Category Archives: Growth Causes and Consequences

What, Me Worry?

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This year’s “edge” question is what we should be worried about. So far, my favorite is David Berreby.

out of the 9 billion people expected when the Earth’s population peaks in 2050, the World Health Organization expects 2 billion—more than one person in five—to suffer from dementia. Is any society ready for this? Is any really talking about how to be ready?

One might hope that we would have a cure by then. But in general, the demographics of the future look…strange. Rodney Brooks thinks we will need a lot of robots to

take up the slack doing the thankless and hard grunt work necessary for elder care, e.g., lifting people into and out of bed, cleaning up the messes that occur, etc., so that the younger humans can spend their time providing the social interaction and personal face time that we old people are all going to crave.

Of course, if someone had asked me, I would have said that I worry about fiscal imbalances.

The Rentership Society

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From the econtalk with Russ Roberts and Tyler Cowen. Tyler says,

I do think there will be a big generational shift away from the physical product. There will be a general decline of stuff, including the desire to own a home of your own. And we see this in the data–lower rates of household formation, lower rates of owning stuff… we see in collectibles markets is that overall the prices of collectibles have fallen after the advent of e-Bay. That to me suggests a net desire to get rid of stuff

I hear that the bike-sharing network in Manhattan is doing well. Driverless cars, if and when they become commonplace, call out to be rented rather than owned.

Narrative Wars on the State of the Economy.

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John B. Taylor and Lee Ohanian write,

why is the current recovery so weak? It is not because of the aftermath of the 2007-08 financial crisis. U.S. Financial markets began to recover in late 2008, more than four and a half years ago.

I am just starting to write in my book about the aftermath of the financial crisis (which means I am on the home stretch, although I am not sure that I might not try one more major re-write of the whole book). Like Ohanian and Taylor, I find it striking that he employment/population ratio today is actually lower than it was during the official “recession.” (See also Stephen Bronars on a careful calculation that adjusts the employment/population ratio for demographic trend factors. Bottom line: it still looks awful.)

My take on that is that the NBER dating of the end of the recession is a distortion of reality. Yes, GDP started to rise in the middle of 2009, but otherwise, things do not look very good.

Why is the economy not doing well? I would suggest the the latest Economic Freedom indexes might have part of the answer. Since the year 2000, we have fallen on a 10-point scale from 8.65 to 7.74.

The left’s counter-narrative is that the financial crisis blew a deep hole in the economy, and we needed bailouts and Keynesian stimulus do dig us out. We had about the right amount of bailouts, but not enough stimulus. And anyone who believes anything different is anti-science and defiant of the facts.

Average is Over, Boys and Girls

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Christina Hoff Sommers writes,

Women still predominate—some­times overwhelmingly—in empathy-centered fields such as early-childhood education, social work, veterinary medicine, and psychology, while men prevail in the mechanical vocations such as car repair, oil drilling, and electrical engineering.

If she would read Tyler Cowen’s new book, she would understand that “empathy-centered fields” have been trending up in demand, because that is where humans have a comparative advantage in a world where computers and robots keep getting better. In addition, Cowen argues that complex businesses require teamwork, not the sort of oppositional, maverick attitude that comes more naturally to males. I read Average is Over as implying that we should not blame the deteriorating outcomes for average males on feminist prejudice in education.

Average is Over

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That is Tyler Cowen’s latest book, which I just finished. I will probably re-read parts of it and have more to say, but for now:

1. Tyler sees the tech sector as dynamic, while the education and health sectors have been stagnant, in part because of government control. In some sense, the difference between The Great Stagnation and his new book is that the former emphasizes the sectors that are doing poorly and the latter emphasizes the tech sector.

2. In part because of this shift in emphasis, this book came closer to reflecting my own views.

3. Tyler uses an arresting metaphor of a billionaire riding in a taxi in Calcutta, surrounded by beggars seeking his attention. One can imagine rich people being able to afford a lot of personal servants. The constraint on that will just be the time and effort needed to manage personal servants.

