We’re in a Low-Growth World. How Did We Get Here?(nytimes.com)
nytimes.com
We’re in a Low-Growth World. How Did We Get Here?
http://www.nytimes.com/2016/08/07/upshot/were-in-a-low-growth-world-how-did-we-get-here.html
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I'm so tired to hear about growth. Growth is not a very beneficial situation to be in. We should focus on sustainability. Do we tell people to grow as fat as they can be? No, we encourage a sustainable in and out, just what we need for a happy and healthy life.
Billionaires are not a thousand times happier or healthier then millionaires. Growth is overrated.
There's a baseline of wealth that we must sustain, then we need to focus on horizontally scaling that baseline to as many people as possible, and finally, we must work to sustain that scale too. Growth appears twice in this equation, but always at a very well defined scale. We need to grow to reach the baseline, and then grow to have everyone base-lined.
Once we have achieved the above in a sustainable way, then we should focus all our remaining efforts into having fun, being curious, enjoying ourselves, and enjoying each others company. This should similarly be handled in a sustainable way. A heroine high is not a sustainable enjoyable and fun activity. Going for a walk along a park or a coast is. The dosage is important, a night out partying here and there is sustainable, day after day of it is not. Sprinkle in some learning and curiosity, I for example, would keep coding for pleasure. In fact, sustainability will probably motivate people towards sciences and technological advancement even faster, as we'll finally let free of our intrinsic motivations to do so.
To quote Nietzsche: "To escape boredom, man works either beyond what his usual needs require, or else he invents play, that is, work that is designed to quiet no need other than that for working in general."
The first part of that quote is Growth, endless, unhealthy, never ending Growth, simply to address our own boredom. The second part is sustainable life, easy, playful, and fun.
I really hope as we progress, I stop hearing about Growth, and I start hearing a lot more about Sustainability.
Billionaires are not a thousand times happier or healthier then millionaires. Growth is overrated.
There's a baseline of wealth that we must sustain, then we need to focus on horizontally scaling that baseline to as many people as possible, and finally, we must work to sustain that scale too. Growth appears twice in this equation, but always at a very well defined scale. We need to grow to reach the baseline, and then grow to have everyone base-lined.
Once we have achieved the above in a sustainable way, then we should focus all our remaining efforts into having fun, being curious, enjoying ourselves, and enjoying each others company. This should similarly be handled in a sustainable way. A heroine high is not a sustainable enjoyable and fun activity. Going for a walk along a park or a coast is. The dosage is important, a night out partying here and there is sustainable, day after day of it is not. Sprinkle in some learning and curiosity, I for example, would keep coding for pleasure. In fact, sustainability will probably motivate people towards sciences and technological advancement even faster, as we'll finally let free of our intrinsic motivations to do so.
To quote Nietzsche: "To escape boredom, man works either beyond what his usual needs require, or else he invents play, that is, work that is designed to quiet no need other than that for working in general."
The first part of that quote is Growth, endless, unhealthy, never ending Growth, simply to address our own boredom. The second part is sustainable life, easy, playful, and fun.
I really hope as we progress, I stop hearing about Growth, and I start hearing a lot more about Sustainability.
“Lack of demand creates lack of supply.”
Exactly. Americans are spent out. The US savings rate is near a low. Americans are spending 95% of their income, and for the bottom 90%, it's more than that.[1] About 1 in 7 Americans has trouble getting enough food.
What we're discovering is that, when it doesn't take that many people to make all the stuff, the economy winds down to a state where most people are just surviving. This is a new thing. Historically, the big problem was making enough stuff. For millenia, society ran out of labor before it could make enough stuff. We're past that. And we have no idea how to cope with this.
[1] https://fred.stlouisfed.org/series/PSAVERT
Exactly. Americans are spent out. The US savings rate is near a low. Americans are spending 95% of their income, and for the bottom 90%, it's more than that.[1] About 1 in 7 Americans has trouble getting enough food.
What we're discovering is that, when it doesn't take that many people to make all the stuff, the economy winds down to a state where most people are just surviving. This is a new thing. Historically, the big problem was making enough stuff. For millenia, society ran out of labor before it could make enough stuff. We're past that. And we have no idea how to cope with this.
[1] https://fred.stlouisfed.org/series/PSAVERT
People have been saying this since 2009, yet the S&P 500 is up 250% since then.
We need to put things in perspective.
The reality is:
The US has greater inflation-adjusted GDP growth than most of the world, including much of Europe, the Middle East, and South America, and Japan http://i.imgur.com/SBqFqtt.jpg
Profits & earnings for tech companies, payment processing, retail, and consumer staples companies have far-outpaced GDP growth. A lot of the lag comes from the chronically weak financial, commodity, and energy sector.
It's much harder to grow a large economy than a smaller one. There's diminishing returns to scale. It's harder to grow an economy at the same rate it was growing when it was 10x smaller.
