Tag Archives: economic growth

automatic stabilizers are not boring!

Slate says automatic stabilizers are boring, and then follows up with a long article on how great they would be. They would have kicked in for both the 2008 recession and the current one, without the months of arguing and lost time.

Things like unemployment insurance are obvious, but I like to think about opportunities for making investments we know we need to make anyway. Like infrastructure investments, capital investments, research and development, childcare and education and training. All of these create jobs now while providing payoffs in the future. When the private sector falters, the public sector kicks into a higher gear and carries the ball for awhile. Then the private sector recovers and debts can be paid back, or a surplus can even be built up. But once again, it’s too late to do it right this time around. It’s time to start planning for the next time around.

June 2020 in Review

In current events, the coronavirus crisis in the U.S. is spinning out of control as I write this in early July. I made a list of trackers and simulation tools that I have looked at. Asian countries, even developing countries, pretty much have it under control, Europe is getting it under control, and the U.S. and a few other countries are melting down. Some voices are very pessimistic on the U.S. economy’s chances to come back. So of course I’m thinking about that, but I don’t have all that many novel or brilliant ideas on it so I’m choosing to write about other things below. Most frightening and/or depressing story:
  • The UN just seems to be declining into irrelevancy. I have a few ideas: (1) Add Japan, Germany, India, Brazil, and Indonesia to the Security Council, (2) transform part of the UN into something like a corporate risk management board, but focused on the issues that cause the most suffering and existential risk globally, and (3) have the General Assembly focus on writing model legislation that can be debated and adopted by national legislatures around the world.
Most hopeful story:
  • Like many people, I was terrified that the massive street demonstrations that broke out in June would repeat the tragedy of the 1918 Philadelphia war bond parade, which accelerated the spread of the flu pandemic that year. Not only does it appear that was not the case, it is now a source of great hope that Covid-19 just does not spread that easily outdoors. I hope the protests lead to some meaningful progress for our country. Meaningful progress to me would mean an end to the “war on drugs”, which I believe is the immediate root cause of much of the violence at issue in these protests, and working on the “long-term project of providing cradle-to-grave (at least cradle-to-retirement) childcare, education, and job training to people so they have the ability to earn a living, and providing generous unemployment and disability benefits to all citizens if they can’t earn a living through no fault of their own.”
Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both:
  • Here’s a recipe for planting soil using reclaimed urban construction waste: 20% “excavated deep horizons” (in layman’s terms, I think this is just dirt from construction sites), 70% crushed concrete, and 10% compost

IMD World Competitiveness Ranking

The United States fell from 3rd to 10th in the IMD World Competitiveness Ranking this year, after being 1st just a couple years ago. Asian tigers (Singapore, Hong Kong) and Scandinavia/Northern Europe (Denmark, Switzerland, Netherlands, Sweden, Norway) make up most of the top 10, when Canada and UAE making the cut, and Taiwan just edged out at #11.

For the second year in a row, the USA failed to fight back having been toppled from its number one spot last year by Singapore, and coming in at 10th (3rd in 2019). Trade wars have damaged both China and the USA’s economies, reversing their positive growth trajectories. China this year dropped to 20th position from 14th last year.

IMD

City-states tend to do well, so my quick reaction is that it might make more sense to compare Singapore and Hong Kong to, say, the New York City or Toronto metro areas rather than the U.S. and Canada as a whole.

house of cards

James K. Galbraith has a very pessimistic view of the U.S. economy going forward.

America’s economic plight is structural. It is not simply the consequence of Trump’s incompetence or House Speaker Nancy Pelosi’s poor political strategy. It reflects systemic changes over 50 years that have created an economy based on global demand for advanced goods, consumer demand for frills, and ever-growing household and business debts. This economy was in many ways prosperous, and it provided jobs and incomes to many millions. Yet it was a house of cards, and COVID-19 has blown it down.

Project Syndicate

Slow, underlying trends can undermine the resilience of a system, without obvious impacts on the surface. Then, when a crisis hits, whether or not that crisis is related to the underlying trend, the system is not able to bounce back the way it would have without the trend. Imagine rising temperatures and invasive species very slowly putting pressure on a healthy forest or water body. The ecosystem can resist these pressures, maybe for a long time. But then one day, a major storm, fire, or drought comes along. Absent the underlying pressure, the the ecosystem could have rebounded to its original state, but with the underlying pressure, it rebounds to something short of its underlying state. Even if the shock is less than catastrophic and the system rebounds to something just a little short of the original state, successive crises over time can lead to a long, slow slide that might only be obvious in retrospective. Or, if the shift is very slow, “shifting baseline syndrome” sets in, where the people involved lose their memory of what the system used to be like, and don’t fully realize what has been lost.

is this the great depression?

The words “great” and “depression” are being used in close proximity these days. Joseph Stiglitz says a depression is when people only spend money on food, and by that definition we are kind of there. Noah Smith at Bloomberg says the U.S. unemployment rate currently stands around 11% and could be headed for 20% or 30%. The Great Depression topped out at 25% so by this definition too, we are headed there. The article points out that it is not just the depth of the recession that is important but its duration. At this point, there has not been a spike in interest rates or widespread bank failures, and the stock market has stabilized (i.e., it’s fluctuating around a lower level than its recent peak, but not wildly fluctuating). As people are legally allowed to resume normal activities, we will see if they do or if they choose not to out of fear. That is when banks and investors could get even more nervous about lending to businesses without good prospects of success, interest rates could spike, and a long-lasting wave of bankruptcies, defaults, and job losses could ensue.

