Tag Archives: productivity

OECD Science, Technology and Innovation Outlook 2016

The OECD publishes a Science, Technology and Innovation Outlook every two years. They name “ten key emerging technology trends”:

  1. The Internet of Things
  2. Big data analytics
  3. Artificial intelligence
  4. Neurotechnologies
  5. Nano/microsatellites
  6. Nanomaterials
  7. Additive manufacturing / 3D printing
  8. Advanced energy storage technologies
  9. Synthetic biology
  10. Blockchain

This report has a little bit of everything. They talk about the “water-food-energy” nexus and how it is likely to interact with new technologies, climate change, the drop in public research funding and increasing importance of non-state actors, and cities as engines of innovation.

The last part of the report talks about the future of research, research funding, private vs. public research, and research policies. One term that was new to me was Responsible Research and Innovation (RRI) which attempts to manage risks and ethical concerns of new technologies.

An American Sickness

The New York Times has a review of a new book called An American Sickness: How Healthcare Became Big Business and How You Can Take It Back. Here’s an excerpt from the review:

Rosenthal thinks the health care market is different, and she sums up these differences as the “economic rules of the dysfunctional medical market.” There are 10 — some obvious (No. 9: “There’s money to be made in billing for anything and everything”); some humorous (No. 2: “A lifetime of treatment is preferable to a cure”) — but No. 10 is the big one: “Prices will rise to whatever the market will bear.” To Rosenthal, that’s the answer to Scalia’s question. The health care market doesn’t work like other markets because “what the market will bear” is vastly greater than what a well-functioning market should bear. As Rosenthal describes American health care, it’s not really a market; it’s more like a protection racket — tolerated only because so many different institutions are chipping in to cover the extortionary bill and because, ultimately, it’s our lives that are on the line…

The difference between the United States and other countries isn’t the role of insurance; it’s the role of government. More specifically, it’s the way in which those who benefit from America’s dysfunctional market have mobilized to use government to protect their earnings and profits. In every country where people have access to sophisticated medical care, they must rely heavily on the clinical expertise of providers and the financial protections of insurance, which, in turn, creates the opportunity for runaway costs. But in every other rich country, the government not only provides coverage to all citizens; it also provides strong counterpressure to those who seek to use their inherent market power to raise prices or deliver lucrative but unnecessary services — typically in the form of hard limits on how much health care providers can charge.

In the United States, such counterpressure has been headed off again and again. The industry and its elected allies have happily supported giveaways to the medical sector. But anything more, they insist, will kill the market. Although this claim is in conflict with the evidence, it is consistent with the goal of maximum rewards to (and donations from) the industry. As a result, Medicare beneficiaries have prescription drug coverage (passed by Republicans in 2003), but Medicare administrators have no ability to do what every other rich country does: negotiate lower drug prices. In January, President Trump said drug companies were “getting away with murder” because they had “a lot of lobbyists and a lot of power,” insisting he would get Medicare to bargain. Should we really be surprised that the dealmaker in chief dropped the subject after meeting with pharma executives earlier this year?

At the individual level, there are really only two things I can think of to do. One is to attempt to shop around for health care. If you call your doctors office or hospital and ask for the price they charge for a particular service you are considering buying, which is how every other market works, they are likely to laugh at you. Your insurance company might actually help though. I have tried this with Blue Cross Blue Shield with limited success, but it definitely takes time and effort. The second option is to go abroad for checkups, lab work, and elective procedures. It’s not that hard to combine a vacation with a doctor or dentist visit. Insurance companies will generally cover it, because it will almost always save them money, but you definitely have to talk to them in advance. Foreign hospitals (I have experience in Singapore and Thailand) will sometimes bill U.S. insurance companies provided you have a letter form the insurance company up front. Otherwise you might have to front the cash and do the paperwork for reimbursement when you get back.

Like I said, all this takes time and effort, but there are significant savings to be had. So why aren’t third parties stepping into the vacuum to make comparison shopping and medical tourism easier for the masses?

Bill Gates’s Robot Tax

In this interview, Bill Gates proposes 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. Gates’s idea is to use the money to repurpose these workers to jobs that are not easily automated and are currently undervalued in the marketplace, such as teaching and childcare.

Robert Gordon

Robert Gordon has an op-ed in the New York Times talking about productivity growth, inequality, and the Presidential candidates’ stated policy positions.

Rapid productivity growth in the dot-com era of the late 1990s originated in computer manufacturing — information and communication technology equipment — but this manufacturing has vanished since almost all such equipment is now imported.

