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).
Interesting throughout, and difficult to excerpt.
You would imagine, therefore, that once the iron-hulled ocean-going screw-propellered steamship and the submarine telegraph cable had made their appearance, factory work worldwide would have rapidly gone to where labor was cheap. Yet from 1850-1980 that was not the case. Factory work by and large stayed where labor was expensive. And those economies that did manage to figure out how to utilize British Industrial Revolution and Second Industrial Revolution technologies at near-frontier levels of efficiency rapidly joined the club of rich economies that was the Global North.
I actually disagree with DeLong’s answer to this puzzle, which is that the underdeveloped world failed to industrialize because the countries of the Global South lacked strong home markets. I take the view that differences in culture and institutions were the key factors. I believe that it is Gregory Clark who pointed out that when early cotton manufacturing entrepreneurs took factories to India, they found that the workers did not function effectively.
everything makes sense if ϵI=0.77. That is, if the income elasticity of demand for manufactured goods is a little less than one. An elasticity less than one means that if your income goes up by 10%, your expenditure on manufactured goods rises by less than 10%. It goes up, but not by a similar percent. This income elasticity less than one acts a lot like the “demand shift” that DeLong dismisses in his first scenario. If you like, I’ve just given a very specific form to that demand shift.
Which is point (3) in my post on the puzzle.
Pointer from Mark Thoma.
If the income elasticity of demand for “manufactured goods” were one and the price elasticity of demand were zero, then we would have expected the decline in relative price to 40% of its initial value to be associated with stability in relative quantities, and for the nominal share of manufactures in GDP to fall on the same track as the price–as it has.
…For our demand for manufactured goods to have a price elasticity of zero seems to me to make little sense: Manufactured stuff is useful. When the price of manufactures drops relative to the price of other stuff, we ought to buy more manufactures
Pointer from Mark Thoma. DeLong is looking at the changes in reported price of manufactured goods relative to the rest of GDP and the reported nominal quantities over the past 70 years. A few of my thoughts:
1. We did increase our purchase of manufactured goods over the past 70 years, but we imported more and exported less. The price of foreign manufactures (including the cost of shipping them here) fell by more than did our cost of producing them. I doubt that this resolves the entire puzzle, but it must resolve some of it.
2. My guess is that the same sort of arithmetic applies to food. That is, the relative price of food has fallen, and the nominal share of food production in GDP has fallen by about the same amount. Even though food also is useful.
3. Robert Fogel told us that the income elasticity of food and manufactured goods is 0.6, not one.
One of the biggest meta-ideas of modern life is to let people live together in dense urban agglomerations. A second is to allow market forces to guide most of the detailed decisions these people make about [how] they interact with each other.
Pointer from Mark Thoma.
Relevant because apparently he will be chief economist at he World Bank. I am not sure that his personality and that institution are meant for one another.
Manufacturing, for all its technical potential, is only the second most readily automatable sector in the US economy. A service sector occupies the top spot: accommodations and food service, where almost half of all labor time involves predictable physical activities and the operation of machinery—including preparing, cooking, or serving food; cleaning food-preparation areas; preparing hot and cold beverages; and collecting dirty dishes. According to our analysis, 73 percent of the activities workers perform in food service and accommodations have the potential for automation, based on technical considerations.
Pointer from Timothy Taylor.
I can’t wait to see the results of higher minimum wages.
This report created a splash, although the findings are hardly news.
The prime-age male labor force participation rate has been falling in the United States for more than half a century. This long-term trend is worrisome, since it indicates that American men between the ages of 25 and 54 are increasingly disconnected from the labor market, lowering potential gains in productivity and economic growth. Although many higher-income economies have also experienced long-term declines in prime-age male labor force participation, the decline in the United States has been noticeably steeper, leaving our labor market—a crucial engine of growth—operating below its potential. Absent policy changes, this long-standing decline could continue, as more Baby Boomers move into retirement, and as younger cohorts enter the labor force at lower rates.
No single factor can fully explain this decline, but analysis suggests that a reduction in the demand for less skilled labor has been a key cause of declining participation rates as well as lower wages for less skilled workers.
Yes, if quantity goes down and price goes down, then you should interpret it as a demand shift.
Long-time readers of this blog know that I focus on what I call the four forces: New Commanding Heights (away from manufacturing and toward education and health care; factor-price equalization (easier for foreign workers to compete with U.S. workers; technology; and assortative mating. All of these play a role in reducing demand for the prototypical low-skilled male. And none is reversible.
Why are big cities becoming expensive places to live? One answer is that they have good jobs and restrictions on housing construction. That may be right.
But one possibility I want to throw out there is that people want affluent neighbors. If I want an affluent neighbor, and an affluent neighbor is going to live in a neighborhood with high prices, then in some sense I want to live in a neighborhood with high prices. In the extreme, this makes my demand for neighborhoods upward-sloping. Higher prices make me want to live there.
I first considered this possibility many years ago when thinking about school vouchers. I thought that if what people really want for their children is to have them go to school with affluent children, then vouchers would not work as well. Instead of allowing non-affluent parents to send their children to good private schools, the result would just be that good private schools would raise prices so that only affluent children can attend.
I also think that some colleges that are not in the top tier may face upward-sloping demand. George Washington University, which is hardly an academic icon, may benefit from charging very high tuition. Affluent parents come and see a student population that is predominantly affluent, and this gives them comfort that sending their children to GW is a high-status thing to do.
Back to cities. Suppose that an important “urban amenity” is having a lot of affluent people around. Young singles may wish to meet potential marriage partners who are affluent. People who have acquired affluent tastes (sushi, yoga, wine) may want to be around people with similar tastes.
If that is the case, then there is not much that a mid-sized midwestern city can do to lure affluent people. The cost of living there is not high enough to create a barrier to non-affluent people living there. And that means that affluent people will not want to live there.
Multiple studies show that college-educated Americans are increasingly reluctant to marry those lacking a college degree. This bias is having a devastating impact on the dating market for college-educated women. Why? According to 2012 population estimates from the U.S. Census Bureau’s American Community Survey, there are 5.5 million college-educated women in the U.S. between the ages of 22 and 29 versus 4.1 million such men. That’s four women for every three men. Among college grads age 30 to 39, there are 7.4 million women versus 6.0 million men—five women for every four men.
In the Mad Men era, when there were men than women who had graduated college, some men married “down.” Now, when there are more women than men graduating college, we have assortative mating. The result is that women have a harder time finding a “suitable” husband.
And there is this:
One fact that becomes apparent when studying the demographics of religion is that it is almost always the women who are more devout. Across all faiths, women are less likely than men to leave organized religion. According to the Pew Research Center, 67 percent of self-described atheists are men. Statistically speaking, an atheist meeting may be one of the best places for single women to meet available men.
In his column he writes,
Yet it is a strange society that disproportionately bunches much work and stress for so many women in the middle of their lives, and rewards them only much later with leisure. It is a kind of feast or famine for work, leisure and earnings.
In terms of the four forces, I would say that as the size of the New Commanding Heights sectors (education and health care) increases relative to manufacturing, the proportion of women doing market work has gone up. With bifurcated family patterns, we see higher-status families where parents work until their children have completed their education. Then they retire.
Note that the cost of goods and services other than education and health care has tended to fall. Thus, the way to get the most leisure is to resist the cultural pressure to live in a high-status city, have your children attend a high-status college, and buy “good” health insurance (meaning a pre-paid health plan as opposed to real insurance). If you can do that while earning a decent wage when you work, you can afford a lot of leisure.