Tag Archives: economic growth

the Environmental Kuznets Curve

Here’s a journal article with some discussion of the Environmental Kuznets Curve, which is the idea that a developing country’s environment will slowly degrade, then improve again. Having breathed and drank in a variety of countries, it is pretty clear to me that the concept applies to air and water pollution, but not to overall ecological footprint, wildlife habitat, or long-term stability of our atmosphere and oceans. I suspect that this is because air and water pollution are things people can understand – they affect health, safety, and property values in pretty obvious ways. Over time, economic development starts giving people some money, education, and leisure time, and they become more politically active, generating pressure to clean up the immediate human environment. But people don’t understand or don’t care about the long-term ecological issues as much, so the political pressure does not develop.

The main purpose of this paper is to present a theoretical model incorporating the concept of circular economic activities. We construct a circular economy model with two types of economic resources, namely, a polluting input and a recyclable input. Overall, our results indicate that the factors affecting economic growth include the marginal product of the recyclable input, the recycling ratio, the cost of using the environmentally polluting input and the level of pollution arising from the employment of the polluting input. Our analysis also shows that, contrary to the Environmental Kuznets Curve (EKC), environmental quality cannot be maintained or improved via economic growth. Instead, the improvement in environmental quality, as measured by a reduction in pollution, can only be achieved by an increase in the environmental self-renewal rate or the recycling ratio.

more on automation

The Economist has an article reviewing three recent papers on automation (i.e. robots, artificial intelligence) and employment. For two of the three papers, the bottom line is that automation has led to inequality in the past, because it means unemployment for some groups of people, but has led to overall economic growth and society-wide benefits in the longer term. The third paper, however, talks about the current exponential “explosion” of technological progress as a revolutionary development that cannot be compared to anything in the recent past. The last time anything like this happened was about 500 million years ago.

These are all open access, so I’ll put links to the papers below along with abstracts.

Autor, David H. 2015. “Why Are There Still So Many Jobs? The History and Future of Workplace Automation.” Journal of Economic Perspectives, 29(3): 3-30.

In this essay, I begin by identifying the reasons that automation has not wiped out a majority of jobs over the decades and centuries. Automation does indeed substitute for labor—as it is typically intended to do. However, automation also complements labor, raises output in ways that leads to higher demand for labor, and interacts with adjustments in labor supply. Journalists and even expert commentators tend to overstate the extent of machine substitution for human labor and ignore the strong complementarities between automation and labor that increase productivity, raise earnings, and augment demand for labor. Changes in technology do alter the types of jobs available and what those jobs pay. In the last few decades, one noticeable change has been a “polarization” of the labor market, in which wage gains went disproportionately to those at the top and at the bottom of the income and skill distribution, not to those in the middle; however, I also argue, this polarization is unlikely to continue very far into future. The final section of this paper reflects on how recent and future advances in artificial intelligence and robotics should shape our thinking about the likely trajectory of occupational change and employment growth. I argue that the interplay between machine and human comparative advantage allows computers to substitute for workers in performing routine, codifiable tasks while amplifying the comparative advantage of workers in supplying problem-solving skills, adaptability, and creativity.

Mokyr, Joel, Chris Vickers, and Nicolas L. Ziebarth. 2015. “The History of Technological Anxiety and the Future of Economic Growth: Is This Time Different?” Journal of Economic Perspectives, 29(3): 31-50.

Technology is widely considered the main source of economic progress, but it has also generated cultural anxiety throughout history. The developed world is now suffering from another bout of such angst. Anxieties over technology can take on several forms, and we focus on three of the most prominent concerns. First, there is the concern that technological progress will cause widespread substitution of machines for labor, which in turn could lead to technological unemployment and a further increase in inequality in the short run, even if the long-run effects are beneficial. Second, there has been anxiety over the moral implications of technological process for human welfare, broadly defined. While, during the Industrial Revolution, the worry was about the dehumanizing effects of work, in modern times, perhaps the greater fear is a world where the elimination of work itself is the source of dehumanization. A third concern cuts in the opposite direction, suggesting that the epoch of major technological progress is behind us. Understanding the history of technological anxiety provides perspective on whether this time is truly different. We consider the role of these three anxieties among economists, primarily focusing on the historical period from the late 18th to the early 20th century, and then compare the historical and current manifestations of these three concerns.

Pratt, Gill A. 2015. “Is a Cambrian Explosion Coming for Robotics?” Journal of Economic Perspectives, 29(3): 51-60.

