Tag Archives: economic growth

The Great Equalizer

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The Great Equalizer by David Smick book is #8 on the New York Times nonfiction best seller list. Here’s the Amazon description:

The experts say that America’s best days are behind us, that mediocre long-term economic growth is baked in the cake, and that politically, socially, and racially, the United States will continue to tear itself apart. But David Smick—hedge fund strategist and author of the 2008 bestseller The World Is Curved—argues that the experts are wrong.

In recent decades, a Corporate Capitalism of top down mismanagement and backroom deal-making has smothered America’s innovative spirit. Policy now favors the big, the corporate, and the status quo at the expense of the small, the inventive, and the entrepreneurial. The result is that working and middle class Americans have seen their incomes flat-lining and their American Dreams slipping away. In response, Smick calls for the great equalizer, a Main Street Capitalism of mass small-business startups and bottom-up innovation, all unfolding on a level playing field. Introducing a fourteen-point plan of bipartisan reforms for unleashing America’s creativity and confidence, his forward-thinking book describes a new climate of dynamism where every man and woman is a potential entrepreneur—especially those at the bottom rungs of the economic ladder.

Ultimately, Smick argues, economies are more than statistical measurements of supply and demand, economic output, and rates of return. Economies are people—their hopes, fears, dreams, and expectations. The Great Equalizer is a call for a set of new paradigms that inspire and empower average American people to reimagine and reboot their economy. It is a manifesto asserting that, with a new kind of economic policy, America’s best days lie ahead.

 

EIA Annual Energy Outlook 2017

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The U.S. Energy Information Administration has released its annual energy outlook 2017. In their economic modeling exercises, some of the interesting things that happen are that oil demand stays relatively flat, natural gas demand continues to grow, coal continues to fall, and renewables continue to grow through 2040 although they don’t reach a higher share of the total supply than natural gas or oil. Carbon emissions fall or stay relatively flat in most scenarios, which is interesting but remember that flat emissions that are still too high will cause atmospheric greenhouse gases to continue growing at a steady rate. Some of the most interesting graphs are emissions intensity per dollar of economic output and emissions per unit of energy used, which both fall over time but again this does not guarantee that the atmosphere is healing itself, only becoming sicker at a slower rate.

2016 in Review

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Each month this year, I picked three scary, three hopeful, and three interesting posts or groups of post from the month. Now I’m going to pick one of those three to represent each of the months. The choices are fairly arbitrary and the main point is just to review what the media was saying and what I was thinking about over the course of the year. Then I’ll see if I can identify any trends or come up with any insights.

