Since 1995, durable goods (cars, televisions, computers and the like) have been getting cheaper in the U.S. That’s even as the prices of services and nondurables have mostly kept rising.
Read the whole post. Pointer from Mark Thoma.
At one point, Fox recycles the often-told tale of Fed Chairman Paul Volcker vanquishing inflation. My alternative view is that bond market vigilantes took over. That is, lenders got tired of generously offering borrowers negative real interest rates.
The IMF’s David E. Bloom writes,
Ninety-nine percent of projected growth over the next four decades will occur in countries that are classified as less developed—Africa, Asia (excluding Japan), Latin America and the Caribbean, Melanesia, Micronesia, and Polynesia. Africa is currently home to one-sixth of the world’s population, but between now and 2050, it will account for 54 percent of global population growth. Africa’s population is projected to catch up to that of the more-developed regions (Australia, Europe, Japan, New Zealand, and northern America—mainly Canada and the United States) by 2018; by 2050, it will be nearly double their size.
Read the whole thing,
3-D printing, married with artificial intelligence and robots, will disrupt manufacturing globally. It will radically alter who makes what where. Rather than subcontracting the production of components to Southeast Asia, shipping those components to China for assembly, and finally shipping them to consumers, many manufacturers will produce locally and switch to just-in-time production schedules. This shift will eliminate shipping and inventory costs as well deal with the increasingly costly problem of intellectual property theft. Local production will result in major reductions in the globalization of manufacturing and thus change the economic element of the global strategic environment. As manufacturing returns to rich countries, it will deprive the nations of Southeast Asia of the opportunity to pursue export-based growth. Perhaps the greatest threat is to Chinese growth. Even as its growth settles to a new, lower, normal, China struggles to shift from an export-based economy to a consumption-based one. If China cannot make the shift before the additive manufacturing results in localized manufacturing, it will suffer major negative impacts on growth.
Read the whole thing. Speculative, as Tyler would say. If you would like to hear the guy speak, then tune in or attend on March 9. His topic will be new technologies of war. Possible preview here.
The F-35 is a poster child for the difficultly of reconsidering a program of record. Built in 45 states at a cost of $399 B for 2,443 aircraft and with expected lifetime operating cost of $1 trillion, the F-35 has powerful Congressional support. Further, U.S. doctrine and powerful service constituencies heavily favor these exquisite systems. This is natural since doctrine and preferences are usually based on experience and current U.S. experience is based on exquisite systems. These two powerful factors will make it difficult to dispassionately examine other options. However, we must do so soon. Our experience with the F-35 shows that the decision to pursue a different path needs to be taken before the new system gains a powerful constituency that insists it be built regardless of its capability.
High housing prices are also rapidly remaking America’s regional geography. Even areas with strong economies but ultra-high prices are not attracting new domestic migrants. One reason is soaring rents: According to Zillow, for workers between 22 and 34, rent costs claim upwards of 45 percent of income in Los Angeles, San Francisco, New York, and Miami compared to less than 30 percent of income in cities like Dallas and Houston. The costs of purchasing a house are even more lopsided: In Los Angeles and the Bay Area, a monthly mortgage takes, on average, close to 40 percent of income, compared to 15 percent nationally.
Read the whole thing. Nearly every paragraph has something I could have excerpted.
Ryan Avent, Matt Yglesias, and Matt Rognlie have already each made a point that a lot of wealth disparities in the U.S. economy can be traced to the real estate market. Avent and Yglesias have made zoning regulations an issue.
I have instead focused on what I call the four forces: New Commanding Heights of health care and education; bifurcated family patterns; globalization; and the Internet. Maybe real estate regulation is a fifth force?
My question would be how much real estate regulation has changed over the past fifty years. If zoning regulation has only gradually changed, then it would not be a fifth force.
the weighted variance of log capital and log coal per worker is either 0.0188 (if you use Clark’s index of capital) or 0.0381 (if you use Clark’s data on looms equivalents). Either way, this is only 2.92% or 5.90%, respecitively, of the total variance in real wages. A tiny fraction of variation in real wages is driven by differences in capital per worker, and the rest must be explained by technology, human capital, or something else. Clark has disposed of technology as an explanation, so it could be human capital. Clark eliminates big human capital differnces (at least in terms of age structure or experience), so it has to be “something else”. That something else is either local effects or culture, depending on your choice of terms.
This refers to international comparisons of productivity in the cotton industry. Clark is Gregory.
