Category Archives: Growth Causes and Consequences

Will Better Contraceptives Make A Difference?

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Vox reports,

the MicroCHIPS implant will last up to 16 years, and women will be able to turn it off via remote control if they’re trying to get pregnant. Trials in humans are expected to start next year, but the same microchip technology has been tested successfully in women with osteoporosis. MicroCHIPS Biotech says the implant could reasonably be on the market by 2018.

Pointer from Jason Collins., who has other interesting links this week.

My prediction is that this will make little or no difference in the number of “unwanted” births. My intuition is that a relatively small proportion of these are truly unwanted. To put this another way, I do not believe that the important margin is the change in quality of contraceptives.

Happy Valentine’s Day.

Moore’s Law is Faster than Market Adaptation

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James Pethokoukis quotes (but does not link to) what he calls a Citi report, “The Future of Technology and Employment,” as saying,

The upcoming digital age may cause more upheaval than previous technological revolutions as it is happening faster than before and is fundamentally changing the way we live and work.

The classical economic theory is that because we have unlimited wants, better technology will not eliminate jobs. The economy just needs to develop new patterns of specialization and trade.

If technology changes slowly, then there is plenty of time for entrepreneurs to come up with new types of work and for workers to adapt to the new needs in the workplace. However, Moore’s Law produces much faster change than what we saw during the Industrial Revolution. And it’s not as if the social dislocation of the Industrial Revolution was anything to sneeze at.

I would argue that what we are observing today and are likely to observe in the foreseeable future is much more influenced by the short-run dislocation than by the long-run equilibrium. And the long-run equilibrium may involve a lot of modification of human characteristics, using genetic engineering and computerized implants.

End of the Pax Americana?

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Fonzy Shazam summarizes a talk by Tyler Cowen.

1. Globalization will decline.
2. There is a myth of the rational autocrat.
3. “Fortress (North) America” will see a continuation of the current stagnating trend.

To me, this sounds as if the underlying theme is the end of Pax Americana. Imagine a world in which irrational autocrats launch wars, and the U.S. is unable/unwilling to stop them. Global trade will decline, and the U.S. will see little economic progress, in part because our progress relies on increased globalization. I cannot tell which way the causal arrows run–from American stagnation to American weakness to an inability to contain armed conflict, or the other way around. In fact, the prospect of increased armed conflict is something that I am imputing–it may not factor into Tyler’s forecast at all.

I have been reading George Friedman’s Flashpoints. One theme that struck me was the way that Europe changed in 1914-1918 from being accustomed to civilization to being accustomed to barbarism. He argues that World War I desensitized people to barbarism, and this in turn made possible Soviet and Nazi atrocities. So far, I have only read the historical parts of the book, not any discussion of the present situation or future scenarios.

On a related note, what should we make of the fact that in response to the murder of one of its citizens, the United States is less forceful than Jordan? Your choices include:

a) Jordan currently has more forceful leadership than the U.S.
b) In fighting ISIS, the United States has a strategy that is more nuanced and will ultimately be more successful.
c) The United States is wisely playing down the significance of terrorism in order to save its resources for dealing with bigger threats.
d) The United States in fact does not have the military capability to defeat ISIS, and attempting a decisively forceful response would only expose that fact.

The Returns to College Going Forward

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Nick Bunker writes,

Intuitively, then, increasing the supply of educated workers should reduce inequality as it would increase wages among a broader supply of more educated workers. But that assumes the demand for educated workers will continue to rise. Problem is, recent research finds that the demand for skilled labor appears to be on the decline.

Pointer from Mark Thoma.

Let us think about the “race between education and technology” idea. The Goldin-Katz story is that the high school movement helped produce a work force that could earn decent incomes in the industrial era. This is a nice just-so story, but note that in the late 19th and early 20th centuries the just-so story was that industrialization was reducing the demand for skills, replacing the craftsman with the assembly-line worker.

But let us suppose that more education is needed to enable the typical worker to keep pace with changes in technology. That is, suppose we buy that there is a race between education and technology. In that case, I am pretty sure that education has to lose that race.

Change in technology is being led by Moore’s Law. The core components of computers get twice as good every couple of years. Maybe that is slowing down a bit. But even so, it is much faster than the rate of improvement in steam engines in the 19th century or electric motors in the 20th century.

As an indicator of faster technological change, look at how much more quickly smart phones achieved mass adoption in comparison with personal computers.

As an indicator of how hard it is for humans to keep up, look at computers and chess. Twenty years ago, the world’s biggest computer could not have beaten the human world champion. Now, you could to it with a laptop. Maybe even a smart phone.