About half a billion years ago, life on earth experienced a short period of very rapid diversification called the “Cambrian Explosion.” Many theories have been proposed for the cause of the Cambrian Explosion, one of the most provocative being the evolution of vision, allowing animals to dramatically increase their ability to hunt and find mates. Today, technological developments on several fronts are fomenting a similar explosion in the diversification and applicability of robotics. Many of the base hardware technologies on which robots depend—particularly computing, data storage, and communications—have been improving at exponential growth rates. Two newly blossoming technologies—”Cloud Robotics” and “Deep Learning”—could leverage these base technologies in a virtuous cycle of explosive growth. I examine some key technologies contributing to the present excitement in the robotics field. As with other technological developments, there has been a significant uptick in concerns about the societal implication of robotics and artificial intelligence. Thus, I offer some thoughts about how robotics may affect the economy and some ways to address potential difficulties.

global slowdown?

Over the past day or two, the BBC headlines have been expressing some pessimism about the global economy.

Tough outlook for emerging markets

Three long trending factors that have supported economic growth – and financial market returns – across the developing economies appear to be either reversing or slowing…

Add together slowing world trade, collapsing commodity prices and less easy global financial conditions, and you’ve got a recipe for a tough time for emerging economies. Not necessarily for a 1997-style meltdown, but certainly for an environment for lower growth and lower returns for investors.

Chinese economic winter ‘cooling’ world economy

There are growing fears about the health of the global economy after a day of market turmoil.

Across the world share prices and currencies have fallen and the London stock exchange has dropped to its lowest level for seven months.

The slowdown in China, the world’s second largest economy, is being blamed.

US stocks hit by global growth fears

Stocks on Wall Street fell sharply on Thursday as worries about global economic growth continued to hit markets around the world.

The Dow Jones closed down 358.04 points, or 2.1%, at 16,990.69.

 

Naomi Klein

Naomi Klein’s book This Changes Everything: Capitalism vs. the Climate is coming out in paperback. (Does that matter in the digital age?) She is pretty scathing when she describes how her fellow humans are messing up our civilization project (this is the New York Times book review):

To call “This Changes Everything” environmental is to limit Klein’s considerable agenda. “There is still time to avoid catastrophic warming,” she contends, “but not within the rules of capitalism as they are currently constructed. Which is surely the best argument there has ever been for changing those rules.” On the green left, many share Klein’s sentiments. George Monbiot, a columnist for The Guardian, recently lamented that even though “the claims of market fundamentalism have been disproven as dramatically as those of state communism, somehow this zombie ideology staggers on.” Klein, Monbiot and Bill McKibben all insist that we cannot avert the ecological disaster that confronts us without loosening the grip of that superannuated zombie ideology.

That philosophy — ­neoliberalism — promotes a high-consumption, ­carbon-hungry system. Neoliberalism has encouraged mega-mergers, trade agreements hostile to environmental and labor regulations, and global hypermobility, enabling a corporation like Exxon to make, as McKibben has noted, “more money last year than any company in the history of money.” Their outsize power mangles the democratic process. Yet the carbon giants continue to reap $600 billion in annual subsidies from public coffers, not to speak of a greater subsidy: the right, in Klein’s words, to treat the atmosphere as a “waste dump.” …

In democracies driven by lobbyists, donors and plutocrats, the giant polluters are going to win while the rest of us, in various degrees of passivity and complicity, will watch the planet die. “Any attempt to rise to the climate challenge will be fruitless unless it is understood as part of a much broader battle of worldviews,” Klein writes. “Our economic system and our planetary system are now at war.”

more on the internet of things

Here is another Brookings article talking about the “internet of things” and productivity.

Nearly 30 years ago, the economists Robert Solow and Stephen Roach caused a stir when they pointed out that, for all the billions of dollars being invested in information technology, there was no evidence of a payoff in productivity…

By the late 1990s, the economists Erik Brynjolfsson and Lorin Hitt had disproved the productivity paradox, uncovering problems in the way service-sector productivity was measured and, more important, noting that there was generally a long lag between technology investments and productivity gains.

Our own research at the time found a large jump in productivity in the late 1990s, driven largely by efficiencies made possible by earlier investments in information technology. These gains were visible in several sectors, including retail, wholesale trade, financial services, and the computer industry itself. The greatest productivity improvements were not the result of information technology on its own, but by its combination with process changes and organizational and managerial innovations.

So we can expect a delayed productivity effect. The real question to me is not just whether this will happen, but whether the productivity gain will translate into better quality of life for most people. If productivity per hour of work goes up, that would mean economic growth if people keep working the same amount. But it can instead mean there are fewer jobs for people to do. A small number of companies and individuals might then reap the benefits, and it might not benefit the average person.

internet of things

Here’s a McKinsey report on the potential economic value of the internet of things – they say $3-11 trillion per year in 2025, or up to 11% of the world economy.