November 2019 in Review

Most frightening and/or depressing story:
  • The Darling, a major river system in Australia, has essentially dried up.
Most hopeful story: Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both:

more on fully automated luxury communism

Here is the Amazon review of the actual book:

In the twenty-first century, new technologies should liberate us from work. Automation, rather than undermining an economy built on full employment, is instead the path to a world of liberty, luxury and happiness—for everyone. Technological advance will reduce the value of commodities—food, healthcare and housing—towards zero.

Improvements in renewable energies will make fossil fuels a thing of the past. Asteroids will be mined for essential minerals. Genetic editing and synthetic biology will prolong life, virtually eliminate disease and provide meat without animals. New horizons beckon.

In Fully Automated Luxury Communism, Aaron Bastani conjures a vision of extraordinary hope, showing how we move to energy abundance, feed a world of 9 billion, overcome work, transcend the limits of biology, and establish meaningful freedom for everyone. Rather than a final destination, such a society merely heralds the real beginning of history.

Amazon

Fully Automated Luxury Communism

This is an idea where computers manage the economy perfectly so we can all live lives of leisure.

The most ardent advocate for FALC, Aaron Bastani, a London-based media executive and writer, has written a new book on the topic. In it, he advances a curious, passionate argument, with a dire assessment of the present and a messianic vision for the future. Bastani believes that we are already living through a potentially epochal transformation of the economy, as epochal as the establishment of agriculture and the introduction of engines and electricity. Artificial intelligence, machine learning, and advanced computing might be about to eliminate the need for human labor in no small part, Bastani claims.

The Atlantic

This article doesn’t quite tell you what it is. Without reading the book, I imagine the idea might be that you invest in the right technologies to grow the economy while minimizing ecological harm, then reinvest some of the gains in an optimal way while paying an equitable dividend to everyone in the world. Maybe at some point, you work things out so that money is no longer necessary to keep the system in balance. That’s my guess as to what is in this book – maybe I should read the book and find out.

industrial policy

This article is about industrial policy. It worked for countries like Japan, Korea, Singapore and China. Basically, they were able to put vast pools of low-cost labor to work producing things to export to markets much bigger and richer than their own economies, using technology imported from those economies. That is no a recipe for success in today’s advanced economies. The article argues for investments in education, research, and innovation as the “industrial policy” of today. One interesting thing it does is draw parallels to the migration of manufacturing from the U.S. northeast to south.

In a recent International Monetary Fund working paper, we use these past successes to identify three principles that underlie what we call a “true” industrial policy. In the Asian “miracle” economies – such as Singapore and South Korea – as well as in Japan, Germany, and the United States, the government intervened early on to support domestic firms in emerging, technologically sophisticated sectors. The successful policies placed special emphasis on export orientation, and held firms accountable for the support received. Given the strong focus on cutting-edge sectors, this “true” industrial policy is essentially a technology and innovation policy (TIP).

Technology and innovation are key to economic growth. China’s Made in China 2025 program essentially emulates the strategy used by South Korea (and Japan before it) to escape the so-called middle-income trap. Likewise, the new UK and Franco-German industrial strategies focus on the industries of the future: renewable energy, artificial intelligence, and robotics.

Project Syndicate

revisiting the trophic theory of money

One of my most popular posts ever is a brief musing about the “trophic theory of money” I wrote back in 2014. Brian Czech, who developed or at least clarified and named the theory, has a new journal article about it here. He writes pretty well for a lay audience so I would encourage people to read the paper rather than rely on me to summarize, but nonetheless here are a few key points in my own words so people can start yelling at me:

  • Before humanity figured out how to produce an agricultural surplus, everybody was trying to scratch a living out of the dirt and there was no need for money to be invented. Once the agricultural surplus became significant, many people were freed up to do other things and this led to money. So money is essentially measuring the amount of activity happening outside of agriculture, and indirectly measuring the amount of agricultural surplus that allows this to happen.
  • Towards the end of the paper, Mr. Czech acknowledges that improvements in technology over time (usually driven by intentional investment in research and development) have been able to reduce environmental impact per unit of economic activity, even though total environmental impact has continued to grow. However, he believes this process has nearly reached its limit and will not continue much longer.
  • It is possible the economy could transition to a steady state where GDP (adjusted for inflation) is no longer growing. It is also possible our environmental impact will overshoot the planet’s carrying capacity enough and for long enough that a sharp contraction in GDP (and necessarily, the amount of agricultural surplus) will occur.

Where do I stand on this? I take the laws of thermodynamics, and the fact that humanity is a species existing within and not apart from nature, as a given. I think there is a lot of knowledge out there yet to be discovered, and if our society took the right steps we might be able to keep growing in a sustainable way for some time. I don’t think there is any evidence that our sociopolitical system even understands the problem let alone is likely to take those steps. I don’t think action on the necessary scale will take place unless and until we reach a crisis stage. About the most positive I can be is to hope for a relatively minor crisis rather than a civilization ending one.