Most Frightening Stories of the Year

  • JANUARY: Paul Ehrlich is still worried about population. 82% of scientists agree.
  • FEBRUARY: 77% of jobs in China may be threatened by automation.
  • MARCH: An IMF official uttered the words “economic derailment“. That sounds like it could be a real train wreck. Meanwhile Robert Gordon has expanded his pessimistic article on future growth into a book.
  • APRIL: Robert Paxton says Trump is pretty much a fascist. Although conditions are different and he doesn’t believe everything the fascists believed. Umberto Eco once said that fascists don’t believe anything, they will say anything and then what they do once in office has nothing to do with what they said.
  • MAY: The situation in Venezuela may be a preview of what the collapse of a modern country looks like.
  • JUNE: Trump may very well have organized crime links. And Moody’s says that if he gets elected and manages to do the things he says, it could crash the economy.
  • JULY: The CIA is just not that good at spying.
  • AUGUST: A former U.S. secretary of defense thinks the risk of nuclear war is higher now than during the cold war. The Republic Party platform appears to be outright in favor of nuclear weapons, while the Democratic Party platform includes a tepid commitment to maybe “reducing reliance” and spending on nuclear weapons. Jeffrey Sachs says the Syria War has become essentially a U.S.-Russia proxy war.
  • SEPTEMBER: The ecological footprint situation is not looking too promising: “from 1993 to 2009…while the human population has increased by 23% and the world economy has grown 153%, the human footprint has increased by just 9%. Still, 75% the planet’s land surface is experiencing measurable human pressures. Moreover, pressures are perversely intense, widespread and rapidly intensifying in places with high biodiversity.” Meanwhile, as of 2002 “we appropriate over 40% of the net primary productivity (the green material) produced on Earth each year (Vitousek et al. 1986, Rojstaczer et al. 2001). We consume 35% of the productivity of the oceanic shelf (Pauly and Christensen 1995), and we use 60% of freshwater run-off (Postel et al. 1996). The unprecedented escalation in both human population and consumption in the 20th century has resulted in environmental crises never before encountered in the history of humankind and the world (McNeill 2000). E. O. Wilson (2002) claims it would now take four Earths to meet the consumption demands of the current human population, if every human consumed at the level of the average US inhabitant.” And finally, 30% of African elephants have been lost in the last 7 years.
  • OCTOBER: According to James Hansen, the world needs “negative” greenhouse gas emissions right away, meaning an end to fossil fuel burning and improvements to agriculture, forestry, and soil conservation practices to absorb carbon. Part of the current problem is unexpected and unexplained increases in methane concentrations in the atmosphere.
  • NOVEMBER: Is there really any doubt what the most frightening story of November 2016 was? The United Nations Environment Program says we are on a track for 3 degrees C over pre-industrial temperatures, not the “less than 2” almost all serious people (a category that excludes 46% of U.S. voters, apparently) agree is needed. This story was released before the U.S. elected an immoral science denier as its leader. One theory is that our culture has lost all ability to separate fact from fiction. Perhaps states could take on more of a leadership role if the federal government is going to be immoral? Washington State voters considered a carbon tax that could have been a model for other states, and voted it down, in part because environmental groups didn’t like that it was revenue neutral. Adding insult to injury, WWF released its 2016 Living Planet Report, which along with more fun climate change info includes fun facts like 58% of all wild animals have disappeared. There is a 70-99% chance of a U.S. Southwest “mega-drought” lasting 35 years or longer this century. But don’t worry, this is only “if emissions of greenhouse gases remain unchecked”. Oh, and climate change is going to begin to strain the food supply worldwide, which is already strained by population, demand growth, and water resources depletion even without it.
  • DECEMBER: The geopolitical situation is not good. If Russia did hack the U.S. election, it wouldn’t be the first election they have hacked. The wars in Afghanistan and Iraq are not over, and the rest of the greater Middle East is increasingly a mess.

Most Hopeful Stories of the Year

Most Interesting Stories of the Year

  • JANUARY: The World Economic Forum focused on technology: “The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”
  • FEBRUARY: Titanium dioxide is the reason Oreo filling is so white.
  • MARCH: Michael Pollan urged us to eat food. not too much. mostly psychedelic mushrooms.
  • APRIL: Genes can now be programmed just like circuits.
  • MAY: The world has about a billion dogs.
  • JUNE: Switzerland finished an enormous tunnel through the Alps that took 20 years to build.
  • JULY: I was a little side-tracked by U.S. Presidential politics. Nate Silver launched his general election site, putting the odds about 80-20 in favor of Hillary at the beginning of the month. The odds swung toward Trump over the course of the month as the two major party conventions took place (one in my backyard), but by the end of the month they were back to about 70-30 in favor of Hillary. During the month I mused about NAFTA, the fall of the Republic, the banana republic, The Art of the Deal, how to debate Trump, and Jon Stewart.
  • AUGUST: Here is a short video explaining the Fermi Paradox, which asks why there are no aliens. Meanwhile Russian astronomers are saying there might be aliens.
  • SEPTEMBER: Monsanto is trying to help honeybees (which seems good) by monkeying with RNA (which seems a little frightening). Yes, biotech is coming.
  • OCTOBER: Neil deGrasse Tyson says “we might expect to find as many as 100 alien civilizations in our galaxy communicating with radio waves right now.”
  • NOVEMBER: New technology can survey and create a 3D model of a room in seconds.
  • DECEMBER: According to Bill Gates, “new genome technologies are at the cusp of affecting us all in profound ways”. But an article in Nature says we should not be too hopeful about living much past 100.