2% real GDP growth, while slow, is still growth. Most people cannot perceive the difference between 2% growth and 7% growth.
Real GDP is back to 2003 levels, and far fewer people were complaining about slow growth back then
Slow growth doesn't preclude discovery and innovation, things like web 2.0, smart phones, apps, theoretical physics, mathematics, uber, self-driving cars, on-demand entertainment, etc.
So while more growth may desirable, 'slow growth' isn't too much to lose sleep over.
A lot of ppl have mentioned the UBI, but it's worth reminding that the effective income tax for the lowest 20-40% of earners is negative
We need to put things in perspective.
The reality is:
The US has greater inflation-adjusted GDP growth than most of the world, including much of Europe, the Middle East, and South America, and Japan http://i.imgur.com/SBqFqtt.jpg
Profits & earnings for tech companies, payment processing, retail, and consumer staples companies have far-outpaced GDP growth. A lot of the lag comes from the chronically weak financial, commodity, and energy sector.
It's much harder to grow a large economy than a smaller one. There's diminishing returns to scale. It's harder to grow an economy at the same rate it was growing when it was 10x smaller.
2% real GDP growth, while slow, is still growth. Most people cannot perceive the difference between 2% growth and 7% growth.
Real GDP is back to 2003 levels, and far fewer people were complaining about slow growth back then
Slow growth doesn't preclude discovery and innovation, things like web 2.0, smart phones, apps, theoretical physics, mathematics, uber, self-driving cars, on-demand entertainment, etc.
So while more growth may desirable, 'slow growth' isn't too much to lose sleep over.
A lot of ppl have mentioned the UBI, but it's worth reminding that the effective income tax for the lowest 20-40% of earners is negative
it's interesting that the report mentioned the start of 2001 as the low GDP growth for US and EU......but it's also around the same time that China joins WTO.
For 15 years, jobs, communities and quality of goods were sacrificed in US and europe for cheap, shoddy goods that were produced by laborers in China in abysmal conditions, the rewards reaped by Chinese communist party insiders.
For 15 years, US and european companies outsourced their money and time to China, only come to find out that by being short sighted to profit, they've lost their trade secrets, technologies, know-hows, skills, market shares to Chinese manufacturers and technology companies. They paid a big price to learn that with the Chinese government, Only China wins. There's no win-win for both. When dealing with Chinese government, you lose.
So we're at an interesting intersection in 2016. China's membership in WTO is at its end this year. China is exposed as having an authoritarian regime that is hiding trillions of debt and likely having a 0-2% gdp growth. It is exposed as having an anti-foreign environment where companies like Uber, Wynn, Yum, Apple are all suffering. What will happen?
For 15 years, jobs, communities and quality of goods were sacrificed in US and europe for cheap, shoddy goods that were produced by laborers in China in abysmal conditions, the rewards reaped by Chinese communist party insiders.
For 15 years, US and european companies outsourced their money and time to China, only come to find out that by being short sighted to profit, they've lost their trade secrets, technologies, know-hows, skills, market shares to Chinese manufacturers and technology companies. They paid a big price to learn that with the Chinese government, Only China wins. There's no win-win for both. When dealing with Chinese government, you lose.
So we're at an interesting intersection in 2016. China's membership in WTO is at its end this year. China is exposed as having an authoritarian regime that is hiding trillions of debt and likely having a 0-2% gdp growth. It is exposed as having an anti-foreign environment where companies like Uber, Wynn, Yum, Apple are all suffering. What will happen?
Using the Solow growth model, economic growth has three factors: population growth, technological improvement, and financial savings. All three factors are reducing growth in the developed world. Populations are stagnant or declining, technology may be displacing more jobs than it creates, and we are in more debt than ever.
So what is the root cause? Birth rates fell because of declining economic prospects, and savings declined for the same reason as well. Alone among these three factors, technology has continued its advancement, except now instead of improving labor it is a substitute for labor.
There were other supply shocks, such as the oil crises and more importantly the baby boom in developing countries that made outsourcing possible. But those are transient factors in the long run.
In the long run technology stands alone as the disruptive factor. We can try to mask the problem with financial debt or economic redistribution, but the problem remains that unskilled labor is no longer needed, and skilled labor is an increasingly high hurdle to clear.
So what is the root cause? Birth rates fell because of declining economic prospects, and savings declined for the same reason as well. Alone among these three factors, technology has continued its advancement, except now instead of improving labor it is a substitute for labor.
There were other supply shocks, such as the oil crises and more importantly the baby boom in developing countries that made outsourcing possible. But those are transient factors in the long run.
In the long run technology stands alone as the disruptive factor. We can try to mask the problem with financial debt or economic redistribution, but the problem remains that unskilled labor is no longer needed, and skilled labor is an increasingly high hurdle to clear.
The article speaks mostly of Macroeconomic forces such as increasing the money supply.
