John Cochrane clarifies helpfully.
The cause of sclerotic growth is the major economic policy question of our time. The three big explanations are 1) We ran out of ideas (Gordon); 2) Deficient “demand,” remediable by more fiscal stimulus (Summers, say) 3); Death by a thousand cuts of cronyist regulation and legal economic interference.
Read the whole post. He make the case for (3).
(4) Continuing advances in automation and thus labor productivity in some sectors (e.g manufacturing) is causing the labor force of developed countries to shift into service sectors which, by their nature due to human-factor-based limitations, cannot easily be made more productive, even by augmentation with more capital. That means low real growth rates (same output of those services because not being performed any faster) and low interest rates (because low demand for credit to invest in additional labor supplements).
Shouldn’t the automation itself increase productivity, though?
It only increases output per man hour in highly automated sectors. But as the percent of the workforce engaged in such capital intensive production shrinks, the productivity advances in those sectors affect the overall average labor productivity less and less. And if the sectors into which labor is increasingly shifting have stagnant productive due to fundamental or inherent reasons, then that weighs everything down when calculating the mean. The single average number is therefore overaggregating and misleading, and one needs more granularity to see how the workforce distribution is bifurcating in terms of productivity growth rates.
The long-term effect of Baumol’s cost disease is that those activities subject to Baumol’s cost disease (and for which demand persists) are increasing as a share of the aggregate economy.
4) New metrics are needed for the second machine age [Erik Brynjolfsson and Andrew McAfee]
Mancur Olson’s distributional coalitions. Probably irreversible.
As often said here, have a nice day.
4) aging population (http://www.nber.org/papers/w22452)
Also, smaller population with less number of babies. The size of the population effect both AS & AD curves. How can you grow the economy more than 2% if the population is not growing?
Otherwise, I find Cochrane examples to be small potatoes in the economic scheme if things. There are a lot of good things to change here but I don’t think we would see huge differences.
A major component of growth came as more and more population groups began to participate in global capitalism. Most of the groups with more amenable cultures are already participating by now. Integration of the remaining cultures is far more difficult and far less profitable.
2 would be incorrect. Summers favors pubic investment as the means to underwrite risks private investment is unwilling to undertake.
All of the above, including the comments. I’d add that these things tend to feed on one another.
You might be able to modify #1 to “An inability of current scientific progress to have the same measured impact as the kind that powered economic progress for the last century. (Cowen)”
You forgot another one, we are a consumption based society aka there is no stagnation. Fact is, the US economy began decelerating rapidly from a investment pov in the 80’s. Yet the Boomer demographic gave the illusion growth was still chained as consumption spiked.
When wage growth is up to 3.5+ next year, the head scratching is going to crack me up.
At first consideration, it may seem to be “an economic **policy** question of our time;” but, perhaps it is an economic syndrome of a more vital question of our time.
Are we observing expanding trends of constraints on what has been the “Open Access” order of our society (and of the others similar to it) since about the 1830-1840 era? Are we steadily regressing into a Limited Access Society. (North, Wallis & Weingast).
Has the devaluation of individuality and individual life, of Comte, the Marxists, the Totalitarians, all exemplified in the violence of the first half of the last century, brought us to another of those points of regression in (and outright suppressions of)individuality noted by Oakeshott in “The masses in representative democracy” (1961) (Reprint in Rationalism in Politics- LibertyFund, 1991)?
With individuality in retreat, the interactions amongst individuals and the circumstances in which they occur are now subject to interventions and interpositions by others for other objectives outside the individuals’ range of control creating limitations on those actions which have been the sources of advances and enrichments.
I hate when libertarians use “crony capitalism” as it is like liberals taking about the evil rich, a convent bad guy. But look at major legislative developments of the Obama administration. Obamacare and Dodd-Frank.
Obamacare reduces the incentive to work,by giving benefits based on income. It also discourages hiring and creates a preference for certain type of employees (part time). Dodd Frank does so many bad things it is hard to know where to start. Perhaps worst is the allocation of credit is based on political choices (banks are discouraged to deal with incorrect businesses, like gun shops) or regulatory whims (the leveraged loan market is getting overheated, believes the Fed, so historic time tested lending ratios are changed) or simple tests (try applying for a low loan to value home loan with significant net worth but no W-2 income).
Then think of Uber. Does the model even work if the drivers are “employees” (and why are there so many burdens placed on having employees).
Yes, 3 is without question the right answer. But drop crony capitalism. Obama does not like any capitalism.