And now for trends and insights…

Serious long-term threats related to population, food, water resources, natural capital depletion, biodiversity loss, and climate change. These are all inter-related. In past years I probably would have suggested that these threats are so likely and so consequential that we should focus nearly all our efforts on them. But things have changed a bit over the past year. Now it appears that we face dire short term threats as well in the form of serious geopolitical instability, risk of war and global economic stagnation. If you don’t deal with short term threats you might not be around to deal with the long term ones. And voters have chosen leaders in the past year who have no intention of dealing with the long term threats. They make no serious attempt to understand their nature or root causes. In fact, they don’t even acknowledge that the threats exist in many cases.

War. The possibility of war is certainly the biggest short-term threat we face. If we get through the next 4-8 years without a war between major powers or any sort of nuclear detonation, we will have to consider that a win. The greater Middle East from North Africa to Afghanistan is dangerously unstable, and the U.S. has already been drawn into a proxy war with Saudi Arabia and its allies on one side and Iran and Russia on the other side. And it appears that Russia may have played a direct role in influencing the U.S. election. An accidental clash between U.S. and Russian forces in Syria, Eastern Europe, or over the world’s oceans could be enough to set off a series of escalations and miscalculations that leads to a war nobody wants or stands to gain anything from. A naval confrontation between the U.S. and China could be a similar risk.

The Great Recession. Although the U.S. economy has picked up, the overall global growth and employment situation is deeply concerning. Rather than just a cyclical downturn, it may be a long term trend driven by demographics, debt, and underemployment caused by automation. The automation trend is going to be relentless. The 2007-8 financial crisis caused by excessive risk taking in the U.S. finance industry may just have been the straw that broke the camel’s back and made the long-term trends obvious, and another financial crisis that severe at a time of weakness might be the one the world doesn’t recover from. Our new U.S. leaders are already working with big business to roll back the necessary but still inadequate protections put in place after the ’07-8 crisis. Costs and risks imposed by climate change are not going to make the economy any better.

Technology. Technology brings us grave concern over the employment situation, but also great hope that we could see a long-term pickup in productivity, and therefore our overall wealth and quality of life. Of course, an increase in overall wealth and quality of life may help only a small slice of society if that society is structured to concentrate rather than share the wealth, and the leaders we have chosen in the U.S. for the next few years are clearly committed to the former. Extreme concentration of wealth could lead us eventually to a situation of such instability that the only outcomes are armed revolution in the streets or else absolute authoritarian control.

But let’s optimistically assume that our political system eventually comes up with a consensus on sharing the wealth. Now a higher rate of productivity growth (within ecological limits) would be good for everyone. In this world, people whose jobs are displaced by automation would be quickly retrained for new jobs, and they would be educated in the first place so that they are very flexible and adaptable to changing conditions. Over time, we could become so rich that we simply don’t have to work so much, and we could devote more of our time to leisure activities, learning for the sake of learning, the arts, civic and social activities, etc.

This might seem like a utopian vision, but it has happened in the past. People used to work incredibly long, hard hours to grow just enough food to survive, and they didn’t live all that long at that. Later people used to work long, hard hours in factories and sweat shops. Technology, cheap energy, and the wealth they have brought have made huge changes in working hours and life expectancy for most of us. With technology seemingly advancing all around us, the puzzle is why we aren’t seeing similarly spectacular advances today as we have seen in the past.