The problems with the economy are mostly caused by microeconomic issues. Politically induced scarcity ("economic rents") that results in higher prices, externalities, and asymmetric information.
A very, very large problem is the use of zoning laws which reduce density and overuse of historic landmark status which artificially increases land value and hence the cost of renting apartments and buying houses. This results in a transfer of income and wealth from people renting apartments and buying houses to landlords.
Income that should be going towards purchasing goods and services and thus stimulating the economy goes towards landlords instead. Removing the politically induced artificial restriction on zoning would lower the cost of housing and stimulate a housing boom.
This is the reason for the high cost of housing in NYC, SF, LA, Boston, Washington DC and other cities.
In NYC, there is a limit of 13,000 taxi medallions which resulted in a medallion market value of $1.2 million. After Uber/Lyft came along the value dropped to $700,000 and not surprisingly the cost of taking Uber/Lyft has decreased compared to taking a taxi. This makes it so that New Yorkers can spend less income on taxis and taxi-like vehicles and more on goods and services. Of course course, the "taxi medallion landlords" have lost big time, because the political scarcity of medallions has been undermined.
Many occupations have unnecessary licenses or unreasonable licensing requirements in order to create scarcity in that occupation creating artificially high prices while keeping others who would like to work out of the market.
Stop the "rent-seeking" of "economic rents" through Federal Laws and we'll make sure the markets are more efficient a huge growth to the economy.
What is baffling, and perhaps others can comment is why the NYTimes is writing economics columns without addressing the microeconomic inefficiencies which includes "economic rents." Can't they find someone with a basic understanding of economics to write an appropriate column?
The problems with the economy are mostly caused by microeconomic issues. Politically induced scarcity ("economic rents") that results in higher prices, externalities, and asymmetric information.
A very, very large problem is the use of zoning laws which reduce density and overuse of historic landmark status which artificially increases land value and hence the cost of renting apartments and buying houses. This results in a transfer of income and wealth from people renting apartments and buying houses to landlords.
Income that should be going towards purchasing goods and services and thus stimulating the economy goes towards landlords instead. Removing the politically induced artificial restriction on zoning would lower the cost of housing and stimulate a housing boom.
This is the reason for the high cost of housing in NYC, SF, LA, Boston, Washington DC and other cities.
In NYC, there is a limit of 13,000 taxi medallions which resulted in a medallion market value of $1.2 million. After Uber/Lyft came along the value dropped to $700,000 and not surprisingly the cost of taking Uber/Lyft has decreased compared to taking a taxi. This makes it so that New Yorkers can spend less income on taxis and taxi-like vehicles and more on goods and services. Of course course, the "taxi medallion landlords" have lost big time, because the political scarcity of medallions has been undermined.
Many occupations have unnecessary licenses or unreasonable licensing requirements in order to create scarcity in that occupation creating artificially high prices while keeping others who would like to work out of the market.
Stop the "rent-seeking" of "economic rents" through Federal Laws and we'll make sure the markets are more efficient a huge growth to the economy.
What is baffling, and perhaps others can comment is why the NYTimes is writing economics columns without addressing the microeconomic inefficiencies which includes "economic rents." Can't they find someone with a basic understanding of economics to write an appropriate column?
Piketty argues, from extensive historical data, that the hi growth of the 1950s-1970s was unusual, and low growth is the norm.
So we might want to look at another aspect, such as how wealth is distributed - the low growth rate tends to accentuate the accumulation of growth on capital, so those who inherited a lot of wealth capture even more of it over time, without having to do anything with that capital [ such as investing in startups, building next gen transport systems ]. Which means we most likely need a much more aggressive tax on uber-high incomes and uber-large inheritance wealth.
[ Im not saying don't look at wealth creation technologies such as - nanoscale 3d printing, VR-work-from-home, asteroid-mining etc. ]
Reading Piketty's Capital is a bit like waking up in the matrix after taking the red pill - the gradual torrent of facts hits you viscerally, because you really had no idea things were this extreme.
As preparation, I recommend watching this short vid on wealth distribution - https://www.youtube.com/watch?v=QPKKQnijnsM
So we might want to look at another aspect, such as how wealth is distributed - the low growth rate tends to accentuate the accumulation of growth on capital, so those who inherited a lot of wealth capture even more of it over time, without having to do anything with that capital [ such as investing in startups, building next gen transport systems ]. Which means we most likely need a much more aggressive tax on uber-high incomes and uber-large inheritance wealth.
[ Im not saying don't look at wealth creation technologies such as - nanoscale 3d printing, VR-work-from-home, asteroid-mining etc. ]
Reading Piketty's Capital is a bit like waking up in the matrix after taking the red pill - the gradual torrent of facts hits you viscerally, because you really had no idea things were this extreme.
