Category Archives: Growth Causes and Consequences

Being disagreeable

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I am currently attending an “un-conference.” To the extent that there is a focus, it is on improving prospects for exploiting technology for economic growth and human flourishing,

Here are a few ideas that have come up so far in conversation, suggested by interesting people.

1. Science is stagnating because we are not providing the right environment for disagreeable people. The thinking is that breakthroughs tend to come from people whose personality registers very low on agreeableness. But you have to give them a lot of freedom and support, with enough enforcement of social norms to keep them from undermining each other but not so much that their creativity is stifled.

With that in mind, let me disagree with two other ideas.

2. Using a universal wage subsidy instead of a universal basic income. The idea is that work creates human capital (and human satisfaction), so we want to subsidize work rather than idleness. I get that, and I might even adopt that point of view, but:

What do you do with people who are severely disabled (think of a schizophrenic)?

Do you want to simultaneously tax labor (payroll tax) and subsidize it? Seems very inefficient.

What about people who claim that they are “self-employed” (wink, wink)? For example, does blogging qualify one for a subsidy?

3. “Re-writing the rules of the economy in the digital age.”

That one scares me. Good rules are not written by experts. They emerge organically. Think of common law (or norms in general) as law that evolves gradually through trial and error. Think of “re-writing the rules” as legislation and top-down regulation. I trust the common-law process more. Yes, it might entrench some bad precedents that might best be overturned by legislation, but I would rather live with that risk than the risk that the people “re-writing the rules” are not as clever as they think they are. And at this un-conference, that risk is rather high, in my opinion. Lots of strong leftists who have more faith than I do in the power of their (our) form of intelligence.

The Abundance Apocalpyse

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Kevin Drum writes,

I want to tell you straight off what this story is about: Sometime in the next 40 years, robots are going to take your job.

I am reluctant to engage in this sort of economic science fiction discussion, because I don’t have confidence in our ability to project how something like this will play out. But if Drum is correct that robots will be able to perform all existing jobs, then I don’t mind, for many reasons.

The number one reason is that, assuming this plays out, there is a flip side: goods and services will be cheap, and in fact for all intents and purposes they will be essentially free. Take heart surgery as an example.

Today, heart surgery is one of the more expensive things you can get. But if you take all of the labor out of health care, then heart surgery does not need to cost more than a happy meal.

Won’t you have to pay a lot to the people who own and manufacture the robots that provide health care? I would say not, for two reasons. One reason is that in order to drive out human heart surgeons, the robots will have to use lower prices and/or higher quality to compete. And then they will have to compete with one another. Furthermore, in this futuristic scenario, the robots will themselves be designed and made by robots, so that the robot heart surgeon will be a cheap commodity, at least if there is competition in production.

So I am thinking that people’s needs, at least as understood in terms of today’s goods and services, will be taken care of in a scenario where robots “take our jobs.” We should not worry about “mass poverty” in a world of almost unimaginable abundance.

The next thing you might say is that without jobs, life will lose meaning for people. Well, I have not had a regular paid job in more than twenty years. My life has not lost its meaning. If your material needs are nothing to worry about, and you are tasked with finding a meaningful life, you can figure it out.

If you think that you can make your life meaningful today by worrying about a future robotic scenario, then go ahead. A lot of economists seem to want to do that nowadays. But I am not going to devote much effort to it.

Peter Zeihan’s world view

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I am reading his book The Absent Superpower. You can get a lot of his ideas by watching this video. You can also see his intellectual style, which is certainly more confident than mine. He deals in strong pronouncements, and he does not worry much about establishing causality or conceding the plausibility of alternative hypotheses.

I view recent history and the near-term outlook as dominated by the four forces: increased resources devoted to education and health care (the New Commanding Heights); bifurcated marriage patterns; globalization; and computerization.

Note that a lot of economists’ bandwidth these days is focused on the computerization issue. For example, Tyler Cowen attended a conference of heavy hitters on the economic implications of artificial intelligence.

Zeihan igores those four forces in order to focus on energy markets and demographics. In the case of energy, he sees the shale revolution as a geopolitcal game-changer. Where I assume that “oil is oil,” so that the location of supply matters less than the overall match between supply and demand, he attaches great significance to the ability of the U.S. to match its own oil supply and demand. He sees this leading the United States to completely lose interest in global security and the international trading system.

Zeihan asserts that without our adult supervision, the world playground will erupt into wars: along Russia’s borders, in the Persian Gulf, and in Northeast Asia as China and Japan struggle over the sea lanes for oil in a world of energy supply disruptions.

In the case of demographics, he sees financial markets in terms of a simple life-cycle model of behavior: younger workers spend, older workers (40 – 65) save and take financial risks, and retired workers become risk averse. The Baby Boom generation has been in the older-worker phase, helping to drive up prices of risky assets throughout the world. But they are transitioning to retirement, which means they want to shift away from risky assets to low-risk assets.

Also important is the overall aging of the developed world, with the U.S. a bit of an exception. See Timothy Taylor on Asia. This is going to expose many countries to financial strife. The ratio of workers to dependents will be too low to support pensions systems.

Watch the video and/or read the book. I am curious what you think.

