Tag Archives: economic growth

the French AI strategy

Other countries (than the United States) are developing strategies for how artificial intelligence will affect work, productivity, and growth in the near future.

France’s national strategy also reveals that Macron’s government is wrestling with how to ensure that AI supports inclusivity and diversity, and to make certain that its implementation is transparent. The French aren’t just theorizing; they’re taking action. France plans to invest 1.5 billion euros (almost $1.8 billion dollars) in the next five years in artificial intelligence research. The French are looking to create their own AI ecosystem, train the next generation of scientists and engineers, and make sure that their workforce is prepared for an automated future.

France isn’t alone. Last month, the European Union’s executive branch recommended its member states increase their public and private sector investment in AI. It also pledged billions in direct research spending. Meanwhile, China laid out its AI plan for global dominance last year, a plan that has also been backed up with massive investment. China’s goal is to lead the world in AI technology by 2030. Around the world, our global economic competitors are taking action on artificial intelligence.

It’s therefore striking that the United States doesn’t have a national artificial intelligence plan.

The fact that I don’t find it striking reflects my lowered expectations more than anything. We don’t really have a strategy for infrastructure or education either, for example.

dematerialization and decoupling

This paper is called Dematerialization, Decoupling, and Productivity Change. These are all buzzwords that will catch my eye. It makes a distinction between relative (ecological footprint is growing slower than the economy) and absolute (ecological footprint is not growing or is shrinking) decoupling. If you accept the concept that ecological footprint cannot grow forever, the distinction is important! This paper seems to cast doubt on the idea that there is any soft landing where absolute decoupling occurs automatically or by choice without significant pain.

The prospects for long-term sustainability depend on whether, and how much, we can absolutely decouple economic output from total energy and material throughput. While relative decoupling has occurred – that is, resource use has grown less quickly than the economy – absolute decoupling has not, raising the question whether it is possible. This paper proposes a novel explanation for why decoupling has not happened historically, drawing on a recent theory of cost-share induced productivity change and an extension of post-Keynesian pricing theory to natural resources. Cost-share induced productivity change and pricing behavior set up two halves of a dynamic, which we explore from a post-Keynesian perspective. In this dynamic, resource costs as a share of GDP move toward a stable level, at which the growth rate of resource productivity is typically less than the growth rate of GDP. This provides a parsimonious explanation of the prevalence of relative over absolute decoupling. The paper then presents some illustrative applications of the theory.

happy financial crisis anniversary

Happy 10-year anniversary to the 2008 financial crisis! The Week has a short summary of what caused it.

The bursting of the U.S. housing bubble triggered a chain reaction that nearly brought down the global financial system. Between 1997 and 2006, a combination of low interest rates, relaxed lending regulations, and government policies designed to encourage home buying fueled a housing boom that saw the average price for a U.S. home increase by 124 percent. Amid the speculative frenzy, financial institutions issued hundreds of billions of dollars in questionable loans to so-called subprime borrowers with poor credit histories. Borrowers’ ability to repay didn’t matter to lenders, because they were able to get subprime mortgages off their books by repackaging them into wildly complex derivative financial instruments like mortgage-backed securities and collateralized debt obligations. Corporate and institutional investors gobbled up these offerings, which not only offered attractive returns but also received high safety ratings from the major credit-rating agencies. In 2007 and 2008, the inevitable wave of foreclosures finally arrived — exposing the entire financial system to catastrophic losses…

The worst financial panic since the Great Depression. Already dangerously over-leveraged from years of risky bets, banks were unable to absorb the huge losses. The first big domino to fall was the investment bank Bear Stearns, which collapsed in March 2008. Later, Lehman Brothers filed for the largest bankruptcy in U.S. history, and the government bailed out insurance giant AIG, which had sold enormous amounts of credit default swaps insuring the bad investments. As panic spread, lending and investment screeched to a halt, and the country was plunged into the worst financial crisis since the stock market collapse of 1929…

The U.S. government took extraordinary measures to prevent a full-scale economic collapse. Under President George W. Bush, Congress approved a $700 billion bailout purchasing toxic assets to restore confidence in the market; under President Barack Obama, it authorized a $787 billion stimulus package to stimulate spending in the private sector. But massive damage had already been done. The economy slipped into a deep recession. The Dow Jones industrial average and the S&P 500 lost more than half their value. Unemployment peaked at roughly 10 percent by October 2009.

They say the system is safer now because of Dodd-Frank. Well, Dodd-Frank is under savage attack by our current administration, so I would not be too confident the system is safe. The article also explains that even though the economy has come back on average, Americans of average income and below are still feeling the effects and may never fully recover to where they would have been without the crisis.

the singularity is near…in China

This article in Economist says China wants to be a

“cyber superpower”—one that, within a dozen years, will lead the world in artificial intelligence (AI), quantum computing, semiconductors and the coming “5G” generation of mobile networks, not to mention synthetic biology and renewable energy.