As preparation, I recommend watching this short vid on wealth distribution - https://www.youtube.com/watch?v=QPKKQnijnsM
I'm shocked to see no one here has even discussed over-regulation as an issue. The more things you tell people they can't do, and instead mandate they do things they may not want to or need to do, the less opportunity they have to do things they want to do, which is what people generally are willing to pay for (an thus increases economic growth).
I get paid to write online. The things I write are typically intended to be published somewhere online. I rarely read paper books or magazines, yet I consume information all day. When a system is infused with information, it often can accomplish the same thing -- or something better/more -- with less material matter.
I think no one is measuring any of that. The fact that I can do freelance work online means I can earn less (gross) and keep more of it (net) because I do not need a car to get to work or clothes to meet dress code, etc. So, I am seeing real gains in my quality of life -- paying down debt, eating better, better health etc -- than I could achieve when I had a corporate job. The "overhead" for having a corporate job meant that by the time I quit, I was far deeper in debt than when I got the job. It was a frustrating, frightening way to live. Now, the money I earn is net gain, not "Oh, my god, I can't eat without a job, but having a job has me barreling towards bankruptcy!"
I think no one is measuring any of that. The fact that I can do freelance work online means I can earn less (gross) and keep more of it (net) because I do not need a car to get to work or clothes to meet dress code, etc. So, I am seeing real gains in my quality of life -- paying down debt, eating better, better health etc -- than I could achieve when I had a corporate job. The "overhead" for having a corporate job meant that by the time I quit, I was far deeper in debt than when I got the job. It was a frustrating, frightening way to live. Now, the money I earn is net gain, not "Oh, my god, I can't eat without a job, but having a job has me barreling towards bankruptcy!"
In first generation post-WW2, we built out productive infrastructure, and started to do so with our savings. In the second generation, we expanded with debt spending and started to increase consumer debt. Now, most well-educated new entrants to the market have already taken more debt than they have an appetite for, so they're saving to pay down that debt. There may be quite a few who are still doing frivolous things with their money that could go to service the debt, but in the end we're all paying off activity that already happened, to one extent or another.
I think there are multiple interesting factors at play here: most importantly downward pressure on prices (brought by technology) and the unequal distribution of wealth/income.
Technology has made a lot of stuff far cheaper than it used to be. Instead of buying a photo camera, a video recorder a tape recorder, etc. you can buy a smartphone for the price of one of these individual items (at 1980/90 inflation adjusted prices).
A lot of services we consume have become a lot cheaper as well. Compare Netflix & Spotify for a few $ months to buying individual movies & CDs. A lot of people spend their free time on Youtube/Facebook/Reddit essentially spending nothing at all.
A lot of younger people living in cities are no longer purchasing cars or homes. Overall travel has become a lot cheaper as well. IKEA has commoditized furniture which used to be extremely expensive a few decades ago.
Cheaper prices mean lower spending & lower GDP.
At the same time a smaller group of large companies is capturing the profits in the low cost sectors (again IKEA, Netflix, Google, Facebook). These companies are making huge profits per employee and they are facing very little successful competition.
A majority of the middle class (that doesn't work for any of these highly profitable companies) has very limited free cash flow, due to the rising cost of housing and education and the stagnation of wages. They can't afford to purchase expensive homes, expensive furniture or expensive cars.
More wealth is going to the highest earners, where each additional $ contributes a lot less to GDP than it would in the hands of a middle class household.
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I'm throwing a lot of stuff together here, but this is what I'm missing from most discussions about the economy: try to describe trends with the concrete situation at hand rather than with generic theories that have been around for decades yet have mostly failed to predict the economic outlook correctly (it seems like the rise of behavioral economics could help here)
Technology has made a lot of stuff far cheaper than it used to be. Instead of buying a photo camera, a video recorder a tape recorder, etc. you can buy a smartphone for the price of one of these individual items (at 1980/90 inflation adjusted prices).
A lot of services we consume have become a lot cheaper as well. Compare Netflix & Spotify for a few $ months to buying individual movies & CDs. A lot of people spend their free time on Youtube/Facebook/Reddit essentially spending nothing at all.
A lot of younger people living in cities are no longer purchasing cars or homes. Overall travel has become a lot cheaper as well. IKEA has commoditized furniture which used to be extremely expensive a few decades ago.
Cheaper prices mean lower spending & lower GDP.
At the same time a smaller group of large companies is capturing the profits in the low cost sectors (again IKEA, Netflix, Google, Facebook). These companies are making huge profits per employee and they are facing very little successful competition.
A majority of the middle class (that doesn't work for any of these highly profitable companies) has very limited free cash flow, due to the rising cost of housing and education and the stagnation of wages. They can't afford to purchase expensive homes, expensive furniture or expensive cars.
More wealth is going to the highest earners, where each additional $ contributes a lot less to GDP than it would in the hands of a middle class household.
