The U.S. economy has grown so much during that period that people now are still buying more physical stuff than they did in 1950. Still, there are signs of a plateau.
Pointer from Tyler Cowen.
This follows a chart showing that the share of consumer spending going to goods has dropped from 60 percent in 1950 to 30 percent today.
One of the many reasons that the U.S. is not going to go back to the economy of the 1950s is that physical goods are less important to people now than they were then.
according to separate research by University of Pennsylvania economist Jeremy Greenwood and by UCLA sociologists Christine Schwartz and Robert Mare, educational intermarriage is less common today than at any point over the past half century.
The drum he is beating (Tyler Cowen has a link to a different piece by Birger) is that within a demographic segment, ratios of females to males matter. If you define the segment as “young, college-educated,” the outlook for women looks bleak, because of the high ratio of females to males in that segment.
Would it be reasonable to infer that in the segment “young, not college-educated” that there are more men than women? Why aren’t women in that segment enjoying lots of marriage prospects?
Perhaps many males in that segment do not offer much in terms of income.
Organized by Tim Kane, with John Cochrane, several GMU stalwarts, Tevi Troy, Brink Lindsey, and others. These were some of the questions I asked.
1. Are colleges deteriorating in quality as fast as I think they are? This was a side conversation, and several participants expressed the viewpoint (wishful thinking?) that all but the most well-endowed colleges could find themselves suddenly overwhelmed by alternative modes of education and credentialing.
2. In the 1950s, many of the large successful businesses (McDonalds, Holiday Inn) were founded by men who never attended college. Why does that seem unlikely today? One answer given was that in the 1950s, you could have only a high school education and still be well above average in terms of cognitive skills, self-control, and other traits.
3. There was a lot of talk about how things are not really as bad for the middle class as the left makes them out to be. I asked, if things are not so bad, then imagine giving a talk to people in a small town in Ohio or in rural Oklahoma. What sorts of advice about future jobs would you give? Some of the answers were glib (“Move to the city.”) Others suggested that the jobs would be in fields like nursing. But not everyone is cut out to be a nurse.
4. Think of a world with momentum investors (“the trend is your friend”) and contrarian investors “If something cannot go on forever, it will stop.”) Can we get bubbles when for a period of time momentum investors overwhelm contrarian investors? The response (I’ll take a risk that I am violating some implicit rules and give away that it was John Cochrane who gave it) is that this sort of thing is more likely to happen in real estate markets than in financial markets, because in real estate markets transaction costs are high. You cannot go short. It is hard to take a large long position (you buy one house at a time, not many houses).
One question that came up concerned the effect of Chinese exports on American wages. With manufacturing a relatively small share of GDP, it was argued that the effect on overall wages cannot be large. Still, the effect on some niches of workers seems to be large.
Someone else asked about the narrative that American workers are worse off than they were 50 years ago or 100 years ago. To those of us at lunch (all on the right side of the political spectrum), that seems ridiculously inaccurate. Yet it holds sway on the left, and it seems to work with the general public.
One answer is that people who take a pessimistic view of recent decades may be thinking in terms of the second derivative. That is, the standard of living is still increasing, but it is increasing much more slowly than it did 40 years ago, and thus it has disappointed expectations.
Another possible answer is that “average is over.” If you are poor and not always employed, then between government benefits and low-cost goods, you can get by. But if you work full time and aspire to be middle class, your consumption basket is more expensive and government is not helping you.
Later, it occurred to me that the left’s story has the advantage that there is a villain. The evil CEOs and capitalists have taken away something from ordinary workers. No matter how many facts you throw back at them, any story with a villain is more compelling than one without one.
Incidentally, that makes it pretty futile for conservatives to try to play the compassion card (sorry, Arthur Brooks). People respond to villains. To compassion, not so much.
Slow trade growth has led to worries that the world economy has run into a ‘peak trade’ constraint, i.e. the ratio of global trade to GDP has reached a limit (Economist 2014). Global trade increased 27-fold between 1950 and 2008, three times more than the growth in global GDP. As a result, according to the World Bank’s World Development Indicators database, the trade-to-GDP ratio for the world as a whole rose from roughly 25% in the 1960s to 60% today. The slow (absence of) growth in trade since 2009 has meant no change in this ratio since 2008. If the recent decline in trade is sustained, this 60% may turn out to be a peak for the world as a whole.
Pointer from Tyler Cowen.
To be clear, “trade” is not slowing down. All economic activity is trade. The ratio of “trade to GDP” is the ratio of trade across borders to total trade, which includes trade that takes place inside national borders. Some thoughts:
1. As the share of GDP devoted to the New Commanding Heights (education and health care) increases, we might see a slowdown in cross-border trade. Note, however, that cross-border trade could pick up if distance learning and distance health care catch on.
2. As incomes rise in China and India, the “Samuelson effect” starts to kick in. That is, the comparative advantage of cross-border trade is reduced. That is, you do more production in China when American wages are 10 times Chinese wages than when they are only 4 times Chinese wages (using made-up numbers here).
3. As the cost of robots comes down, they displace workers in all countries, and this also reduces the comparative advantage of cross-border trade.
A reader suggests, probably correctly, that this story belongs under Four Forces Watch.
The company has come up with a secret algorithm that invites select users to access the app based primarily on LinkedIn résumés and friend networks. Ambition, Bradford says, is the biggest trait The League looks for within its community.
It is a dating application with a very limited, exclusive clientele.
I remember when some discos/nightclubs used a similar sort of business model.