This is a pretty good list of technologies of the future. Although they clearly have some potential military applications, they have many more civilian ones where everyone can gain at the same time. Personally I don’t think investing in the technologies of the future should be thought of as a zero sum game. It is more a question of whether the U.S. wants to keep up with its current peer group of the most advanced nations with the highest quality of life, a group it is still part of but in the middle of the pack and slipping toward the back, rather than out in front. If the idea of competing to lead in these technologies spurs the U.S. to action, that is okay with me. The article does have a few policy prescriptions:

Better that it should develop a broader policy to strengthen its technosystem, argues Ms Kania of CNAS. Instead of making it as closed as the Chinese one, which would seem to be Mr Trump’s preference, it needs to engage with allies such as Europe, Japan and Korea to spread open standards. It needs to build a shared digital infrastructure, such as common pools of key data for things like self-driving cars. And it needs to rediscover what has made it great in technology: investing in both basic and applied research and being an attractive destination for highly qualified immigrants (a requirement which, it must be admitted, the Trump administration is not well placed to meet).

I’ll offer a few more along these lines, if the U.S. would like to be a “cyber-superpower” a dozen years from now:

  1. Small businesses and startups innovate, and they challenge lazy established big businesses to innovate. It needs to be much, much easier to start a business anywhere in the United States. It is not necessarily taxes and regulations, but the fact that there are too many complicated, confusing taxes and regulations fragmented among local, state, and federal entities. We need to figure this one out.
  2. Economic growth requires continuous investment in human capital. People working toward an academic degree need an income, and the government needs to find a way to provide them with one. We need job skills training and retraining programs, and employers need to be heavily incentivized to train the workers they need in the skills they need. Skills-based immigration and guest worker programs can fill in the remaining gaps between the needed skills and available trained Americans.
  3. Economic growth requires continuous investment in physical capital (what economists call “plants and equipment”) and in public infrastructure. For the former, tax incentives could be the answer, however unpopular they might be. For the latter, an infrastructure bank could be the answer, where the actual creation of the money supply is done through the issuance of infrastructure bonds.
  4. Economic growth requires continuous innovation. On the private side, big tax incentives for research and development could be the answer, while on the public side, we could just turn on the taps for funding research, particularly at public universities. This has been slipping in recent decades from where it used to be.
  5. I just mentioned a number of programs that require public spending, of course. I think they would pay for themselves in the long run, but in the short run new sources of revenue would be needed, however politically unpopular. I would look to a value added tax as the international best practice which the U.S. continues to ignore, and taxes on pollution and waste which have the added benefit of making us healthier and safer.
  6. For any of these policies to have a prayer of getting through our political system, we would need a constitutional amendment making it clear that the right to free political speech applies only to human beings, not to corporations or dollars. Otherwise the United States will not be able to have these nice things.

one large or many smaller cities for maximum productivity

This paper looks at data from 306 cities in China to identify trends in how different sizes and densities of cities relative to each other affect economic productivity. The interesting finding is that it is best to have either one big low-density city or many smaller high-density ones.

How did urban polycentricity and dispersion affect economic productivity? A case study of 306 Chinese cities

This article aims to assess the impacts of urban spatial structure on economic productivity. Drawing upon detailed gridded population data of 306 Chinese cities at the prefecture level and above, we identify their urban (sub)centers through exploratory spatial data analysis, construct indicators to measure their degrees of polycentricity and dispersion, and model the impacts of spatial structure on urban productivity. A regression analysis reveals that economic productivity is significantly associated with urban spatial structure. Conditioning on other factors, higher degrees of dispersion are associated with lower level of urban productivity whereas the effects of polycentricity depend on urban population density. Less densely populated cities are likely to have higher productivity levels when they are more monocentric, while urban productivity of cities with high population density tend to benefit from a more polycentric structure. The paper concludes with spatial planning implications.

January 2018 in Review

Most frightening stories:

  • Larry Summers says we have a better than even chance of recession in the next three years. Sounds bad, but I wonder what that stat would look like for any randomly chosen three year period in modern history.
  • The United States is involved in at least seven wars: Afghanistan, Iraq, Syria, Yemen, Libya, Somalia, and Pakistan. Nuclear deterrence may not actually the work.
  • Cape Town, South Africa is in imminent danger of running out of water. Longer term, there are serious concerns about snowpack-dependent water supplies serving large urban populations in Asia and western North America.

Most hopeful stories:

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

the Trump infrastructure bill

The Trump infrastructure plan has apparently leaked. The upshot seems to be that states and metropolitan planning organizations, among others, can submit projects to be matched at up to 20% by the federal government. Most of the selection criteria are based on making a strong case that there is a plan to come up with the other 80%.