3. Tyler uses Freestyle chess (humans working with computer programs to compete) as a metaphor. There, I thought he stretched it a bit too much. He envisions a sort of Freestyle economics emerging. But to me there is a big difference between chess and economics in terms of what James Manzi calls causal density. In chess, there are a finite number (in fact, probably a small number) of important factors. Sorting through tens of thousands of games, a computer program can arrive at precise weights for those factors. To us, it is dazzling to see an early bishop sacrifice that a human would consider speculative, but the computer knows, based on “experience,” that this is the sort of position in which one can do without a black bishop.

But in economics, we are dealing with high causal density. This is particularly true in finance and macro. I am not convinced that sheer data analysis is going to produce dazzling results. Sure, a new data-crunching paper may add more value at the margin than a new JET paper, but that is not saying much.

4. For me, the most interesting chapter was the one on education. Tyler points out that the content-supplying and testing/grading functions of a professor can be automated relatively easily. The main role for humans is to supply motivation, coaching, and inspiration. I am reminded of an experiment in India in which grandmothers with no subject-matter knowledge are recruited to encourage young children to learn by praising their work.

Wit and Wisdom of Tyler Cowen

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1. In the New York Times.

We’ll need a new name for the group of people who have the incomes of the lower middle class and the cultural habits of the wealthy or upper middle class. They will spread a libertarian worldview that working for other people full time is an abominable way to get by.

2. From a Diane Coyle’s teaser/preview of his forthcoming book.

“Economics is becoming less like Einstein or Euclid and more like studying the digestive system of a starfish.”

I think that the blogosphere backlash against economic pseudo-physics is gathering force. And I look forward to reading Tyler’s new book.

From Different Planets

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Daniel Little:

the idea that a properly functioning market economy will tend to reduce poverty and narrow the extremes of income inequality has been historically refuted — at least in the case of American capitalism.

Echoed by Mark Thoma.

On the other hand, Don Boudreaux.

Each and every thing that we consume today in market societies is something that requires the coordinated efforts of millions of people, yet each of us is able to command possession and use of these things in exchange for only a small fraction of our work time.

The Decline of Marriage

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Julissa Cruz writes,

The proportion of women married was highest in 1950 at approximately 65%. Today, less than half (47%) of women 15 and over are married—-the lowest percentage since the turn of the century.

Pointer from Timothy Taylor.

Note also that Nick Schulz quietly published a short book on this topic. I have just started reading it.

Ira Stoll on Phelps

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Stoll writes,

Professor Phelps tries to trace what he sees as a decline in modern capitalism beginning as early as the mid-1960s and continuing through the present day. One suspect is what the author calls the “new corporatism”: “Regulations of industries are instituted, aimed at shielding companies or workforces from competition. …Shakedowns of companies by communities, nonprofits, or governments extract donations or other accommodations….The new corporatist economy, then, is pervaded by fears of holdups by the government, by stakeholders, by organized labor, and by an ocean of persons and companies ready to litigate.”

Later,

The question of whether the late-1960s radicals were rebelling against tradition or against modernity is complicated, a topic for a book, or a column, of its own. But surely even a Nobel laureate economist ensconced at Columbia can figure out that whatever the great villain is in the story of the American economy or culture since the 1970s, it isn’t “the resurgence of family values.”

I think that the value of the book is in making the case that our system is corporatist, and that, unfortunately, many people are quite happy with that. I have written my own review, for which I am seeking an outlet.

The Great Demographic Stagnation

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Rob Arnott and Denis Chaves write,

the developed world is entering a new phase in which the low fertility rates of past decades lead to slow growth (in many countries, no growth) in the young adult population; young adults are the dominant engine for GDP growth. Mature adults, many of whom are at or near their peak productivity, are poised to retire, creating an impressive surge in the rolls of senior citizens. These newlyminted senior citizens, transitioning from near-peak productivity to retirement in a single step, will be drawing on the economy while no longer producing goods and services. The unequivocal good news of a steady rise in life expectancy means that these retirees will create a very substantial drag on GDP growth, as these seniors move from peak productivity to negligible productivity in just a few years.

I think that with old people healthier, productivity does not have to drop off so much at age 60. And we do have the ability to change the age of government dependency. But read the whole thing. The point that we have a major slowdown in economic growth baked into demographics seems straightforward and powerful.

UPDATE: Kevin Erdmann shows how demographics have affected labor force participation in the U.S. the past decade.