2. Gerben Bakker, Nicholas Crafts, and Pieter Woltjer write,
Compared with Kendrick, we find that labour quality contributes more and TFP growth less. For this period as a whole, TFP growth accounted for about 60% of labour productivity growth rather than the 7/8th famously attributed to the residual by Solow (1957).1 Contrary to secular stagnation pessimism, TFP growth was very strong both in the 1920s and the 1930s, at 1.7% and 1.9% per year, respectively – well ahead of anything seen in the last 40 years. Regardless, even though the 1930s saw the fastest TFP growth in the private domestic economy before WWII, it was not the most progressive decade of the whole 20th century in terms of TFP growth. Both 1948-60 and 1960-73 were superior at 2.0% and 2.2% per year, respectively
Pointers from Mark Thoma for both.
Keep in mind that in (2), they are starting with output per worker in the aggregate economy, and certainly there are problems measuring the numerator. Then you adjust for capital per worker, and that raises another measurement challenge. Then, in order to calculate you take a percentage change, which amplifies measurement error. Then, to compare growth rates across time periods, you take the difference in percentage changes, which amplifies measurement error yet further. I’m not criticizing these specific results, but just raising a general caution.
whereas my grandmother would have been at sea if returned to her girlhood home, I would miss relatively little if suddenly placed in the home I grew up in. It takes longer and is less comfortable to fly from Boston to Washington or London than it was 40 years ago. There are more highways now but much more traffic congestion as well. Life expectancy has continued to increase, though at about half the pace it did during my grandmother’s day. But the most important transformation—child death being an extraordinary event—had already happened by the time I was born.
Pointers from both Mark Thoma and Tyler Cowen.
If you compare 1900 to 1960, you can point to a few innovations that transformed America. The car, radio and television, and household appliances like refrigerators and vacuum cleaners.
Has there been comparable transformation since 1960? I would say that there has, but the improvements have been distributed differently and are not embedded as much in tangible goods. Continue reading
Review by Scott Alexander. Review by Stuart Ritchie. Interview with Jones.
Alexander makes the point that I tried to make, which is that aggregation can produce higher correlation in noisy data. Ritchie says because the correlation between self-control and IQ is only 0.4, it is a bit of a swindle to say that self-control is a big factor explaining why nations with high average IQ do well economically. Among other interesting things in the interview, Jones says
Years of education is terrible measure of human capital. Look at broad-based test scores to get a sense of where a country’s economic future is heading.
It is Geography of Genius. I have seen a number of reviews. I do not rate it as must-read, but it will keep you entertained on an airplane ride.
He is looking at times and places that we view as loci of genius flourishing: ancient Athens, Scotland in the Hume era, Vienna in the Mozart era and in the Freud era, etc. Some commonalities:
1. The periods tend to be short, on the order of decades. High rates of creativity and growth are difficult to sustain.
2. The locations tend to be ones that are high in trade and population mobility.
3. The societies seem to be relatively open and tolerant.
4. Golden ages tend to be multidisciplinary. You get art, philosophy, and science together.
Above all, excellence seems to flourish in fields where it is valued in the culture. The Viennese loved their music. Silicon Valley venerates computer skills and start-ups. So the message is very McCloskeyan.
Jon Diamond, president of the British Go Association, said machines are five to 10 years ahead of where he expected them to be. “It’s really quite a large, sudden leap in strength,” he said. “This is a significantly better result than any other computer Go program has achieved up to now.”
Technology that improves exponentially will do that to you. Once somebody has a program that is sort of on the right track, you feed it more data and give it more processing power. Once the computer starts to get in the same range as the human, it very quickly races past and leaves the human in the dust.
As Tyler Cowen Alex Tabarrok puts it,
Win or lose, I will bet that Lee Sedol is the last human champion the world will ever know.
Nick Schulz points me to an essay from a few years ago by Paul Allen and Mark Greaves.
As we go deeper and deeper in our understanding of natural systems, we typically find that we require more and more specialized knowledge to characterize them, and we are forced to continuously expand our scientific theories in more and more complex ways. Understanding the detailed mechanisms of human cognition is a task that is subject to this complexity brake. Just think about what is required to thoroughly understand the human brain at a micro level. The complexity of the brain is simply awesome. Every structure has been precisely shaped by millions of years of evolution to do a particular thing, whatever it might be. It is not like a computer, with billions of identical transistors in regular memory arrays that are controlled by a CPU with a few different elements. In the brain every individual structure and neural circuit has been individually refined by evolution and environmental factors. The closer we look at the brain, the greater the degree of neural variation we find. Understanding the neural structure of the human brain is getting harder as we learn more.
The same appears to be true with cancer, and indeed with all diseases that combine genetic and environmental factors. I would argue that the same is true for macroeconomics. With some problems, you make a lot of progress until the complexity brake kicks in.