This sounds okay, as far as it goes, and it might get some projects over the hump that would not otherwise get built. I like the idea that metropolitan planning organizations are eligible, because they are in the best position to look at a city’s needs as a whole, across fragmented political entities and across types of infrastructure. Cities are where people live, where most of the economy happens and taxes are paid, and where people are educated and given skills and where new ideas come from that make our lives better in the long run. What I don’t really like is that economic and social benefits are given only 5% weight in the selection criteria. And even then, they are considered for an individual project in isolation, in the absence of any larger plan. In my ideal world, planning organizations would have comprehensive infrastructure plans that look at all types of infrastructure together over the long term, even including green infrastructure, and really focus on maximizing economic benefits. This would allow us to prioritize individual projects in the larger context of how the whole socioeconomic system works and not just on one “project at a time.

Still, this might be a small step in the right direction. Along with public infrastructure and some small steps to encourage capital investment, research and development in the private sector, add serious programs to address education, job skills training, and research and development in the public sector and you would have the beginnings of a long term national economic plan. Maybe toss in a revenue-neutral pollution tax for good measure.

Norwegian immigration

Snopes.com reminds us why Norwegians are not lining up to emigrate to the United States, and in fact there is a small net flow the other way.

Emigration from Norway to the U.S. hit its peak in 1882 when almost 29,000 mostly poor Norwegians crossed the Atlantic. In 2016, however, only 1,114 Norwegians moved to the U.S., while 1,603 Americans moved to Norway…

Oil-rich Norway ranks fourth in the world for GDP per person, according to the World Bank, compared with the U.S., which was eighth. Norway also boasts a universal health care system, low unemployment and $1 trillion “rainy day” fund fueled by its offshore oil and gas resources that helps pay for generous pensions and other social welfare programs.

Norwegians also have a life expectancy of 81.8 years on average, making them the 15th longest-living people in the world, according to the World Health Organization. The U.S. is in 31st place, with a life expectancy of 79.3 years.

My experience in Norway consists of two days in Oslo. It struck me as a fairly ethically diverse place actually. It seemed gloomy, but that might have been the weather. We could definitely study and learn from the way they bank their natural resource-derived wealth for the future, and from the way they blend a thriving capitalist economy with a robust social safety net. But we won’t, because…America.

2017 in Review

Most frightening stories of 2017:

  • January: The U.S. government may be “planning to roll back or dilute many of the provisions of Dodd-Frank, particularly those that protect consumers from toxic financial products and those that impose restrictions on banks”.
  • February: The Doomsday Clock was moved to 2.5 minutes to midnight. The worst it has ever been was 2 minutes to midnight in the early 1980s. In related news, the idea of a U.S.-China war is looking a bit more plausible. The U.S. military may be considering sending ground troops to Syria.
  • March: La Paz, Bolivia, is in a serious crisis caused by loss of its glacier-fed water supply. At the same time we are losing glaciers and snowpack in important food-growing regions, the global groundwater situation is also looking bleak. And for those of us trying to do our little part for water conservation, investing in a residential graywater system can take around 15 years to break even at current costs and water rates.
  • April: The U.S. health care market is screwed up seemingly beyond repair. Why can’t we have nice things? Oh right, because our politicians represent big business, not voters. Also, we have forgotten the difference between a dialog and an argument.
  • May: We hit 410 ppm at Mauna Loa.
  • June: The Onion shared this uncharacteristically unfunny observation: “MYTH: There is nothing mankind can do to prevent climate change. FACT: There is nothing mankind will do to prevent climate change”. It’s not funny because it’s probably true.
  • July: Long term food security in Asia could be a problem.
  • August: The U.S. construction industry has had negligible productivity gains in the past 40 years.
  • September: During the Vietnam War the United States dropped approximately twice as many tons of bombs in Southeast Asia as the Allied forces combined used against both Germany and Japan in World War II. After the Cold War finally ended, Mikhail Gorbachev made some good suggestions for how to achieve a lasting peace. They were ignored. We may be witnessing the decline of the American Empire as a result.
  • October: It is possible that a catastrophic loss of insects is occurring and that it may lead to ecological collapse. Also, there is new evidence that pollution is harming human health and even the global economy more than previously thought.
  • November: I thought about war and peace in November. Well, mostly war. War is frightening. The United States of America appears to be flailing about militarily all over the world guided by no foreign policy. Big wars of the past have sometimes been started by overconfident leaders thinking they could get a quick military victory, only to find themselves bogged down in something much larger and more intractable than they imagined. But enemies are good to have – the Nazis understood that a scared population will believe what you tell them.
  • December: A lot of people would probably agree that the United States government is becoming increasingly dysfunctional, but I don’t think many would question the long-term stability of our form of government itself. Maybe we should start to do that. The Consumer Financial Protection Bureau has been doing a decent job of protecting consumers and reducing the risk of another financial crisis. The person in charge of it now was put there specifically to ruin it. Something similar may be about to happen at the Census Bureau. A U.S. Constitutional Convention is actually a possibility, and might threaten the stability of the nation.

