republican districts.

 

top 20 metros for venture capital

This post has an interesting list of the top 20 metro areas in the world for venture capital investment. San Francisco and San Jose together vacuum up about 25%. Add LA and San Diego, and California gets over 30%. Boston and New York add up to a respectable 12%. After that it drops off quickly, with the major global cities tending to grab 1-2% or so. Austin does a great job marketing itself, but only adds up to 1.5%. Big cities in China and India are only grabbing in the 1% range, but presumably the money may go farther there. My home city of Philadelphia grabs around 1% which seems underwhelming, but at least we crack the list when there are a plenty of major cities (Miami, Atalnta, Houston, Rome, anywhere in Europe outside London and Paris, the entire continents of South America and Africa?) that do not.

China passes U.S. in healthy life expectancy

  1. U.S. citizens still live a bit longer than Chinese citizens on average, but Chinese citizens have drawn even and slightly surpassed us in health.

https://www.axios.com/chinese-people-now-healthy-longer-than-americans-6dc7235f-e057-45ee-a975-c433611edabf.html

This would be perfectly fine if it just represented China catching up, but I suspect it represents the U.S. stalling as both our peers and developing countries continue to progress.