total factor productivity

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This is mostly a review for yours truly, partly as I am pondering whether there is any economic theory or strategy that could justify the Trump federal budget cuts and tariffs. My verdict: no, I don’t think so, I think they are based on simplistic ideas: linear, short-term, misguided thinking about the national debt and trade deficits. Anyway, here are a few quotes from the IMF:

It’s a measure of an economy’s ability to generate income from inputs—to do more with less. The inputs in question are the economy’s factors of production, primarily the labor supplied by its people (“labor” for short) and its land, machinery, and infrastructure (“capital”). If an economy increases its total income without using more inputs, or if the economy maintains its income level while using fewer inputs, it is said to enjoy higher TFP…

Recent IMF research shows that TFP growth has slowed around the world since the global financial crisis. In low-income developing countries, it has come to a virtual standstill in recent years…

TFP is higher in countries where the average worker has more years of schooling, the quality of education and training is better, and the workforce is healthier. These advantages enable the average hour of work to generate more economic value added—in addition to improving the quality of life more broadly…

So what can advanced economies do? First, they should “do no harm,” by avoiding policy mistakes, such as permitting a decline in market competition, with powerful firms using their monopoly positions to stifle entry and innovation, or reverting to costly trade protectionism. Beyond this, policymakers should craft regulations that tap the possible productivity benefits of recent innovations in green technology, information and communications technology, and artificial intelligence. They should also tackle remaining barriers restricting the opportunity for women and minorities to bring their talents and innovative potential to all sectors of the economy.    

So, a long-term strategy to boost productivity and national wealth could be to invest in childcare and education (the people who will come up with tomorrow’s innovations, and also their parents who can’t come up with today’s innovations because they are too busy), research and development. The current U.S. administration is cutting all these things. Investing in infrastructure and physical capital also helps if you have underinvested in it in the past – there is a diminishing return to these investments, but the U.S. can’t be anywhere near the diminishing return. It also makes sense to invest in a counter-cyclical strategy – more when private sector unemployment is higher and less when it is lower.

 

ports, shipping lanes, and grand geopolitical strategy?

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This article says Panama, Greenland, South Africa, and even Somalia are all important to sea-based trade and naval control of sea lanes in the event of war. I don’t doubt this, but this also feels like a grand strategy cooked up by somebody’s armchair general uncle just reading stuff on the internet and looking at Google Maps. I also found this interesting:

While the United States dominates global maritime security, there is a huge disparity in the other direction when it comes to influence over maritime trade. Unlike the PRC, which controls around 12.6 percent of global port throughput through COSCO and CMP, the United States has no state-backed firms among the world’s leading terminal operators. In terms of global port influence, the United States would likely rank behind not only the PRC but also the United Arab Emirates (DP World), France (CMA CGM/Terminal Link), and Singapore (PSA International).

U.S. ports and port operations seem to be way behind the leading edge elsewhere in the world. So one thing we could do is focus on learning how to build and operate modern, highly automated, large-scale ports. This would sound like part of a sound “industrial strategy” to me. And it makes sense that we wouldn’t want China or any other country controlling trade and sea lanes to the detriment of free trade. We shouldn’t be trying to do this either. It would make sense to me to focus on international agreements to keep access to ports and shipping lanes open and fair to all countries.

U.S. Poverty: Facts and Figures

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This article from Peter G. Peterson Foundation has some facts and figures on U.S. poverty.

  • It explains the difference between the Official Poverty Measure and Supplemental Poverty Measure, both calculated by the Census Bureau. The former does not consider the effects of government benefits, while the latter does. I was thinking that the spread between the two could be seen as a measure of how effective government benefits are. But the supplemental measure is actually higher than the official one (12.9% vs. 11.1% in 2023) because it also takes into account some expenses that poor families face, including health care, housing, and child support.
  • Of those below the poverty line, about one-third live in deep poverty defined as half or less of the poverty level.
  • Racial disparities are pretty much what you would think. But I was surprised that the poverty rate among Asian-Americans is higher than the poverty rate among white Americans. This is interesting because I know Asian-Americans have a higher median household income as a group than white Americans. For the other groups, poverty rate and median household income seem to track pretty well. For Asian-Americans, this result suggests there is a large disparity with some very high income and some very low income people. The article does not cover Native Americans.
  • The (supplemental) poverty rate among children was 5.1% in 2021 due to pandemic-era programs and bounced back to 13.7% in 2023. Thanks Biden! No, literally thanks Biden 5.1% and no thanks to Congress you cold unfeeling psychopaths for the 13.7%. How can they live with themselves (answer: a majority of politicians are cold unfeeling psychopaths), and how can they be so unbelievably adept at deflecting blame that the public is unaware or supportive (answer: anti-tax and racist propaganda).