Most hopeful stories of 2017:

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

  • January: Apple, Google, and Facebook may destroy the telecom industry.
  • February: The idea of growing human organs inside a pig, or even a viable human-pig hybrid, is getting very close. Tiny brains can also be grown on a microchip. Bringing back extinct animals is also getting very close.
  • March: Bill Gates has proposed a “robot tax”. The basic idea is that if and when automation starts to increase productivity, you could tax the increase in profits and use the money to help any workers displaced by the automation. In related somewhat boring economic news, there are a variety of theories as to why a raise in the minimum wage does not appear to cause unemployment as classical economic theory would predict.
  • April: I finished reading Rainbow’s End, a fantastic Vernor Vinge novel about augmented reality in the near future, among other things.
  • May: The sex robots are here.
  • June: “Fleur de lawn” is a mix of perennial rye, hard fescue, micro clover, yarrow, Achillea millefolium, sweet alyssum, Lobularia maritima, baby blue eyes, Nemophila menziesi, English daisy, Bellis perennis, and O’Connor’s strawberry clover, Trifolium fragiferum.
  • July: Ecologists have some new ideas for measuring resilience of ecosystems. Technologists have some wild ideas to have robots directly counteract the effects of humans on ecosystems. I like ideas – how do I get a (well-compensated) job where I can just sit around and think up ideas?
  • August: Elon Musk has thrown his energy into deep tunneling technology.
  • September: I learned that the OECD Science, Technology and Innovation Outlook named “ten key emerging technology trends”: The Internet of Things, Big data analytics, Artificial intelligence, Neurotechnologies, Nano/microsatellites, Nanomaterials, Additive manufacturing / 3D printing, Advanced energy storage technologies, Synthetic biology, Blockchain
  • October: Even if autonomous trucks are not ready for tricky urban situations, they could be autonomous on the highway with a small number of remote-control drivers guiding a large number of tricks through tricky urban maneuvers, not unlike the way ports or trainyards are run now. There is also new thinking on how to transition highways gradually through a mix of human and computer-controlled vehicles, and eventually to full computer control. New research shows that even a small number of autonomous vehicles mixed in with human drivers will be safer for everyone. While some reports predict autonomous taxis will be available in the 2020s, Google says that number is more like 2017.
  • November: It’s possible that the kind of ideal planned economy envisioned by early Soviet economists (which never came to pass) could be realized with the computing power and algorithms just beginning to be available now.
  • December: Microsoft is trying to one-up Google Scholar, which is good for researchers. More computing firepower is being focused on making sense of all the scientific papers out there.

I’ll keep this on the short side. Here are a few trends I see:

Risk of War. I think I said about a year ago that if we could through the next four years without a world war or nuclear detonation, we will be doing well. Well, one year down and three to go. That’s the bright side. The dark side is that it is time to acknowledge there is a regional war going on in the Middle East. It could escalate, it could go nuclear, and it could result in military confrontation between the United States and Russia. Likewise, the situation in North Korea could turn into a regional conflict, could go nuclear, and could lead to military confrontation between the United States and China.

Decline…and Fall? A question on my mind is whether the United States is a nation in decline, and I think the surprisingly obvious answer is yes. The more important question is whether it is a temporary dip, or the beginning of a decline and fall.

Risk of Financial Crisis. The risk of another serious financial crisis is even scarier that war in some ways, at least a limited, non-nuclear war. Surprisingly, the economic effects can be more severe, more widespread and longer lasting. We are seeing the continued weakening of regulations attempting to limit systemic risk-taking for short-term gain. Without a pickup in long-term productivity growth and with the demographic and ecological headwinds that we face, another crisis equal to or worse than the 2007 one could be the one that we don’t recover from.

Ecological Collapse? The story about vanishing insects was eye-opening to me. Could global ecosystems go into a freefall? Could populous regions of the world face a catastrophic food shortage? It is hard to imagine these things coming to a head in the near term, but the world needs to take these risks seriously since the consequences would be so great.

Technology. With everything else going on, technology just marches forward, of course. One technology I find particularly interesting is new approaches to research that mine and attempt to synthesize large bodies of scientific research.

Can the human species implement good ideas? Solutions exist. I would love to end on a positive note, but at the moment I find myself questioning whether our particular species of hairless ape can implement them.

But – how’s this for ending on a positive note – like I said at the beginning, the one thing about 2017 that definitely didn’t suck was that we didn’t get blown up!