The metaphor of a “race” suggests that the two participants are capable of moving at the same speed. But if you compare Moore’s Law with the highest feasible rate at which me might increase educational attainment, you realize that the two speeds are hopelessly different. Either we come up with some radical, paradigm-shifting way of improving human learning capacity (genetic engineeering? implants? Diamond Age primers?) or the machines are certain to win.

The Distribution of Leisure

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John Cochrane writes,

a larger and larger fraction of the population, including many prime-age men, are not working and not actively looking for work. . .where does the money come from?

He refers to an article in the NYT showing that people who have abandoned the labor force spend a lot of time watching TV.

I have been predicting for quite a while that the distribution of leisure will be a major social issue going forward. The video of my most memorable portrayal, using a dance, seems to have been taken down by the Kauffman Foundation. Too bad you missed it. Anyway, the issue of the distribution of leisure is the flip side of the issue of the distribution of income.

Kevin Drum’s Crystal Ball vs. Mine

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He writes,

We’ll have useful AI by 2025 and full AI by 2045. This will either transform the world or destroy it. Flip a coin. However, regardless of how the end point turns out, the transition period is going to be pretty brutal for the 90 percent of the population that occupies the middle classes and below.

Pointer from Tyler Cowen. Remember, I wrote,

As for the issue of human obsolescence, I do think that we will see a trend toward more and more leisure. This will raise all sorts of questions of who deserves to have what provided for them. Right now, we say that people aged 67 or so deserve Social Security and Medicare. And people who can command only low wages (already obsolete in some sense?) deserve Medicaid and food stamps. And kids who can get in deserve the leisure aspects of college. My guess is that we will struggle quite a bit over the next forty years to adapt the social bargain concerning leisure.

Overall, there is a lot of similarity in our predictions. In particular, I agree with him that some of the long-predicted gains in medicine will finally come true.

Economic Outlook for the New Year

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Justin Wolfers writes,

Typically, an oil price decline is like a tax cut, leaving more money in consumers’ pockets to spend elsewhere. That should spur growth. But since the shale boom, the United States is not only a leading oil consumer but also a leading producer. So lower oil prices also spell smaller revenue for some of our energy companies. And our producers have particularly high costs, so further investment in them may become unprofitable if prices fall too far.

Pointer from Tyler Cowen, who offers some possible scenarios, nearly all of them pessimistic. I’ll try to be more optimistic in general, but from a PSST perspective, the oil price decline might be a small net loss for the U.S. That is, the disruption to the economies in the oil-boom states may more than offset any improvements elsewhere.

Some optimistic possibilities:

1. The geopolitical outlook may brighten. Lower oil prices constrain the influence of Venezuela, Russia, and Iran.

2. Islamic militancy might decline rapidly. Some stories suggest that the proportion of Muslims becoming turned off by the militants is rising.

3. There may be a growing realization in the United States that medical services paid for with other people’s money are prohibitively expensive. See Megan McArdle’s post-mortem on single-payer health care in Vermont.

4. As of now, I would say that virtual reality headgear is in the pre-early-adopter phase. By the end of the year, it may be in the early-adopter phase, poised for spectacular growth over the next decade.

5. The attention paid to Piketty will taper off, and we will see a better crop of nonfiction books.

6. I also predict that President Obama will recover his popularity among Democrats. They will find that, as in 2008, the prospect of Hillary Clinton will enhance the appeal of Barack Obama.

Why Did the South Not Converge?

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From Ira Katzelson’s Fear Itself,

For even as industrialization was proceeding elsewhere, the South remained overwhelmingly rural and poor, with depleted land, a lquasi-feudal tenure system based on debt and fear, and many bankruptcies and foreclosures. The New Deal thus was a boon for a hardscrabble region that faced many barriers to economic development. These included a poorly educated and low-skilled white and black population, inferior roads, the outmigration of ambitious workers, a shortage of local investment capital, fewer native mineral resources than other regions, and a paucity of industrial research facilities. The South also experienced high freight rates, high tariffs, low commodity prices, and patterns of ownership that placed the control of financial, mining, manufacturing, transportation, and communications corporations mainly in the hands of northeastern capitalists, a pattern many southern commentators thought to be colonial in nature.

Some thoughts:

1. In my book with Nick Schulz, we emphasize that countries differ mostly in terms of intangible wealth. We focus on institutions (think of North Korea vs. South Korea). The main institutional difference that the South had was its Jim Crow laws. Were they enough to keep the region improverished?