On Wednesday, I appeared on a panel discussing the state of credit underwriting in the housing market. I raised two questions:
1. Are national credit standards, set by Freddie, Fannie, and FHA, appropriate, or do they throw out too much local information?
I made a Four Forces argument that there are too many divergences in economic performance that make local information valuable. On the other hand, you could argue that simply by tracking search data, Google and Zillow have better information on local trends than would an on-site mortgage underwriter. Interestingly, the session chairman, Bob Van Order, presented information showing that after the crash loans under-performed relative to their known characteristics (including ex post home price performance) and over-performed more recently. This suggests that it is possible for underwriting to be looser or tighter than it appears based on observable characteristics, which in a way suggests that there is local information that is important.
2. Are we in 2004? That is, is the stage set for another housing bubble, and all that is needed is a loosening of credit standards?
One of the speakers, Sam Khater of CoreLogic, re-iterated what he wrote here, that “price-to-income and price-to-rent ratios are high.”
Very few mortgages originated since 2009 have defaulted. There are two reasons for this. One is that credit standards were tightened. The other is that the trend of house prices has been up. Now, there is all sorts of talk about the need to loosen standards. I pointed out that both the private sector and public officials tend to be very procyclical when it comes to mortgage credit–when the market is going up, they want to loosen standards, and after it crashes they want to tighten standards.
I would be ok with loosening standards on credit scores now, provided that the industry holds the line on down payments, meaning that we do not see an increase in the the proportion of loans with down payments below 10 percent. This is not the time for the FHA to make a big expansion in its high-LTV lending (Ed Golding, can you hear me?)
To encourage high-LTV lending now would be adding alcohol to the punch bowl just as the party is getting good.
Once unsustainable economic structures begin to fail, it takes a significant improvement to make them viable again. Yet because of the difficulty of making major changes under our current political alignment, most new government policies today are no more than changes at the margin. Perhaps the most basic problem is that it is difficult to be sure when a reset is underway, and it is harder yet to raise public alarm about changes that seem to be gradual and slow.
If you have not done so already, read the whole thing.
On China, he writes,
Today’s China is sui generis. The country has grown so quickly that every decade or so there is a very new China. And so we cannot easily look to the past as a guide. In economic terms, China seven years ago is equally removed from China today as the United States about thirty-five years ago is removed from the United States today
I do not know China, but I imagine that this is an understatement.
Normal is over, and it has been over for a long time, particularly if you think of “normal” as workers being temporarily laid off and then getting re-hired to those same jobs when things are back to “normal.” It’s been at least 35 years since we have seen workers recalled from layoffs in any significant numbers.
Going further, I would suggest that the whole idea of “normal growth” is probably an attempt to impose an orderly pattern on processes that are not truly orderly. Economists do this all the time. They “seasonally adjust” data. They “de-trend” data. They draw lines connecting peaks in GDP and thus conjure “potential GDP” and “trend productivity growth” and make up stories about these artificial constructs.
Some of the elements of what Tyler calls an economic “reset” have been playing out for decades. The decline of manufacturing employment as a share of total employment began over 50 years ago. I continue to suggest keeping an eye on four forces, all of which were in place long before the financial crisis of 2008: the New Commanding Heights; bifurcated marriage patterns; factor-price equalization; and Moore’s Law.
Just in the Khosla Ventures portfolio alone, entrepreneurs already are trying to use machine learning technologies to replace human judgment in many areas including farm workers, warehouse workers, hamburger flippers, legal researchers, financial investment intermediaries, some areas of a cardiologist’s functions, ear-nose-throat (ENT) specialists, psychiatrists and many others.
I have omitted links to the companies to which he refers.
The rest of the essay argues, rather repetitively, that technology is becoming increasingly a substitute for, rather than a complement to, human labor. It strikes me as a nod toward Robin Hanson’s view of the future, although Khosla thinks that human brain emulation need not play a part.
What I would watch for over the next 15 years are developments that enable humans to evolve more rapidly, in order to compete with machines. Note that the cover story of the latest MIT technology review says (a bit prematurely) We Can Now Engineer the Human Race.
Basically, the long-time “gap” between the fertility of educated versus less-educated mothers—more educated mothers have fewer kids—is closing.
This could help explain what’s happening with statistics on marriage and fertility. Data from the Centers for Disease Control & Prevention earlier this year showed that married U.S. women are having more children, while unmarried women are having less.
Commenter Handle writes,
There’s nothing an entrepreneurial employer can buy to augment his workers to increase their labor productivity. They’re no equipment or anything for him to invest in. There’s no point: labor productivity in NCH sectors cannot be increased.
Well, computers can increase productivity in health care and education, but I get the point. It’s not like you can buy equipment that makes humans 10 or 20 times more productive. Barring strong AI, the only way to make humans much more productive in the NCH sectors is to dramatically re-organize the process, and that does not require a big investment in equipment.
Another trend is the drop in labor force participation. If people do not want to work, then you do not have to buy equipment for them to work with.
But suppose that you could tell stories about trends that imply low interest rates. At some point, low interest rates should make capital projects really attractive. That leads me to the suggestion that risky investments still fact high interest rates, and it is only government debt that enjoys low interest rates. And that leads me to the further suggestion (which I think I can find in Rogoff) that government debt is crowding out investment.
Without government debt to work with, financial intermediaries would have to satisfy the demand for safe, liquid assets by undertaking maturity transformation and risk pooling. That is what financial intermediaries do. But with so much government debt awash in the system, the public’s need for safe, liquid assets is satisfied without financial intermediaries having to do any sort of transformation at all.