This effect of that new technology was another important source of growth. Out went typewriters and calculating machines, replaced by personal computers, spreadsheet and word-processing software, web browsers and e-commerce. Productivity also boomed in retailing, as Walmart and other “big box” stores revolutionized retail selection, layout and supply chain management.

But by 2004, the digital revolution had achieved most of its transition in business methods. Not much has changed in offices and at retail stores since then.

His basic thesis is that we are past the peak of this particular wave of technological progress, and he doesn’t see another wave on the horizon. So technology is not providing that slow but relentless underlying trend of productivity growth right now, and the shorter-term underlying cyclical factors are also on a downward trend (size of the skilled labor force, income inequality, uncertainty over health care, retirement and education). Tax and infrastructure investment policies suggested by the candidates could help somewhat with these shorter term factors. He generally supports socialist policies like we see in “Canada, Australia, and the Nordic countries”.

My own thoughts: It’s tough for politicians to support policies that advance long-term productivity growth, like great education and a level playing field for businesses of all sizes to innovate and compete. First of all, the costs of these policies come due during their terms in office while the benefits accrue long afterward. This is a basic problem of democracy – elected officials can be punished by voters for taking on those short term costs, and solutions can involve voluntarily transferring more power into the hands of un-elected technocrats, which they have little incentive to do. (Nonetheless, many other democratic countries manage to do better than us.) Second, the interests of a few big businesses (finance, fossil fuels and the military-industrial complex) have outsize, undemocratic influence over our (U.S.) politicians allowing them to write laws unfairly in their favor and at the expense of everyone else, even businesses in other industries. This problem could be solved by a courageous amendment to our constitution, but again politicians have little incentive to cut off their own sources of funding.

Politicians can talk about infrastructure because that creates short-term jobs while also helping the economy in the long-term. We need good planning though if we are going to build the smart infrastructure that can really reduce friction in the economy while minimizing environmental impacts and improving our living environments. We don’t have that currently, just some vague ideas about building lots of roads and bridges and maybe some power lines and we’re not sure about pipelines.

Gordon rails against “defined contribution” pension plans, but I still think there is a place for them. While social security is reasonably well run at the federal level, pension plans at the state, municipal and corporate level are terribly run. So I would say either get rid of all those in favor of an expansion of social security, or go to defined contribution. Plans could be designed to help individuals manage risk more effectively (using life cycle funds and annuitization, for example). In Singapore, the system is nominally defined contribution, but the government “tops up” individuals’ contributions – everybody contributes a similar amount as a percentage of their income, then the government matches contributions from lower-income individuals at a higher rate so they can end up with similar retirement savings as higher-income individuals. This could work in the U.S., but we would have to first prevent the finance industry from hijacking the rules to siphon off money for itself.

Of course, we can also hope that the wave of technological progress is in fact not past, we are just in a momentary lull before it continues to pick up in an exponential (but episodic) fashion as it has throughout history. I am 100% positive that the history of technology is not over. The only question in my mind is whether, if we are in fact in an episodic lull, it is going to last long enough to ruin a generation or two for us puny individual humans who only live 70 years or so.

Habitica

This app turns your to-do list into a game. It’s a cool idea – basically you are setting goals and tracking your progress toward them, not exactly a new idea. But it could be a fun idea that gets you over the hump of a goal that has been eluding you, or the gimmick that gets a team of smart but bored individuals (and smart individuals have a tendency to be bored) to come together and complete an important but less than intellectually stimulating work task.

prime age males

Here’s an interesting report from the President’s Council of Economic Advisers on the long-term decline in labor force participation by “prime age males”, defined as between the ages of 25 and 54 (this seems like a pretty broad definition, I’m glad to know I’m still in my prime!).

For more than sixty years, the share of American men between the ages of 25 and 54, or “primeage men,” in the labor force has been declining. This fall in the prime-age male labor force participation rate, from a peak of 98 percent in 1954 to 88 percent today, is particularly troubling since workers at this age are at their most productive; because of this, the long-run decline has outsized implications for individual well-being as well as for broader economic growth. A large body of evidence has linked joblessness to worse economic prospects in the future, lower overall well-being and happiness, and higher mortality, as well as negative consequences for families and communities…