2. Remember that there are many ways for regions to converge within the U.S. People can move to where incomes are higher. Capital can move to take advantage of cheaper labor. Why did these mechanisms not work? Again, race may have played a factor. Until after the second World War, the poorest part of the southern population, namely poor African Americans, was discouraged from moving north, because racism also existed in the north. By the same token, a large part of the southern labor supply that might otherwise have attracted northern capitalists to build factories was African American, and it would have been hard to find whites willing to work with blacks doing similar jobs or under black supervisors.

3. Divergence remains a feature of the American economy. Both within and across metropolitan areas, there are large income differences. Again, this poses the questioh of why there is not more movement of people to high-income locales and/or more movement of firms to low-wage areas.

4. Katzelson’s point is that politicians of the south actively sought redistribution, and this factored into their support for New Deal legislation.

5. Bryan Caplan offers a theory of coincidental advantages that may or may not be a convincing explanation for lack of convergence.

Seeing the Cloud in the Silver Lining

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Carl Benedikt Frey writes,

The problem is that most industries formed since 2000—electronic auctions, Internet news publishers, social-networking sites, and video- and audio-streaming services, all of which appeared in official industry classifications for the first time in 2010—employ far fewer people than earlier computer-based industries. Whereas in 2013 IBM and Dell employed 431,212 and 108,800 workers, respectively, Facebook employed only 8,348 as of last September.

The reason these businesses spin off so few jobs is that they require so little capital to get started. According to a recent survey of 96 mobile app developers, for example, the average cost to develop an app was $6,453. Instant-messaging software firm WhatsApp started with a relatively meager $250,000; it employed just 55 workers at the time Facebook announced it was buying the company for $19 billion. All of which explains why new technologies throughout the 2000s have brought forth so few new jobs.

Pointer from Mark Thoma.

My thoughts.

1. Either IBM and Dell produced much more output than Facebook, or Facebook exhibits much higher productivity. Of course, valuing the output of IBM and Dell is difficult, and valuing the output of Facebook is impossible.

2. Without saying so, Frey is complaining about high productivity growth.

3. Frey does not point out that the official productivity statistics do not show high productivity growth. Not that I am a proponent of the official productivity statistics.

4. Frey does not point out that most economists view high productivity growth as a good thing.

5. I think that most non-economists (and maybe even some economists) do not realize that Thiel-Cowen stagnation is incompatible with Summers stagnation. The former is a story of disappointingly low productivity growth, and the latter is a story of “excess” productivity growth. I personally do not buy either stagnation story.

6. If you think that the media likes bad news, then they are bound to like either stagnation story (or both simultaneously, even though they contradict one another). The media deck is stacked against optimists. I would say that it is even stacked against realists.

What Do We Really Know About the Cost of Living?

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In an article on consumers’ expectations for home prices, Robert Shiller writes,

with the median home price under $200,000, according to RealtyTrac…

Pointer from Mark Thoma.

My question is: Where are these homes that are priced at less than $200,000? My niece in LA, my daughter in DC, another daughter in NY, and my third daughter in Boston would sure like to know.

This gets back to the issue of widening differences in income and housing costs within and across metro areas. I mentioned that issue last month, when I cited Joel Kotkin’s finding that much of the population growth in recent years has been in the far suburbs.

Suppose that housing cost is 25 percent of income, and suppose that close to the center of a city housing cost is 5 times what it is in the outer suburbs. That means that the cost of living is 1.25 times as high close in as it is far out. Yes, you should adjust for commuting time and cost, the value of different amenities, and so on. But that is a huge difference.

Consider that, at a national level, economic experts soberly analyze changes in trend productivity growth of 0.5 percent per year. To measure productivity changes, you need to have accurate measures of real GDP. To measure real GDP, you need to have accurate measures of “the” rate of inflation.

But what if inflation is 5 percent higher in downtown LA than it is 30 miles away? Which is the accurate measure of inflation? Even a slight mistake in aggregating across different areas could completely change the picture for national productivity growth.

I find myself thinking that the multiplicity of economies within the U.S. really matters. For example, I could imagine that the minimum wage would have a much bigger effect on employment in the locations with those sub-$200,000 houses than in higher-cost areas, where employers probably have to pay above the minimum, anyway. I can imagine that downward stickiness of wages matters a lot if you have inflation differentials across areas of 5 percent or so.

In trying to view the U.S. economy, I am tempted to drop the macroeconomic lens and replace it with the international trade lens.