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I'm throwing a lot of stuff together here, but this is what I'm missing from most discussions about the economy: try to describe trends with the concrete situation at hand rather than with generic theories that have been around for decades yet have mostly failed to predict the economic outlook correctly (it seems like the rise of behavioral economics could help here)
A lot of it seems insufficient demand after asset bubbles. Houses or whatever keep going up for a while, people mortgage themselves to the hilt to buy and when the bubble pops cut back spending to pay off the debts over the following decade or three. That leads to less spending jobs tax revenue and so on.
The solution I think should be something like governments borrowing money at the near zero rates we have at the moment and doing stuff like investing in infrastructure and things that will boost spending. When you get back to too much money chasing too few goods and inflation they can back off but we're way off that point in most economies at the moment.
The solution I think should be something like governments borrowing money at the near zero rates we have at the moment and doing stuff like investing in infrastructure and things that will boost spending. When you get back to too much money chasing too few goods and inflation they can back off but we're way off that point in most economies at the moment.
Is it possible that some things are just a lot cheaper than they used to be, and from a macro perspective focused totally on dollar figures this looks like shrinkage?
I used to drive to the bookstore and spend $22 on a brand new hardcover book because it was written by a famous author and promoted heavily at the bookstore.
Now I might buy a Humble eBook Bundle and pay $8 for 8 books, and the car, the bookstore, and the big advertising campaign are all long gone (but for the most part, not missed).
There's very little out there I want to spend a lot of money on (travel is the main exception).
And growth is mainly driven by wants, not needs.
I used to drive to the bookstore and spend $22 on a brand new hardcover book because it was written by a famous author and promoted heavily at the bookstore.
Now I might buy a Humble eBook Bundle and pay $8 for 8 books, and the car, the bookstore, and the big advertising campaign are all long gone (but for the most part, not missed).
There's very little out there I want to spend a lot of money on (travel is the main exception).
And growth is mainly driven by wants, not needs.
I believe there are efficincies in the marketplace that are not captured in the financial data - everything in my daily life is much easier now that I have a smartphone in my pocket and everything is online. Maybe the fact that everything is more efficient means one can get more value with less - thus, making the daily consumer effectively better off although the capital is hurt. What does this mean for the economy in total? Everything except truly constrained things like land are utterly commoditized?
When you get to a 70% service sector of course growth is going to be low [1]. Waiters aren’t anymore efficient than they were 100 years ago (probably less) and the same applies to nearly every service industry. Without improvements in unit labor costs then the economy can't grow per capita.
1. http://data.worldbank.org/indicator/NV.SRV.TETC.ZS
1. http://data.worldbank.org/indicator/NV.SRV.TETC.ZS
Note that very long run GDP per capita growth is driven more or less by technological change, and there's no reason to expect that technological change is constant.
Major technological innovations are often discrete, their impact can take decades to be fully realized in the economy, and the timing of the next major innovation is unpredictable.
Major technological innovations are often discrete, their impact can take decades to be fully realized in the economy, and the timing of the next major innovation is unpredictable.
I'm more amazed we had the high growth we've had in the past. Why would the steady-state of such a complex worldwide system be at a point where we have good employment, rising standard of living, growing populations, relative peace? There are so many other local minima which we've managed to hit over man kind history...
The key word is sustainability. Without it something has to give. It should be obvious that given finite resources on this planet we can't continue expanding our population and the standard of living indefinitely. The reason the trajectory we were on could not continue is that it was not sustainable. We can't have more people in the world, every such person living in a McMansion, with two cars in the garage, buying new gadgets all the time. And really why? Wouldn't it be better to have a contracting population that consumes less?
Humanity would be better off trying to reduce the population size, reduce consumption ($ and resources), maximizing the utility/$ of goods rather than the absolute $ of crappy goods sold. Aiming for more equal distribution of wealth. Less conflicts. Social security (so sure, basic income but not as a catalyst of growth). Everyone should work less hours and earn enough to sustain themselves with a reasonable standard of living. So this is all perhaps a deflationary, negative growth, environment.
The key word is sustainability. Without it something has to give. It should be obvious that given finite resources on this planet we can't continue expanding our population and the standard of living indefinitely. The reason the trajectory we were on could not continue is that it was not sustainable. We can't have more people in the world, every such person living in a McMansion, with two cars in the garage, buying new gadgets all the time. And really why? Wouldn't it be better to have a contracting population that consumes less?
Humanity would be better off trying to reduce the population size, reduce consumption ($ and resources), maximizing the utility/$ of goods rather than the absolute $ of crappy goods sold. Aiming for more equal distribution of wealth. Less conflicts. Social security (so sure, basic income but not as a catalyst of growth). Everyone should work less hours and earn enough to sustain themselves with a reasonable standard of living. So this is all perhaps a deflationary, negative growth, environment.