There is more interesting stuff in this article, which I may talk about in a future post.

The Atlanta Fed’s “GDP Nowcast”

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The Atlanta Fed has a spreadsheet model that tries to forecast the U.S. GDP growth rate in real time. Right now, it is showing a sudden, sharp contraction. When I see something like this in any model, I first check the math to see if something got broken. Second, I check the input data for anything missing or otherwise weird. Assuming the Atlanta Fed has a functioning procedure for these checks before it makes its results public, here are some other possible explanations.

First would be the sudden contraction in government spending and general economic anxiety caused by the amateur economic policy the current U.S. administration is implementing. But it’s hard to believe this would be so sudden, and if it were true you might expect to see it in the stock market. The stock market is in fact down about 5% over the last month, which is a lot, but not the kind of discontinuous collapse shown by the Atlanta Fed.

J.W. Mason, and economics professor, suggests it may be caused by a sudden surge of imports as companies try to beat the clock before tariffs hit. Net imports get subtracted from GDP, which I guess makes sense because they represent a flow of money out of the country in exchange for goods and services produced in other countries. He explains though that this could just mean the goods are stockpiled in warehouses to be distributed over the next few months, in which case GDP growth should just bounce back to trend.

There is another theory involving gold. This is the same source (Mason) quoting a report by Goldman Sachs.

most of the widening in the trade deficit since November has been driven by higher gold imports … as participants in the gold market sought to insure themselves against potential tariffs on gold. Although this may seem like a frontloading effect ahead of potential tariffs, these imports are for the most part … being shipped to the US on the off-chance that physical delivery of the gold is required,… Importantly, the Bureau of Economic Analysis (BEA) excludes most gold imports when calculating the imports component of GDP. ….

The same reasoning applies more generally to front-loading by retailers, wholesalers, and producers ahead of tariff increases. Because these developments are unrelated to US production, they should have little net effect on US GDP. In the case of non-gold goods, higher imports should be offset by higher inventories in the national accounts. In practice, it is possible that front-loading exerts a modest drag on reported GDP because imports… tend to be measured more accurately than inventories. We suspect this dynamic is playing out now to some extent… But because front-loading these imports now implies fewer imports later, we think the net effect on 2025 GDP growth should be small.

This is largely over my head, but again it suggests some short-term accounting effect rather than something going on in the real economy that would have an imminent impact on employment and prices.

what’s new with “charter cities”?

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The original idea advanced by Paul Romer has morphed into some weird unregulated cryptocurrency biotech thing in Honduras.

Prospera, if you haven’t come across it before, is a libertarian mini-state which is funded by crypto investors and tech oligarchs including Thiel and DOGE recruiter Marc Andreessen. Operating outside of Honduran law and run by a small council of venture capitalists and crypto libertarians who set their own laws and regulations, Prospera is under threat from the president of Honduras, Xiomara Castro, who wants to strip it of its special legal status…

Prospera is just one of a number of crypto-based, parallel institution states-within-states that tech oligarchs are trying to establish around the world. With Trump having embraced crypto libertarians as his ticket back to power, we should expect him to defend and advance their interests, not least because of their potential, as in the case of Prospera, to be the tip of the imperial spear in the developing world.

Biotech experiments off the coast of a central American country? What if they made a theme park with genetically-engineered dinosaurs? Somebody should really develop a book and movie franchise on this original idea! (Yes, once upon a time there was a book called Jurassic Park, and it was original.)

There is a William Gibson reference in this article to Freeside, a private city on a space station in Neuromancer.

And yours truly once attempted a not-very-good novella after attending a lecture by Paul Romer on his charter cities concept in Singapore, which embodies some aspects of the concept to begin with.

recession watch

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I’ve been worried about Trump causing a recession. First, he firing federal workers willy nilly, and even if we accepted the idea that these people aren’t doing anything useful, they spend their salaries on groceries, household goods, haircuts, restaurant meals, home improvement, etc. Second, he is cutting federal contracts suddenly. A chunk of the private sector and certainly the research sector relies on federal contracts in one form or another, so this uncertainty will tamp down hiring and lead to layoffs. Then there is all the money that flows from the federal government to state and local governments and economies. That won’t just get magically replaced by state and local programs overnight, if ever. Then you have the tariffs and reduction of trade on top of all that. It sounds like a recipe for a recessionary shock to me.