Advances like the tractor and electricity were enormous changes at the time of course. Maybe today’s technological advances, even though they seem impressive to us, simply aren’t as dramatic as these advances were in their time. That is the basic thesis of Robert Gordon, who I mention above. The World Economic Forum and Nouriel Roubini articles I mention above have good summaries of the advances we are seeing. Roubini categorizes them as:

  • ET (energy technologies, including new forms of fossil fuels such as shale gas and oil and alternative energy sources such as solar and wind, storage technologies, clean tech, and smart electric grids).
  • BT (biotechnologies, including genetic therapy, stem cell research, and the use of big data to reduce health-care costs radically and allow individuals to live much longer and healthier lives).
  • IT (information technologies, such as Web 2.0/3.0, social media, new apps, the Internet of Things, big data, cloud computing, artificial intelligence, and virtual reality devices).
  • MT (manufacturing technologies, such as robotics, automation, 3D printing, and personalized manufacturing).
  • FT (financial technologies that promise to revolutionize everything from payment systems to lending, insurance services and asset allocation).
  • DT (defense technologies, including the development of drones and other advanced weapon systems).

Roubini acknowledges the argument that these advances are not the equivalent of past advances, but also suggests that we may be in the lag phase between when technological advances happen and when they begin to have obvious effects on productivity. I think I said it pretty well in my post so I’ll repeat what I said:

Although the plow, the printing press, the steam engine, electricity, etc. were game changing, the game didn’t change as soon as they were invented. They had to catch on, infrastructure had to be built, resistance to change had to be overcome, and it took awhile. Each successive revolution happened faster though, which is why I am skeptical that this time is different… I think there is a lag, and it just hasn’t hit yet. If and when there is a sharp technology-driven surge in productivity, it doesn’t mean everything is going to instantly be great for everybody. As we produce more with less effort, there will be winners and losers, haves and have nots. And there will be a lag between when that starts and when it gets resolved. And just to beat a dead horse, we can’t just keep producing and consuming more forever unless we figure out a way to do that without growing our ecological footprint. And, we need to watch out for those defense technologies.

The information technology is all around us now, and the biotechnology is just starting to take off. 2017 could be the year when we have the same excitement in the popular imagination about biotech as we saw with the internet in the mid-1990s. Or maybe it will take a few years.

It is possible that our technology could advance so fast that ecological limits will cease to be relevant before they begin to exert a major drag force on our global economy and society. I don’t think it is safe to put all our eggs in that basket though. I am also saddened by the extreme and seemingly accelerating destruction of our planet’s ecosystems as we have known them throughout human history. We can try to preserve some of what is left, but even if we are successful it will be more like a museum or zoo recording what we used to have than a real, large-scale functioning planetary ecosystem.

There, I ended on a pretty pessimistic note. That’s how I feel at the moment. Not all stories have to have a happy ending. (This is exactly why King Lear is my favorite Shakespeare play, because the bad guys do bad things and get away with it, and sometimes real life is like that.) I just don’t want to get my hopes up about 2017. Come on 2017, maybe you will pleasantly surprise me.

lots more on Trump and infrastructure

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There is a lot being written about Trump’s infrastructure plans – here are two roundup articles from City Observatory and The Week. Between them, they cite a total of 16 newspaper, magazine, academic, and political articles by my count. About 5 seem positive on balance and 11 negative. You could argue that I don’t pick the most un-biased sources, but let’s be honest, even if the left-leaning press adds some political spin, they still cover basic scientific and economic facts much better than outlets like Fox News.

Anyone who flies, drives, uses water, electricity, or gas, or visits public buildings knows the country’s infrastructure needs investment. Especially if you travel internationally, the state of our infrastructure is one of the first shocks that hits you when you return home. Economists seem to be in near consensus that better infrastructure would help our private sector be more efficient and competitive, and that infrastructure can be a good way to stimulate employment and income growth during a recession.

The negative articles raise a few issues. Some are ideological – some people just hate the idea of private money being invested, while others hate the idea of public money being invested. We need to get over these ideological biases and look for solutions that work, which are likely to be a blend. A little market discipline can help investors make good decisions about which risks are worth taking on, while public investment can help get projects with high social and environmental value over the financial hump.

The concerns that seem most valid to me have to do with special interests and lobbyists capturing these government funds just like they do in other industries like health care, energy, and security. Another thing that happens is that when funds are distributed through the states, politicians from rural areas are often able to steer investments away from the population centers where they would do the most economic and social good. This happens with highways, and also with water and sewer infrastructure loans through state revolving funds, which are only loans (not grants) to begin with. None of this results in efficient, high economic return investments any more than straight-up public investment would.