The digitization of machines, vehicles, and other elements of the physical world is a powerful idea. Even at this early stage, the IoT is starting to have a real impact by changing how goods are made and distributed, how products are serviced and refined, and how doctors and patients manage health and wellness. But capturing the full potential of IoT applications will require innovation in technologies and business models, as well as investment in new capabilities and talent. With policy actions to encourage interoperability, ensure security, and protect privacy and property rights, the Internet of Things can begin to reach its full potential—especially if leaders truly embrace data-driven decision making.

July 2015 in Review

I’m experimenting with my +3/-3 rating system again this month, just to convey the idea that not all stories are equal in importance. The result is that July was a pretty negative month! Whether that reflects more the state of the world or the state of my mind, or some combination, you can decide.

Negative stories (-21):

  • In The Dead Hand, I learned that the risk of nuclear annihilation in the 1980s was greater than I thought, and the true story of Soviet biological weapons production was much worse than I thought. (-3)
  • Elon Musk and Stephen Hawking, among others, are concerned about a real-life Terminator scenario. (-2)
  • I playfully pointed out that the Pope’s encyclical contains some themes that sound like the more lucid paragraphs in the Unabomber Manifesto, namely that the amoral pursuit of technology has improved our level of material comfort and physical health while devastating the natural world, creating new risks, and leaving us feeling empty somehow. (-1)
  • Bumblebees are getting squeezed by climate change. (-1)
  • The Cold War seems to be rearing its ugly head. (-2)
  • There may be a “global renaissance of coal”. (-3)
  • Joel Kotkin and other anti-urban voices like him want to make sure you don’t have the choice of living in a walkable community. (-2)
  • I think Obama may be remembered as an effective, conservative president, in the dictionary sense of playing it safe and avoiding major mistakes. Navigating the financial crisis, achieving some financial and health care reforms, and defusing several wars and conflicts are probably his greatest achievements. However, if a major war or financial crisis erupts in the near future that can be traced back to decisions he made, his legacy will suffer whether it is fair or not. (-0)
  • We can think of natural capital as a battery that took a long time to charge and has now been discharged almost instantly. (-3)
  • James Hansen is warning of much faster and greater sea level rise than current mainstream expectations. (-3)
  • Lloyd’s of London has spun a scenario of how a food crisis could play out. (-1)

Positive stories (+7):

Canada’s Eco-Fiscal Commission

Canada has something called an eco-fiscal commission, and it has a blog.

Technological change has transformed the quality of our lives. It has removed terrible diseases that maimed, crippled, and killed — plague, tuberculosis, cholera, dysentery, smallpox, and leprosy, to mention only the most common. In 1900, death from botulism and ptomaine poisoning from contaminated food was common. Chemical additives virtually eliminated these killers and allow us to live long enough to worry about the long run cancer causing effects of some of these additives. Now they are being replaced by safer preservatives.

Technological change has also transformed how we make both existing and new commodities. Most new technologies useless of all inputs per unit of output than do the older technologies that they replace thus moving us towards an increasingly economical use of the world’s resources. Furthermore, many newer technologies are much less polluting than many older technologies.

In summary, economic growth driven by new technologies not only increases our incomes; it transforms our lives through the invention of new, hitherto undreamed of products that are made in new, hitherto undreamed of and more economical ways. We can indeed be thankful that no anti-growth advocate persuaded governments in 1950, let alone in 1900, to stop all growth on the grounds that resources were limited and that we did not need more of what we already had too much of, thereby denying us of all the products and processes just mentioned and the new resource saving and less polluting production methods ̶ and others too many to list here.

This thinking is logical on its face. But of course, the logical flaw is when it is not paired with the idea that the absolute physical footprint can’t grow forever. Put another way, you can’t just keep producing each unit of output more efficiently, and producing ever more output, unless the growth in efficiency is faster than the growth in output. It could theoretically be done, but we’re not close to turning that corner.

June 2015 in Review

Negative stories:

Positive stories:

climate change and the economy

Here’s another modeling study in Ecological Economics that looks at the effects of climate change on the global economy.

A demand-driven growth model involving capital accumulation and the dynamics of greenhouse gas (GHG) concentration is set up to examine macroeconomic issues raised by global warming, e.g. effects on output and employment of rising levels of GHG; offsets by mitigation; relationships among energy use and labor productivity, income distribution, and growth; the economic significance of the Jevons and other paradoxes; sustainable consumption and possible reductions in employment; and sources of instability and cyclicality implicit in the two-dimensional dynamical system. The emphasis is on the combination of biophysical limits and Post-Keynesian growth theory and the qualitative patterns of system adjustment and the dynamics that emerge.