People complaining that UBI wouldn't help are missing an important point. In the US, and most of the world, we have a demand problem not a supply problem. The UBI "plan" then is to bump up the wealth of those that would essentially immediately consume it, which generates demand. It's not controversial to argue that an extra $1000 a year to a millionaire will just end up being reinvested, while most Americans (the bottom 50%+1) would easily spend it all sloshing it back into the economy.
> The United States is adding jobs at a healthy clip, as a new report showed Friday, and the unemployment rate is relatively low
One of those isn't true and the other is misleading. Healthy would be something to combat the massive existing unemployment. Unemployment Rate has little to do with growth. Let's not talk at all about how GDP numbers are being manipulated quarter after quarter and the endless easing putting us in a freefall, since that news is inconvenient for the administration who did it (Clinton then Obama...hmmm). The republicans just continue existing policies anyway so it's self-serving Fed shenanigans as usual. Typical vacuous NYT narrative is what I got out of it.
One of those isn't true and the other is misleading. Healthy would be something to combat the massive existing unemployment. Unemployment Rate has little to do with growth. Let's not talk at all about how GDP numbers are being manipulated quarter after quarter and the endless easing putting us in a freefall, since that news is inconvenient for the administration who did it (Clinton then Obama...hmmm). The republicans just continue existing policies anyway so it's self-serving Fed shenanigans as usual. Typical vacuous NYT narrative is what I got out of it.
> Like most things in economics, the slowdown boils down to supply and demand: the ability of the global economy to produce goods and services, and the desire of consumers and businesses to buy them. What’s worrisome is that weakness in global supply and demand seems to be pushing each other in a vicious circle.
This is the sort of thing that makes people think economists live on a different planet. "Demand," in particular the "desire of consumers and individuals" for things, is something we have in spades- for a good example, walk down a main street of any city and you'll find some people who desparately want to stop being homeless. The problem, and on a more general scale this is the whole problem of our kind of economy, is that their demand doesn't matter.
These homeless people could, in many cases, work- they could do things that generate more value than they require in exchange to live decent lives. But their kind of work is ubiquitous, and they have no control over the market for it; as a result, the market has been manipulated by much more savvy actors to shift that labor market against them. Once this happens to a kind of laborer, an entire segment of "demand" is functionally removed from the economy.
The answer to that sort of thing has been known for ages- unions, substantial minimum wages, perhaps even basic income. But while the article talks about the kind of economic inequality that these measures combat, it does an impressive job of not putting two and two together. Economic stagnation and inequality are two sides of the same coin, but no one talks about this- because the managers of the economy are, predictably, wealthy, and have everything to lose to redistribution of wealth.
This is the sort of thing that makes people think economists live on a different planet. "Demand," in particular the "desire of consumers and individuals" for things, is something we have in spades- for a good example, walk down a main street of any city and you'll find some people who desparately want to stop being homeless. The problem, and on a more general scale this is the whole problem of our kind of economy, is that their demand doesn't matter.
These homeless people could, in many cases, work- they could do things that generate more value than they require in exchange to live decent lives. But their kind of work is ubiquitous, and they have no control over the market for it; as a result, the market has been manipulated by much more savvy actors to shift that labor market against them. Once this happens to a kind of laborer, an entire segment of "demand" is functionally removed from the economy.
The answer to that sort of thing has been known for ages- unions, substantial minimum wages, perhaps even basic income. But while the article talks about the kind of economic inequality that these measures combat, it does an impressive job of not putting two and two together. Economic stagnation and inequality are two sides of the same coin, but no one talks about this- because the managers of the economy are, predictably, wealthy, and have everything to lose to redistribution of wealth.
It seems that a potential solution to this, as various economists have proposed, is "helicopter money". In other words, have the central bank print money and distribute it to the people. The main criticism for this is that it is irreversible -- there would be no asset to balance the liability on the Fed's balance sheet. But this is an extremely simple problem to solve: monetize government debt. In that case, we would no longer call it "helicopter money", and recognize it for what it is: basic income. Despite all its flaws, basic income inspires a wide variety of Internet discussions about social justice and robots (as if automation is something that just started happening now, and not at the beginning of the 18th century) but ultimately it can be understood as a tool of monetary policy. And if you manage to hand people free money and yet the economy STILL doesn't grow, and inflation STILL doesn't rear it's head -- guess what? That's a GOOD thing. That's called... utopia. So maybe we should stop caring about GDP, and measure progress with a different metric: how much basic income can our country stably generate?
The Center for Economic Policy Research has a great free pdf ebook on Secular Stagnation from 2014 which has essays from a variety of economic heavyweights discussing the possibility of lower growth going forward.
http://voxeu.org/content/secular-stagnation-facts-causes-and...
http://voxeu.org/content/secular-stagnation-facts-causes-and...
There are two ways producing widgets can grow 10%.
The standard way is where production methods stay the same, and 10% more offices/factories are added and 10% more workers are added. The reason this would be done is because there was a 10% growth in demand for widgets. This would be due to a 10% growth in population that could afford widgets, or a 10% growth in income for consumers/workers that they decide to spend on widgets.