Perhaps my biggest concern, which the articles don’t touch on much, is that the country has no plan for what smart, efficient infrastructure would look like. If we had such a plan, we could target any new funds to the right kinds of projects. Market discipline is not a substitute for planning.

So call me an infrastructure advocate, but a skeptic that the U.S. government is going to do it the right way. My prescription would be a constitutional amendment clarifying that free speech only applies to humans and getting the lobbyists and campaign contributions under control, a comprehensive planning approach to all kinds of infrastructure, how they tie together and what they should look like over the next 50 years, and an implementation plan that targets funding through planning organizations in major metropolitan areas, leveraging federal and local public and private funds for the most economic, social, and environmental good.

And I know I’m dreaming. Maybe Trump will get an infrastructure bank done, that would be something tangible and useful at least.

October 2016 in Review

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3 most frightening stories

  • The U.S. electric grid is being systematically probed by hackers working for foreign governments.
  • According to James Hansen, the world needs “negative” greenhouse gas emissions right away, meaning an end to fossil fuel burning and improvements to agriculture, forestry, and soil conservation practices to absorb carbon. Part of the current problem is unexpected and unexplained increases in methane concentrations in the atmosphere.
  • The epidemics that devastated native Americans after European arrival were truly some of the most horrific events in history, and a cautionary tale for the future.

3 most hopeful stories

  • New technology can read your heartbeat by bouncing a wireless signal off you. Mark Zuckerberg has decided to end disease.
  • While he still has people’s attention, Obama has been talking about Mars and zoning. Elon Musk wants to be the one to take you and your stuff to Mars.
  • Maine is taking a look at ranked choice voting. Ironically, the referendum will require approval by a simple majority of voters. Which makes you wonder if there are multiple voting options that could be considered and, I don’t know, perhaps ranked somehow? What is the fairest system of voting on what is the fairest system of voting?

3 most interesting stories

Obama on housing

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The Obama administration has come out with a “housing development toolkit“. I think they have this about right. Of course, the federal government has very little control over local land use. Maybe some local politicians will take the trouble to try to understand this stuff and support policies that help people and the economy rather than policies that just kind of sound good but are ultimately counterproductive.

Over the past three decades, local barriers to housing development have intensified, particularly in the high-growth metropolitan areas increasingly fueling the national economy. The accumulation of such barriers – including zoning, other land use regulations, and lengthy development approval processes – has reduced the ability of many housing markets to respond to growing demand. The growing severity of undersupplied housing markets is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers’ access to high-wage labor markets, and stifling GDP growth by driving labor migration away from the most productive regions. By modernizing their approaches to housing development regulation, states and localities can restrain unchecked housing cost growth, protect homeowners, and strengthen their economies.

Locally-constructed barriers to new housing development include beneficial environmental protections, but also laws plainly designed to exclude multifamily or affordable housing. Local policies acting as barriers to housing supply include land use restrictions that make developable land much more costly than it is inherently, zoning restrictions, off-street parking requirements, arbitrary or antiquated preservation regulations, residential conversion restrictions, and unnecessarily slow permitting processes. The accumulation of these barriers has reduced the ability of many housing markets to respond to growing demand.

This toolkit highlights actions that states and local jurisdictions have taken to promote healthy, responsive, affordable, high-opportunity housing markets, including:

  • Establishing by-right development
  • Taxing vacant land or donate it to non-profit developers
  • Streamlining or shortening permitting processes and timelines
  • Eliminate off-street parking requirements
  • Allowing accessory dwelling units
  • Establishing density bonuses
  • Enacting high-density and multifamily zoning
  • Employing inclusionary zoning
  • Establishing development tax or value capture incentives
  • Using property tax abatements

Paul Romer and the Nobel Prize

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I write this the night before the 2016 Nobel prize in economics is scheduled to be awarded. By the time this posts it will have been awarded, so keep that in mind if what I say below seems outdated the second it posts.

City Observatory says Paul Romer deserves to win the Nobel Prize in economics.