• Participation has fallen particularly steeply for less-educated men at the same time as their wages have dropped relative to more-educated men, consistent with a decline in demand. o In recent decades, less-educated Americans have suffered a reduction in their wages relative to other groups. From 1975 until 2014, relative wages for those with a high school degree fell from over 80 percent of the amount earned by workers with at least a college degree to less than 60 percent. • CEA analysis using State-level wage data suggests that when the returns to work for those at the bottom of the wage distribution are particularly low, more prime-age men choose not to participate in the labor force: o The correlation is strongest at the bottom of the wage distribution: at the 10th percentile, a $1,000 increase in annual wages, or a roughly $0.50 increase in hourly wages for a full-time, full-year worker, is associated with a 0.13 percentage-point increase in the State participation rate for prime-age men. • This reduction in demand, as reflected in lower wages, could reflect the broader evolution of technology, automation, and globalization in the U.S. economy…

Conventional economic theory posits that more “flexible” labor markets—where it is easier to hire and fire workers—facilitate matches between employers and individuals who want to work. Yet despite having among the most flexible labor markets in the OECD—with low levels of labor market regulation and employment protections, a low minimum cost of labor, and low rates of collective bargaining coverage—the United States has one of the lowest primeage male labor force participation rates of OECD member countries. • U.S. labor markets are much less “supportive” than those in other OECD countries. The United States spends 0.1 percent of GDP on so-called “active labor market policies” such as jobsearch assistance and job training that help keep unemployed workers connected to the labor force, much less than the OECD average of 0.6 percent of GDP, and less than nearly every other OECD country. The contrast in participation rates reveals a flaw in the standard view about the tradeoffs between flexibility and supportive labor policies. • Another unique feature of the U.S. experience has been the rapid rise in incarceration, especially affecting low-skilled men. o By one estimate, between 6 and 7 percent of the prime-age male population in 2008 was incarcerated at some point in their lives. o These men are substantially more likely to experience joblessness after they are released from prison and in many States are legally barred from a significant number of jobs.

So if you are going to let companies hire and fire at will, which overall is a good thing in my view, you need to have programs to education and train workers, not just as children but to retrain and upgrade their skills throughout their adult lives. Globalization and accelerating technological change make this need even more urgent.

the productivity puzzle

Nouriel Roubini has a nice run-down on the technologies that theoretically might be having some impact on productivity, but aren’t:

  • ET (energy technologies, including new forms of fossil fuels such as shale gas and oil and alternative energy sources such as solar and wind, storage technologies, clean tech, and smart electric grids).
  • BT (biotechnologies, including genetic therapy, stem cell research, and the use of big data to reduce health-care costs radically and allow individuals to live much longer and healthier lives).
  • IT (information technologies, such as Web 2.0/3.0, social media, new apps, the Internet of Things, big data, cloud computing, artificial intelligence, and virtual reality devices).
  • MT (manufacturing technologies, such as robotics, automation, 3D printing, and personalized manufacturing).
  • FT (financial technologies that promise to revolutionize everything from payment systems to lending, insurance services and asset allocation).
  • DT (defense technologies, including the development of drones and other advanced weapon systems).

He also runs through the various possible explanations for why the data do not show any progress in productivity:

  1. These technologies are just not as game-changing as the ones that sparked the revolutions of the past.
  2. The measurements of productivity that worked in the past are outdated.
  3. There is a lag between innovation and its effects on productivity.
  4. The current recession has been so bad it has caused a permanent reduction in capital investment, skills of the work force, and consumer confidence.

I was waiting for Roubini to tell us which combination of these factors is the right one, but he doesn’t so I will speculate myself. #1 is just wrong, although I can see an argument that the new technologies are still in an early stage. Although the plow, the printing press, the steam engine, electricity, etc. were game changing, the game didn’t change as soon as they were invented. They had to catch on, infrastructure had to be built, resistance to change had to be overcome, and it took awhile. Each successive revolution happened faster though, which is why I am skeptical that this time is different.

#2 doesn’t make much sense to me. You can tell people who are poor, unemployed, starving, and angry that their condition is just being measured and reported incorrectly, but they are not going to buy that

#4 probably has some validity in the short to medium term, but hopefully it won’t last forever.

My money is on #3. I think there is a lag, and it just hasn’t hit yet. If and when there is a sharp technology-driven surge in productivity, it doesn’t mean everything is going to instantly be great for everybody. As we produce more with less effort, there will be winners and losers, haves and have nots. And there will be a lag between when that starts and when it gets resolved. And just to beat a dead horse, we can’t just keep producing and consuming more forever unless we figure out a way to do that without growing our ecological footprint. And, we need to watch out for those defense technologies.

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.

the fourth industrial revolution

Reporting fro Davos…er…Philadelphia – the theme of this World Economic Forum is “the fourth industrial revolution”.

The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope, and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.