With population growth shrinking in the standard consumer societies, that aspect goes out. Insofar as income, the average US inflation-adjusted hourly wage today is below what it was 43 years ago - it has shrunk. So the demand is not really increasing. Since demand for widgets in general is not going up, companies are not desperate to employ the average worker, and thus wages are stagnant (or as I said, the average US inflation-adjusted hourly wage has shrunk over the past 43 years).
When were companies investing the capital necessary for automation, technological improvement etc.? From the 1940s to the 1960s. When demand was high due to increased population (baby boom). There was a baby boom because after a long depression, the economy started paying good wages to the average worker due to strong unions and government stimulus starting heavily during World War II. Money in workers/consumers pockets led to increased consumer demand.
Due to the highest unionization rate in American history after World War II you have high wages at these growing companies. How to lower costs? Invest in automation, invest in technological improvement.
Without high wages, and some of the other factors mentioned, the financial impetus to invest in technological improvement and automation fades. It's always there, but it ebbs in the absence of high demand, high wage employees.
The standard way is where production methods stay the same, and 10% more offices/factories are added and 10% more workers are added. The reason this would be done is because there was a 10% growth in demand for widgets. This would be due to a 10% growth in population that could afford widgets, or a 10% growth in income for consumers/workers that they decide to spend on widgets.
With population growth shrinking in the standard consumer societies, that aspect goes out. Insofar as income, the average US inflation-adjusted hourly wage today is below what it was 43 years ago - it has shrunk. So the demand is not really increasing. Since demand for widgets in general is not going up, companies are not desperate to employ the average worker, and thus wages are stagnant (or as I said, the average US inflation-adjusted hourly wage has shrunk over the past 43 years).
When were companies investing the capital necessary for automation, technological improvement etc.? From the 1940s to the 1960s. When demand was high due to increased population (baby boom). There was a baby boom because after a long depression, the economy started paying good wages to the average worker due to strong unions and government stimulus starting heavily during World War II. Money in workers/consumers pockets led to increased consumer demand.
Due to the highest unionization rate in American history after World War II you have high wages at these growing companies. How to lower costs? Invest in automation, invest in technological improvement.
Without high wages, and some of the other factors mentioned, the financial impetus to invest in technological improvement and automation fades. It's always there, but it ebbs in the absence of high demand, high wage employees.
> 81 percent of the United States population is in an income bracket with flat or declining income over the last decade. That number was 97 percent in Italy, 70 percent in Britain, and 63 percent in France.
Ok so growth slowed in the West, but weren't a lot of people brought into the middle class in the East?
> It argued that the internet would not have the same transformative impact on how much economic output would emerge from an hour of human labor as 20th-century innovations like electricity, air transport and indoor plumbing did.
There's lots of back office automation going on in the Fortune 500 that is eliminating white collar labor. I seriously doubt these statements about productivity. If its productivity per capita they want then just wait until self driving trucks wipe out millions of jobs.
Am I missing something here? Isn't this basically what happens when labor (the jobs I mean) moves somewhere else and automation eats away at whatever is left?
Ok so growth slowed in the West, but weren't a lot of people brought into the middle class in the East?
> It argued that the internet would not have the same transformative impact on how much economic output would emerge from an hour of human labor as 20th-century innovations like electricity, air transport and indoor plumbing did.
There's lots of back office automation going on in the Fortune 500 that is eliminating white collar labor. I seriously doubt these statements about productivity. If its productivity per capita they want then just wait until self driving trucks wipe out millions of jobs.
Am I missing something here? Isn't this basically what happens when labor (the jobs I mean) moves somewhere else and automation eats away at whatever is left?
I'm hearing lots about this low-growth economy from various major news sources, but it doesn't seem to me to be consistent with the data that I can look up on my own.
For example, the chart here seems to me to show regular traditional reasonbly-fast growth rates.(http://www.statista.com/statistics/188105/annual-gdp-of-the-...)
If you look at a 20-year plot of the S&P 500 (not the same thing as the GDP, I know, but still some kind of indicator of economic health) the net growth probably is low, but only because of the giant housing crash that causes a rapid setback right in the middle of the time period we're measuring. It looks like we've been growing at full speed ever since.
So what's the deal?
For example, the chart here seems to me to show regular traditional reasonbly-fast growth rates.(http://www.statista.com/statistics/188105/annual-gdp-of-the-...)
If you look at a 20-year plot of the S&P 500 (not the same thing as the GDP, I know, but still some kind of indicator of economic health) the net growth probably is low, but only because of the giant housing crash that causes a rapid setback right in the middle of the time period we're measuring. It looks like we've been growing at full speed ever since.
So what's the deal?
There are a lot of calls in these comments for basic income, or schemes like it. But that is just redistributing existing wealth, not creating new growth, which is exactly the problem we have. You have to produce things before they can be consumed, and this is also the case with economics.
