Tag Archives: economic growth

Menino Survey of Mayors

The Menino Survey of Mayors is a survey where mayors are surveyed. Basically they say they need help with infrastructure, and they complain that states are useless at best and anti-city at worst.

It would make sense to have some kind of infrastructure planning at the scale of the metropolitan area. If a metro area could agree on a planning body to represent it, and that planning body could come up with a truly comprehensive infrastructure plan, the federal government could bypass the state and pass funding directly along to that body for implementation. An infrastructure bank, part of the Federal Reserve or alongside it, could issue infrastructure bonds as part of the country’s monetary policy – invest when the private sector is underinvesting and the overall economy is lagging, and let the private sector play as large a role as it is willing to when the economy is strong. This shouldn’t be controversial – there is a near-consensus among economists that expanding infrastructure spending would be a win-win for jobs and economic growth.

This wouldn’t have to mean states would be completely obsolete. They could do the planning and implementation for the infrastructure that connects the metro areas together, and for agriculture policy and the infrastructure that brings agricultural goods to market. Their political power could be equal to a metro area in proportion to the people they represent, not the empty land they represent.

Changing the balance of power on paper between the federal government, states, and cities might require constitutional changes. But create the infrastructure bank and the funding mechanisms might change the practical balance pretty quickly.

March 2016 in Review

3 most frightening stories

3 most hopeful stories

3 most interesting stories

measuring productivity

There was a recent Wall Street Journal (which I don’t subscribe to) article arguing that productivity has not really slowed down, that we are just not measuring it correctly. This Brookings paper argues against that idea.

After 2004, measured growth in labor productivity and total-factor productivity (TFP) slowed. We find little evidence that the slowdown arises from growing mismeasurement of the gains from innovation in IT-related goods and services. First, mismeasurement of IT hardware is significant prior to the slowdown. Because the domestic production of these products has fallen, the quantitative effect on productivity was larger in the 1995-2004 period than since, despite mismeasurement worsening for some types of IT—so our adjustments make the slowdown in labor productivity worse. The effect on TFP is more muted. Second, many of the tremendous consumer benefits from smartphones, Google searches, and Facebook are, conceptually, non-market: Consumers are more productive in using their nonmarket time to produce services they value. These benefits do not mean that market-sector production functions are shifting out more rapidly than measured, even if consumer welfare is rising. Moreover, gains in non-market production appear too small to compensate for the loss in overall wellbeing from slower market-sector productivity growth. Third, other measurement issues we can quantify (such as increasing globalization and fracking) are also quantitatively small relative to the slowdown. Finally, we suggest high-priority areas for future research.

“Non-market” eh? I think some of the twisted sentences in there are arguing that we may have reached a point in richer countries where we value things that are not measured in money. Bradford Delong kind of agrees with me, saying:

Isn’t “measuring consumer welfare” the point? We (a) arrange atoms (b) in forms we find pleasing and convenient, and then use them in combination with (c) information and (d) communication to accomplish our purposes. That our measures of economic growth are overwhelmingly “market” measures that capture the value of (a), much of the value of (b), and little of the value of (c) and (d) is an indictment of those measures, and not an excuse for laziness by shrugging them off as “non-market” and claiming that measuring the shifting-out of market-sector production functions is our proper business.

Finally, I got on this growth and productivity kick after reading this article in FiveThirtyEight, which links to a lot of the above sources.

None of this economic commentary ever talks about links to the physical world or ecosystem services. I will puzzle that out one day.

Robert Gordon

Robert Gordon has expanded his argument that innovation and growth are over into a book. Here’s the description from Princeton University Press.

In the century after the Civil War, an economic revolution improved the American standard of living in ways previously unimaginable. Electric lighting, indoor plumbing, home appliances, motor vehicles, air travel, air conditioning, and television transformed households and workplaces. With medical advances, life expectancy between 1870 and 1970 grew from forty-five to seventy-two years. Weaving together a vivid narrative, historical anecdotes, and economic analysis, The Rise and Fall of American Growth provides an in-depth account of this momentous era. But has that era of unprecedented growth come to an end?

Gordon challenges the view that economic growth can or will continue unabated, and he demonstrates that the life-altering scale of innovations between 1870 and 1970 can’t be repeated. He contends that the nation’s productivity growth, which has already slowed to a crawl, will be further held back by the vexing headwinds of rising inequality, stagnating education, an aging population, and the rising debt of college students and the federal government. Gordon warns that the younger generation may be the first in American history that fails to exceed their parents’ standard of living, and that rather than depend on the great advances of the past, we must find new solutions to overcome the challenges facing us.

A critical voice in the debates over economic stagnation, The Rise and Fall of American Growth is at once a tribute to a century of radical change and a harbinger of tougher times to come.

Here’s an interview with Gordon where he talks about the book.

economic “derailment”

David Lipton, a deputy director at the IMF, gave a speech on March 8 in which he stated, “Global economic recovery continues, but we are clearly at a delicate juncture, where risk of economic derailment has grown.”

Why?

In many parts of Europe, for instance, sovereign and private sector balance sheets remain highly leveraged and banks’ non-performing loans high. In the US, aging-related spending pressures and unfulfilled infrastructure needs diminish economic prospects. And in Japan, deflation is putting the recovery at risk.
At the same time, we are witnessing an emergence of new risks. The global economic slowdown is hurting bank balance sheets and financing conditions have tightened considerably. In emerging markets, excess capacity is being unwound through sharp declines in capital spending, while rising private debt, often denominated in foreign currency, is increasing risks to banks and sovereign balance sheets.