I’m not an economist, but Claudia Sahm is. Here’s what she has to say, backed up by some facts and figures.

Civilian federal employment (including the Post Office) is currently 3 million or less than 2% of the labor force… About 100,000 workers have either taken deferred resignation or been laid off so far. Even if the total reduction doubles by the end of the year, it would still fall far short of a recessionary shock.

In fiscal year 2023, there were about three times as many federal contractors and grant employees as civilian federal employees (including the Post Office). DOGE canceling or modifying federal contracts and grants put that employment at risk. Elon Musk has set a goal of $1 trillion in savings this year, which most budget experts consider unrealistic. Still, these efforts will lead to a reduction in employment in the private and nonprofit sectors.

But even if DOGE reduces federal employment by 200,000 and canceling contracts reduces contact and grant employment (by a proportional) 600,000, the total is below (though close to) a recessionary shock. Moreover, the reality of the net employment reductions from DOGE this year is likely to be considerably smaller.

winter clothes and jackets 101

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I occasionally read fashion blogs not because I am interested in fashion, but because I find clothes the most boring thing in the world and yet I occasionally need to project an appearance that others find acceptable in a professional (e.g., my employer is relying on me to sell something and therefore willing to pay me) or social (e.g., not embarrass my wife in public) situation. Anyway, this article goes through a long discussion on how to layer to stay warm. I have to say though, I find it a bit gross to have a synthetic shirt next to my skin with a bunch of stuff on top, and I am mildly allergic to wool. I love cotton, but apparently that is not the way to stay warm. There is talk of mittens, which I agree are warm, but I have never figured out how to use a key to unlock or lock a door while wearing a mitten. Maybe everybody else has moved on to other technologies and I am the only one still using keys. And finally, I’d like to hear more about socks and keeping my feet warm. I find that no matter how warm the rest of my body is, my toes are still the first thing to get cold.

The purpose of fashion blogs, of course, is to make us want to buy new stuff even when we often have perfectly functional old stuff lying around. Materials and fossil fuels get mined, the new stuff gets manufactured and moved around, people work in stores and call centers, and the old stuff gets disposed of. All of this gives some people work to do and keeps money moving around, but how much value is created? Warm hands have value, and buying my first pair of mittens therefore creates value where none existed before. Buying my fifth pair of mittens in the latest color or style would add zero value for me personally, but perhaps it brings joy to some.

February 2025 in Review

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Most frightening and/or depressing story: Donald Shoup died in February. He was a pioneer in parking economics, which doesn’t sound all that sexy, but his clear explanations really helped me see the light of what walkable, livable, healthy and low environmental impact cities can potentially be. What they can’t be is low-density and automobile-oriented. I put this in the depressing category both because I am sad at his passing, and because I do not see these trends going in the right direction.

Most hopeful story: The fool in the White House and the devils whispering in his ear can weaken enforcement of the Civil Rights Act, but they can’t actually make laws go away. They can try to ignore them, and then we will see how effective our court system and third party legal action can be at activating the checks and balances we are supposed to have. The other potential players are congress and widespread public action, and these do not seem to be active at the moment.

Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both: I continued to follow the emergence of AI agents in February. Outside the bananas state of U.S. and global geopolitics, this is one of the biggest things going on, or at least a big change playing out quickly. Even a “singularity watch” item – I’m going to give a 5% chance this is the start of the singularity. Hopefully not the Terminator version. But has anyone noticed we now have Starlink and Stargate – these even sound like Skynet. We already had Operation Warp Speed of course. What puzzles me is that conservatives usually don’t like science fiction because they lack imagination. So either somebody is a science fiction fan, or more likely they have these words in the backs of their minds from indirect exposure to science fiction, and now they think they thought of them.

his foolishness’s instincts on nuclear weapons

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Let me be abundantly clear on my position: Donald Trump is a childish fool and I am embarrassed for my country on the world stage right now. I am desperately searching for some kind of silver lining and not coming up with much. One thing is that he has made some statements over the years suggesting he understands the need for nuclear arms control. Now, with all the verbal diarrhea that comes out of the man’s mouth, we have to always focus mostly on his actions rather than his words. But here are a few points:

  • New Start treaty – In 2020, Trump oversaw mostly successful negotiations to extend this treaty with Russia. It was provisionally extended for a year, and the Biden administration picked up where Trump left off and agreed with Russia to extend it for five years. It’s one of the ironies of political polarization that opposing sides are sometimes willing to compromise and cooperate as long as there is not too much publicity about it.
  • Iran nuclear treaty – Here Trump dealt a massive blow to global non-proliferation goals. Whatever his instincts, I assume Israeli pressure played a big role here.
  • Here are some weird statements Trump made in the September 2024 presidential debate. “But eventually, you know, he’s [Putin’s] got a thing that other people don’t have. He’s got nuclear weapons. They don’t ever talk about that. He’s got nuclear weapons. Nobody ever thinks about that. And eventually uh maybe he’ll use them. Maybe he hasn’t been that threatening. But he does have that. Something we don’t even like to talk about. Nobody likes to talk about it.” Weird, incorrect since obviously most people on earth are going to know that Russia is a nuclear power, and yet it shows that Trump is legitimately concerned about the risk of nuclear war.
  • From The Intercept: “There’s no reason for us to be building brand new nuclear weapons. We already have so many… You could destroy the world 50 times over, 100 times over. And here we are building new nuclear weapons, and they’re building nuclear weapons.”
  • And also: “I’m going to say there’s no reason for us to be spending almost $1 trillion on the military. … I’m going to say we can spend this on other things… I want to say let’s cut our military budget in half. And we can do that.”

Seeing is believing, Senor Trumpez, and we will all see if these encouraging words lead anywhere.

cities need to take over sidewalks

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This article is about Denver taking over responsibility for sidewalks, rather than just putting this burden on private property owners. Sidewalks may seem like a wonky fringe issue but they are a big key to being able to implement green infrastructure effectively in cities. There are a few reasons for this. First, they are where the street trees are going to be, and street trees are a big part of the solution to urban heat and a smaller but significant part of the solution to water quality and flooding. Second, streets and sidewalks together make up a surprising portion (I’ve estimated around 40% in my city) of the pavement in a city. Curb and storm inlet design are key to how well and how fast all this pavement drains. This is because the sidewalk is attached to the curb, and the curb is attached to the gutter, and the gutter is attached to the inlet that drains the street – pretty obvious when you think about it right? But when private owners are responsible for sidewalks, those curbs that are so critical to channeling the water often aren’t built and maintained right. Finally, depending on how wide sidewalks are, they often are where there may be room for rain gardens and pollinator gardens, for cities and neighborhoods that want these things (most do in the abstract, but there has to be a good plan for taking care of them long term and they need to not be in the way.)

That’s the environment – obviously sidewalks are where people walk, roll on wheelchairs, push baby strollers, and hobble on crutches. Sometimes people ride bikes on them, particularly children and particularly when there are not safe or adequately maintained bike lanes. They need to be in good condition for all these people.

Speaking of bike lanes, then there is the whole world of bike lanes (which we should probably think of as light low-speed vehicle lanes), curb management, bus stops, delivery and contractor zones, taxi and ride share stands, street parking, and electric vehicle charging, not to mention all the other “street furniture” like trash cans, bike racks, and mailboxes. Design and maintenance of the sidewalk and curb impacts all these public uses and it makes no sense to put that burden on private landowners.

So where did Denver find the money to take on this new responsibility? Well, they are charging the private landowners by bundling the cost into an existing stormwater management fee. This makes sense because ultimately the city including the homeowners will get better and more cost-effective public infrastructure. But of course, I am well aware of the political law of gravity that PEOPLE HATE TAXES. No, I don’t have an easy answer on how to solve this one. Another thing people really hate though is the local code enforcement agency coming down on residential and small business owners on a piecemeal basis, especially for what many logically view as public infrastructure. So to summarize, there are three options – (1) enforce sidewalk codes on private property owners, (2) leave sidewalk codes unenforced and sidewalks in poor condition, except for maybe a few piecemeal complaint-driven enforcement actions, or (3) raise revenue through taxes or fees so the same public agencies maintaining the streets can maintain the sidewalks.

I’ll mention one final wrinkle though. Under sidewalks, there is typically a tangle of water pipes, sewer pipes, natural gas lines, and sometimes buried electric/communications lines that connect houses to public infrastructure under the street. So if a city “takes over the sidewalks”, it has to also figure out if it going to consider all this public or private infrastructure. For example, if a water pipe connecting the main under the street to a house is private, and the sidewalk is public, and that water pipe springs a leak, the sidewalk has to get dug up to replace the water pipe, and then the sidewalk has to get replaced. So it has to be clear who ends up paying for that or whether the cost will be shared. One thing homeowners hate and fear probably even more than taxes (me included) is large unexpected expenses.

Ha ha, did I say I was going to do some short posts?