I think it partly has to do with how we measure growth (i.e. GDP). For example, try using a laptop and a mobile phone from 2001 for a week or so. How does that feel? No growth, ehu? ;P
Another aspect I think is how much "non-monetized" value the Internet is creating. What would you pay for access to an Internet search engine (like Google or one of it's competitors), if you really had to? Going without is just not an option, but the price still hovers around zero.
That brings us to yet another aspect; the Internet puts a huge downward pressure on all (comparable) prices. I think this is a major factor behind the lack of inflation: hiking prices is just not possible the way it used to be.
Another aspect I think is how much "non-monetized" value the Internet is creating. What would you pay for access to an Internet search engine (like Google or one of it's competitors), if you really had to? Going without is just not an option, but the price still hovers around zero.
That brings us to yet another aspect; the Internet puts a huge downward pressure on all (comparable) prices. I think this is a major factor behind the lack of inflation: hiking prices is just not possible the way it used to be.
It would be interesting to analyze central bank interest rate vs inflation and test for R2 r-squared errors.
http://www.zerohedge.com/news/2016-07-05/central-bank-death-...
https://www.imf.org/external/np/pp/eng/2013/041813a.pdf
There might be diminishing return for every new credit money created which in turn leads to lower growth.
It is also not certain that low interest rates will lead to inflation. If you were a big company and suddenly got a lot of cheap credit. Would you A) increase the wages of your workers or B) invest in cheaper production through automation? What does choice A) or B) yield for consumer prices, do they go up or down?
http://www.zerohedge.com/news/2016-07-05/central-bank-death-...
https://www.imf.org/external/np/pp/eng/2013/041813a.pdf
There might be diminishing return for every new credit money created which in turn leads to lower growth.
It is also not certain that low interest rates will lead to inflation. If you were a big company and suddenly got a lot of cheap credit. Would you A) increase the wages of your workers or B) invest in cheaper production through automation? What does choice A) or B) yield for consumer prices, do they go up or down?
I often see articles like these result in a broad call for a universal basic income. The reasons are simple: it doesn't dictate what you should or should not spend your money on; it provides a standard-of-living floor; it balances out the inequalities of a globalized and increasingly automated world.
I have a different proposal: instead of guaranteeing basic income, guarantee broad access to basic services.
Off the top of my head, I see five basic services anybody in an industrialized society ought to have provided for them: food/water, shelter, transportation, health care, electricity/information. If these needs can be met cheaply enough, then we won't need a guaranteed income. The basics are cheap enough and if you want a higher standard of living, you can work towards it, but in a market society there are winners and there are losers, and at least under the guaranteed service mechanism, the losers aren't mired in poverty.
In the short term, food/water and electricity/information are nearly cheap enough to be universal. We just don't choose to provide it in a low-tax society.
Medium term, health care costs can be reduced through automated diagnosis and operations. Some automated surgeons exist today and there was a recent report that IBM's Watson was able to correctly diagnose patients.
Long term issue will be shelter and transportation. Even with self-driving automobiles, providing shelter for everybody will require a delicate balance between dense urban housing (which is currently in high demand and very expensive) and suburban sprawl (which is harmful to the environment and requires vast and expensive infrastructure like roads and water).
By investing heavily in an ultra-low-cost society, governments can ensure all people have access to the services they need, while refraining from redistribution-via-taxation, which, while good in intentions, dents the very growth and ROI necessary to make these big investments.
I have a different proposal: instead of guaranteeing basic income, guarantee broad access to basic services.
Off the top of my head, I see five basic services anybody in an industrialized society ought to have provided for them: food/water, shelter, transportation, health care, electricity/information. If these needs can be met cheaply enough, then we won't need a guaranteed income. The basics are cheap enough and if you want a higher standard of living, you can work towards it, but in a market society there are winners and there are losers, and at least under the guaranteed service mechanism, the losers aren't mired in poverty.
In the short term, food/water and electricity/information are nearly cheap enough to be universal. We just don't choose to provide it in a low-tax society.
Medium term, health care costs can be reduced through automated diagnosis and operations. Some automated surgeons exist today and there was a recent report that IBM's Watson was able to correctly diagnose patients.
Long term issue will be shelter and transportation. Even with self-driving automobiles, providing shelter for everybody will require a delicate balance between dense urban housing (which is currently in high demand and very expensive) and suburban sprawl (which is harmful to the environment and requires vast and expensive infrastructure like roads and water).
By investing heavily in an ultra-low-cost society, governments can ensure all people have access to the services they need, while refraining from redistribution-via-taxation, which, while good in intentions, dents the very growth and ROI necessary to make these big investments.
I believe (or rather, I pray) that we have hit peak consumption which will lead to this problem forevermore. We need to find new ways to improve ourselves than shopping more.