Tag Archives: economic growth

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.

climate change is going to cause some economic damage

A letter in Nature says climate change is going to cause economic damage, and meeting the UN’s emissions targets would reduce that damage. Here’s the abstract, and the article itself is open access.

 International climate change agreements typically specify global warming thresholds as policy targets1, but the relative economic benefits of achieving these temperature targets remain poorly understood2,3. Uncertainties include the spatial pattern of temperature change, how global and regional economic output will respond to these changes in temperature, and the willingness of societies to trade present for future consumption. Here we combine historical evidence4 with national-level climate5 and socioeconomic6 projections to quantify the economic damages associated with the United Nations (UN) targets of 1.5 °C and 2 °C global warming, and those associated with current UN national-level mitigation commitments (which together approach 3 °C warming7). We find that by the end of this century, there is a more than 75% chance that limiting warming to 1.5 °C would reduce economic damages relative to 2 °C, and a more than 60% chance that the accumulated global benefits will exceed US$20 trillion under a 3% discount rate (2010 US dollars). We also estimate that 71% of countries—representing 90% of the global population—have a more than 75% chance of experiencing reduced economic damages at 1.5 °C, with poorer countries benefiting most. Our results could understate the benefits of limiting warming to 1.5 °C if unprecedented extreme outcomes, such as large-scale sea level rise8, occur for warming of 2 °C but not for warming of 1.5 °C. Inclusion of other unquantified sources of uncertainty, such as uncertainty in secular growth rates beyond that contained in existing socioeconomic scenarios, could also result in less precise impact estimates. We find considerably greater reductions in global economic output beyond 2 °C. Relative to a world that did not warm beyond 2000–2010 levels, we project 15%–25% reductions in per capita output by 2100 for the 2.5–3 °C of global warming implied by current national commitments7, and reductions of more than 30% for 4 °C warming. Our results therefore suggest that achieving the 1.5 °C target is likely to reduce aggregate damages and lessen global inequality, and that failing to meet the 2 °C target is likely to increase economic damages substantially.

My head gets just a little twisted around thinking of reduced damages. This means the economy, and presumably our grandchildren’s quality of life, will be worse than it could have been if we started making an effort and investment now. But this doesn’t tell us if they will be absolutely better or worse off in a “future baseline” scenario compared to now, just that they will be worse off relative to that future baseline if we don’t take action than if we do. I think the various (very eye catching) graphs in this paper probably contain the answers to these questions, but I didn’t get it after an admittedly short few minutes staring at them, and I admit I didn’t read every word in the paper.

The other thing here is that we are taking a given climate scenario (1.5 or 3 degrees C warming for example), and talking about the benefits of those two future scenarios against each other. What I don’t see is the cost to the current generation if we choose to make this sacrifice, or even if it is a sacrifice at all. What investment would we have to make to achieve 1.5 vs. 3 degrees, and are there alternative investments we could make that could have a bigger payoff. I am not arguing against climate action, I am just questioning how this paper is communicating about costs and benefits in the present and in the future.

May 2018 in Review

Most frightening stories:

Most hopeful stories:

  • There are some new ideas for detecting the potential for rapid ecological change or collapse of ecosystems.
  • Psychedelics might produce similar benefits to meditation.
  • Microgrids, renewables combined with the latest generation of batteries, are being tested in Puerto Rico.

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

dystopian Schumpeter meets Keynes

This article is about a serious attempt to consider climate change in a traditional economic model. Where does the dystopian part come in? Well, it sounds like the model suggests we are not going to innovate our way out of the consequences of climate change.

For these reasons, we develop the Dystopian Schumpeter meeting Keynes (DSK) model, which is the first attempt to provide a fully-fledged agent-based integrated assessment framework. It builds on Dosi et al. (2010, 2013, 2016) and extends the Keynes+Schumpeter (K+S) family of models, which account for endogenous growth, business cycles and crises. The model is composed by heterogeneous firms belonging to a capital-good industry and to a consumption-good sector. Firms are fed by an energy sector, which employ dirty or green power plants. The production activities of energy and manufacturing firms lead to CO2 emissions, which increase the Earth surface temperature in a non-linear way as in Sterman et al. (2013). Increasing temperatures trigger micro stochastic climate damages impacting in a heterogeneous way on workers’ labour productivity, and on the energy efficiency, capital stock and inventories of firms.

The DSK model accounts both for frequent and mild climate shocks and low-probability but extreme climate events. Technical change occurs both in the manufacturing and energy sectors. Innovation determines the cost of energy produced by dirty and green technologies, which, in turn, affect the energy-technology production mix and the total amount of CO2 emissions. In that, structural change of the economy is intimately linked to the climate dynamics. At the same time, climate shocks affect economic growth, business cycles, technical-change trajectories, green-house gas emissions, and global temperatures…

Simulation results show that the DSK model is able to replicate a wide array of micro and macro-economic stylized facts and climate-related statistical regularities. Moreover, the exploration of different climate shock scenarios reveals that the impact of climate change on economic performances is substantial, but highly heterogeneous, depending on the type of climate damages. More specifcally, climate shocks to labour productivity and capital stocks lead to the largest output losses and the highest economic instability, respectively. We also
find that the ultimate macroeconomic damages emerging from the aggregation of agent-level shocks are more severe than those obtained by standard IAMs, with the emergence of tipping-points and irreversible catastrophic events.