Luis Bettencourt on cities

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In 2013, Emily Badger wrote,

At their most fundamental, cities are not really agglomerations of people; they’re agglomerations of connections between people.

Bettencourt is basically describing interconnected relationships between the population growth of a city; the incremental expansion of the infrastructure networks that more people require; the socioeconomic outputs that come from our social interaction; and the density that necessarily develops over time so that we can still benefit from ever-more social connections without spending ever-more energy to reach each other.

There may be a lot of merit to these ideas. However, it seems to me that the prosperity of cities depends a great deal on accidental and historical factors.

I got to this story by starting from the Russ Roberts podcast with Philip Auerswald.

Tyler Cowen’s Philosophical Opus

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He discusses it with Russ Roberts.

I claim we should use an intergenerational discount rate of zero. That is, the distant future we should not discount at all. There’s positive time preference within a life, but over the course of generations no one is sitting around impatiently waiting to be born. And once you adopt that move, the further-out future becomes very important for our deliberations. And then the gains from getting this higher compound rate of economic growth, they really do just overwhelm anything else in the calculation.

It is an argument for thinking about long time horizons when making economic policy. That is easier said than done, of course.

Four Forces Watch

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Richard Reeves says,

What’s been driving the kind of economic separation has been a combination of two main factors: One, well-established earnings inequality and higher returns to higher education at the top. And then actually you see this stunningly unromantic term, assortative mating — i.e. college graduates marrying other college graduates, which means they double down on that income. And then they’re able to put that into housing which gets them access to a good school and so on. Then you take all the tax subsidies that are available. So, I’ve got a new paper on 529 but there’s also mortgage interest deduction which ends up in a way subsidizing this kind of separation.

He is explaining the increased separation between the top 5th and the rest of the population in terms of income.

There is an interesting discussion of the notion that in order to have upward mobility you have to have downward mobility. Actually, that is not necessarily the case. Suppose that the bottom of the income distribution is populated largely by young workers and immigrants. As they move up the ladder, instead of replacing them with once-rich families on the way down, you replace them with a new generation of young workers and with new immigrants. This is not merely hypothetical.

Patrick Watson on grocery store divergence

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He writes,

The Protected class’s increasing separation from mainstream society is a trend that we increasingly see reflected in retailing. Stores that cater to either the top or bottom extremes – luxury retailers and dollar stores – are doing well. Those that cater to the middle are struggling.

Now that trend is reaching the grocery segment. . .

…we will probably lose one more of the common experiences that keep society stable and help us value each other’s humanity. The Protected-Unprotected divide will widen even further, and people will cross it less frequently.

I have tried to imagine scenarios where this divergence ends well. I haven’t come up with any.

This sounds very Cowen-esque: average is over, and this is worrisome

Google and Bell Labs

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A commenter writes,

What Google et al are doing is a lot like the Bell Labs of old. Just as AT&T’s monopoly profits paid for a lot of research of uncertain short term direct value to Ma Bell, the Internet bigs have poured a lot of money into side projects that may not actually be profitable, but the core business prints so much money that investors aren’t inclined to ask too many questions.

In hindsight, we owe a lot to Bell Labs and Xerox PARC. Maybe in twenty years the effect of research projects at Google and Amazon will be just as significant.

The decline of GDP

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Shane Greenstein writes,

Television has gotten much better over the last few decades, but—for many reasons—total advertising has not grown.

Without more advertising revenue, the contribution of better TV to GDP is zero. A few remarks:

For me personally, the value of television is close to zero. I never turn on the TV. Still, if I did have to watch, I would find prefer new shows to the type of shows that were available when I was a kid.

But Greenstein’s larger point is that free services, like Google Maps, do not get valued properly in GDP.

I would like to make the point larger still. The economy is much less legible today than it was in 1950. The most legible components of the economy are agriculture and manufacturing. In 1950, the majority of people worked in those sectors. Today, if you add up farm labor and manufacturing production workers (not including white collar workers in manufacturing), you get maybe 7 percent of the labor force. Pretty much everyone else works in sectors like finance, government, health care, and education, where we do not know how to measure or value output.

The Department of Commerce hums along, producing a number for GDP. And many economists read a lot into the behavior of this number. In the process, they treat an increasingly illegible economy as if it were still legible.

What will fix the Palestinian economy?

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Timothy Taylor summarizes two recent reports.

What are some potential areas on which economic growth in the West Bank and Gaza might build? One possibility is to seek to build ties of trade and migrant workers with Arab countries across the Middle East. Another is to emphasize better conditions for businesses to operate in the West Bank and Gaza. For example,the World Bank report notes at one point, “[I]t is vital for the PA to address institutional reform to ensure that energy suppliers are paid for their service – which is critical for both energy imports and investment in generation.” That advice hits at a deeper problem for any business thinking about operating in the area.

I would say it’s the kleptocracy, stupid. And just as in many countries having natural resources strengthens kleptocracy, I would say that in the Palestinian territories the large sums of foreign aid have created a situation that rewards success in the struggle for political power much more than success in enterprise.

I think that this is clearly a case where the GiveDirectly model would work much better than existing aid approaches.