In our view, the academy might want to closely consider giving the award to Paul Romer, recently appointed to be the chief economist for the World Bank, for two reasons.

First, in a series of papers published a couple of decades ago, Romer was responsible for some of the key breakthroughs in what is called “New Growth Theory,” which re-writes the mechanics of long-term economic growth in a fundamental and optimistic way. We described the key insights from of these theories a couple of months ago at City Observatory. Romer’s long been short-listed for the prize on account of this work, awaiting it seems, only sufficient quantities of gray hair to take his turn.

Second, in the past few weeks, Romer has turned the economic world on its head with a scathing critique of deep flaws in the past two decades of macroeconomic theorizing. In a paper entitled, “The Trouble with Macroeconomics,” Romer indicts the state of macroeconomics, and its growing detachment from the real world.

I happen to like Paul Romer. I saw him speak in person a few years ago and thought he was impressive. His message that human knowledge and creativity drives long-term improvements in the quality of our lives is a hopeful one in a world where we can’t just keep extracting, consuming, and dumping more and more forever.

 

McKinsey on Income Stagnation

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The McKinsey Global Institute has noticed inequality in the world, and is concerned about automation making it worse. Part of their solution is – this is a bit shocking – “government taxes and transfers”. It appears they are talking about lower taxes and higher transfers, which they acknowledge might not be “sustainable”.

If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade. Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent—but that share could double if the growth is accompanied by a rapid uptake of workplace automation.

The encouraging news is that it is possible to reduce the number of people not advancing. Labor-market practices can make a difference, as can government taxes and transfers—although the latter may not be sustainable at a time when many governments have high debt levels. For example, in Sweden, where the government intervened to preserve jobs during the global downturn, market incomes fell or were flat for only 20 percent of households, while disposable income advanced for almost everyone. In the United States, lower tax rates and higher transfers turned a decline in market incomes for four-fifths of income segments into an increase in disposable income for nearly all households. Efforts such as these—along with additional measures such as encouraging business leaders to adopt long-term thinking—can make a real difference. The trend of flat and falling real incomes merits bold measures on the part of government and business alike.

June 2016 in Review

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3 most frightening stories

  • Coral reefs are in pretty sad shape, perhaps the first natural ecosystem type to be devastated beyond repair by climate change.
  • Echoes of the Cold War are rearing their ugly heads in Western Europe.
  • Trump may very well have organized crime links. And Moody’s says that if he gets elected and manages to do the things he says, it could crash the economy.

3 most hopeful stories

  • China has a new(ish) sustainability plan called “ecological civilization” that weaves together urban and regional planning, environmental quality, sustainable agriculture, habitat and biodiversity concepts. This is good because a rapidly developing country the size of China has the ability to sink the rest of civilization if they let their ecological footprint explode, regardless of what the rest of us do. Maybe they can set a good example for the rest of the developing world to follow.
  • Genetic technology is appearing to provide some hope of real breakthroughs in cancer treatment.
  • There is still some hope for a technology-driven pick-up in productivity growth.

3 most interesting stories

inequality and mobility

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The Federal Reserve Bank of Cleveland has an interesting study of income mobility in the U.S. It appears to be true that the poorest families tend to stay poor (between 2003 and 2013, 64% of families in the poorest 20% stayed in the poorest 20%), while the richest tend to stay rich (72% of families in the richest 20% stayed in the richest 20%). Looking at the table if you are in one of the middle quintiles, (between the 20th and 80th percentiles, your chances of moving up or down to the adjacent quintile look to be about even. This measure of mobility increased somewhat in the 80s and 90s, but appears to be on the decline since then. Mobility is harder to measure across generations, but it does appear to be much higher than within a single generation, which you would expect. Mobility in the U.S. is lower than in other developed countries, both the northern European socialist ones where you might expect it, but also the Anglo-American peers like Canada, Australia, and New Zealand, although the UK, France, Italy are in the same ballpark as the U.S. If you’re interested in this, stop reading my wordy description and go look at the data!