Concerns about the global outlook have weighed heavily on world financial markets. The decline in equity price indices in 2016 so far this year has averaged over 6 percent, implying a loss of global market capitalization of over US$ 6 trillion (or 8.5 percent of global GDP). This is roughly half the US$ 12.3 trillion loss incurred in the most acute phase of the global financial crisis. Some Asian markets, such as in China and Japan, have been particularly hard hit, with losses of over 20 percent since the beginning of the year. Meanwhile, emerging market currencies have weakened, while their sovereign credit spreads have continued to widen—in Latin America and Africa by over 300 basis points over the past year.

What may be most disconcerting is that the rise in global risk aversion is leading to a sharp retrenchment in global capital and trade flows. Last year, for example, emerging markets saw about $200 billion in net capital outflows, compared with $125 billion in net capital inflows in 2014. Trade flows meanwhile are being dragged down by weak export and import growth in large emerging markets such as China, as well as Russia and Brazil, which have been under considerable stress.
Furthermore, inflation has fallen to historical lows. Headline inflation in advanced economies in 2015, at 0.3 percent, was the lowest since the financial crisis, and in emerging markets core inflation remains well below central bank targets.

The solutions proposed are mostly things you might expect from the IMF – free trade, free capital flows, floating exchange rates, and reduced regulation of big business. But buried in the fuzzy language, they are nowhere near as hawkish on debt as they once were and are talking about richer countries reducing taxes on labor, and taking on debt to invest in infrastructure, education, and research.

Remaking Economic Development

This is a new Brookings study on a vision for economic development at the metro scale. Here’s an excerpt, but the rest is worth reading.

As Michael Porter, the Harvard authority on competitiveness, describes it, the anchor firms, supply chains, supporting entities and organizations, research centers and specialized knowledge assets that make up industry clusters arise from a “highly localized process” that creates differentiated competitive advantages tailored for particular industry clusters.

Those assets are sometimes called “market drivers,” “factors of production,” or the “industrial commons”— because they benefit a wide array of firms. They include applied research and technical expertise, supports for entrepreneurial activity, robust pipelines of skilled labor, deep benches of suppliers and related firms, globally connected infrastructure, and responsive, predictable governance to maintain them all. It is the productive mix and synergy among these distinctive drivers—innovation, traded sectors, human capital, infrastructure, and governance—that create the conditions in which industries thrive, create value, and generate growth and income.

Globalization and technology have not dispersed these market assets but instead have further concentrated them in cities and metropolitan regions, with leading centers of knowledge and production capturing an increasingly greater share of specific market opportunities.

That is in part because innovation today reinforces the power of place. The rapid pace of competition requires solutions often developed through collaborations among firms, research institutions, national labs, competitors, customers, venture capitalists, and entrepreneurs—collaborations that are most readily forged through the networks formed within metropolitan regions.

 

This sounds right to me. Policies like minimum wage and affordable housing have their place, but ultimately I feel like they are treating the symptom and not the disease. The pie has to be growing.

how freight moves

Here are some statistics on how freight moves in the U.S. Compared to my preconceived notions, trucking is even more dominant compared to rail than I thought. Even pipelines move more than twice the weight of rail. Air is vanishingly small in terms of weight, but used to move higher-value items. It’s not too surprising that the monetary value of everything shipped is projected to grow along with the economy, but it is a little surprising to me that the weight of everything shipped is projected to grow by 40% over the next 30 years. It argues against the idea that we are “dematerializing”, or achieving economic growth without physical growth. Sure, people like Alan Greenspan can make an argument that the weight per dollar is not increasing, but what does that mean exactly when a dollar is a fairly arbitrary human measure of value? Ultimately the tonnage of everything we move, from raw materials and fossil fuels to manufactured goods to waste, is one proxy for ecological footprint, and it doesn’t look like we are going to turn the corner soon. The only way that would change is if we had a closed loop, “circular economy” where the waste becomes raw materials again. Then we could theoretically keep shipping it around the loop faster and faster without increasing our footprint. That is, given enough clean, cheap energy.

Romney vs. Trump

Here we have the last Republican nominee sagavely attacking the current front runner. It suggests to me that Republican leaders are worried the general election may be a lost cause. Maybe it is time for a rational pro-growth, pro-business party to emerge and leave the intolerant fringe behind. A rational pro-growth, pro-business party could embrace policies like clean elections, a universal health care system that takes the burden off employers, investment in education rather than prisons, a rational guest worker program, and a revenue-neutral carbon tax.

February 2016 in Review

I’m going to try picking the three most frightening posts, three most hopeful posts, and three most interesting posts (that are not particularly frightening or hopeful) from February.

3 most frightening posts

3 most hopeful posts

3 most interesting posts

  • The U.S. election season certainly is getting interesting, although not really in a good way. ontheissues.org has a useful summary of where U.S. political candidates stand…what are the words I’m looking for…on the the issues. Nate Silver has an interesting online tool that lets you play around with how various demographic groups tend to vote.
  • Fire trucks don’t really have to be so big.
  • Titanium dioxide is the reason Oreo filling is so white.

Sander-nomics

This analysis of Bernie Sanders’s economic plan by Gerald Friedman at University of Massachussetts-Amherst has made quite a splash, suggesting it could lead to massive improvements in economic growth, unemployment, inequality, and productivity, all while investing heavily for the future in infrastructure, education, and climate change readiness. Bill Moyers.com has a long roundup of the criticism and support from all sides, finally concluding that it is actually plausible using standard, even conservative principles of economics. To me, even if it is only partially true, it just shows how unbelievably badly our economy has been managed over the past few decades, and how unready for the future we actually are.

Meanwhile, the Trump economic plan just doesn’t remotely add up using any known principles of arithmetic.