Tag Archives: economic growth

human population

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This video shows the growth in human population throughout history, complete with maps of where the major cities and empires were.

American Museum of Natural History

I think this would be an interesting way to teach a world history class, with both some multicultural street cred (Romans, Chinese, Indians, Mayans) and some practical geography and quantitative critical thinking skills.

The idea that population is going to shrink is interesting. It just doesn’t make sense that this has to represent doomsday. Just by focusing on per-capital wealth and income as a metric, rather than total national wealth and income, we can try to come up with ways to improve the quality of human lives rather than just increasing total money spent, activity, and environmental impact ceaselessly. What would this mean for “markets”? I’m not sure, but if we can accelerate productivity growth, and spread the gains fairly among the shrinking pool of humans, I don’t see why it has to be so bad.

Is “green growth” possible?

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Green growth is the holy grail where human wellbeing is able to grow exponentially over the long term without depleting natural resources including the natural environment’s ability to assimilate our wastes. I won’t claim to understand all the words in this abstract, but the author is basically coming up with a big fat NO.

Is green growth possible and even desirable in a spaceship economy?

There seems to be a consensus among many growth and resource economists that perpetual growth can be ensured if it gets increasingly resource-efficient and if growth focuses on creating values, a result derived by models using production functions that allow asymptotically complete decoupling of the economy from its resource base by substituting natural resources through physical and knowledge capital. This growth process can be called green growth. The following paper attempts to show, within the framework of an semi-endogenous growth model using a linear-exponential production function (Linex function) with bounded resource efficiency, that the accumulation of physical and knowledge capital to substitute natural resources cannot guarantee green growth. As the population grows, per capita income decreases, and the economy’s capital base decays. In addition, an ecological displacement effect resulting from the biophysical embeddedness of the economy further exacerbates the result. Physical capital pushes back the natural spaces necessary to regenerate natural services and resources and can, therefore, not be accumulated endlessly. A comparison with standard resource models shows that this displacement effect also limits growth for models with production functions with low elasticities of substitution. Finally, the analysis of transitory dynamics addresses aspects of intergenerational equality in a limited biosphere.

I’ll take a crack at interpreting this. The human economy cannot be fully separate from the natural environment because it will always result in some physical displacement, even if pollution could be eliminated. Well, what if all human enterprise were built on stilts well above the earth? All food would also be grown on these stilts, all materials recovered and cycled endlessly. This would shade out natural ecosystems, but you could use giant space mirrors to beam in sunlight that would otherwise have uselessly bypassed the earth (which is all but a vanishingly tiny fraction of sunlight). Now, you might say why not just go live in orbit? But the advantage of my scheme is that you can just take an elevator down to the earth, and the entire earth is a park for your enjoyment. What about tigers, you say? Well, we will just invite those rolling bubble things from Jurassic Park.

the 2023 financial crisis?

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As I write on Sunday, March 12, headlines are that there is a bank run in the U.S. and we will find out on Monday morning if it is going to spread. What I don’t quite understand from the coverage I have read and listened to so far, is what exactly is causing this. Is it that start-up companies the bank has lended to are failing because of higher interest rates, and depositors are therefore worried that if the bank fails, they may not be able to get their deposits back? That is my working theory. My other question is why, if the economy as a whole is so strong as measured by low unemployment, there seems to be a mini-recession confined so far to the tech industry. I hope this is not the beginning of a so-called hard landing for the U.S. economy.

IMF World Economic Outlook, October 2022

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Here is what the IMF has to say, when we are in this weird time when pretty much anybody who wants a job can get one (in the U.S.), growth as measured by GDP is low or negative in the US and elsewhere, reported inflation is high but the shock has sort of worn off, and I can predict with total confidence that we may or may not be teetering on the edge of a recession, which if it happens might be either mild or severe and either short or long.

  • “Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023.”
  • “Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024.”
  • If this forecast is wrong, it will probably be wrong on the “downside”. The long list of risks includes monetary policy not working, US dollar appreciation disrupting trade, energy and food price shocks, emerging market debt distress, natural gas supply shocks in Europe caused by the Russia-Ukraine war, a continuation of the last pandemic and/or a new pandemic, a bursting of the real estate bubble leading to a financial crisis in China, and “geopolitical fragmentation could impede trade and capital flows, further hindering climate policy cooperation”.
  • “successful multilateral cooperation will prevent fragmentation that could reverse the gains in economic well-being from 30 years of economic integration.”

I emphasized the word “will” above. Is that “will” like we think successful cooperation will happen, or “will” like if successful cooperation could somehow happen, then this positive outcome will happen. It’s hard to be optimistic these days. About the most optimistic thing I can say is that when almost everybody in the world is feeling pessimistic, maybe we have hit bottom and can start clawing our way back up.

stagflation?

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The new era of stagflation is here, according to Nouriel Roubini.

It is much harder to achieve a soft landing under conditions of stagflationary negative supply shocks than it is when the economy is overheating because of excessive demand. Since World War II, there has never been a case where the Fed achieved a soft landing with inflation above 5% (it is currently above 8%) and unemployment below 5% (it is currently 3.7%). And if a hard landing is the baseline for the United States, it is even more likely in Europe, owing to the Russian energy shock, China’s slowdown, and the ECB falling even further behind the curve relative to the Fed…

But US and global equities have not yet fully priced in even a mild and short hard landing. Equities will fall by about 30% in a mild recession, and by 40% or more in the severe stagflationary debt crisis that I have predicted for the global economy. Signs of strain in debt markets are mounting: sovereign spreads and long-term bond rates are rising, and high-yield spreads are increasing sharply; leveraged-loan and collateralized-loan-obligation markets are shutting down; highly indebted firms, shadow banks, households, governments, and countries are entering debt distress. The crisis is here.

Project Syndicate

But at the moment, pretty much everybody who wants a job can get one, whereas stagflation would imply high unemployment coupled with inflation that won’t go away.

So we will see what happens here. For people just a few years away from (planned) retirement, this must be nerve wracking. For those of us a decade or more away, we hope we can ride this one out (as the bumper sticker says, lord just give me one more bubble…). Or is this the one where we have a human-caused financial crisis, and then food supply and fires and floods and earthquakes and volcanoes and (nuclear) warfare prevent us from ever returning to the baseline? No, I’m not predicting that, but I think it is a possible outcome that we are not doing much to mitigate.

What was Abenomics

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Bloomberg has a long article on the economic policies of Shinzo Abe. Basically, the Japanese economy stopped growing after the 1990s economic crisis. Not just low growth, but no growth in GDP for about a decade followed by a sharp contraction during the 2000s financial crisis. Deflation or declining prices were a symptom of this. At the same time, Japan had very low unemployment throughout. Part of the story is that the economy is starved for workers due to an aging economy, political resistance to immigration, and low participation in the work force by women. Some “Abenomics” was basically a policy of massive government borrowing and spending aimed at shocking the system back into a growth mode. It sort of worked, but it seems to be reverting to the mean now.

I think there are a few lessons. This helps me understand why central banks want to have a low but positive inflation rate. You don’t want to money supply to constrain growth. You want to have rational immigration and guest worker policies that allow in the workers with the skills your economy needs that your native population is unable or unwilling to fulfill. This can be politically difficult, obviously, and you want to do it humanely for the people involved. Governments can borrow and spend with reckless abandon in times of crisis, and then they need to be able to ratchet back quickly when the economy picks up and the private sector is able to pick up the slack. Also politically very difficult. Rational child care and health care policies to remove barriers to working women would help.

But finally, it does not seem like life in Japan is all that bad. So another lesson might be that there is a path to a low-growth economy where life is not that bad, people have meaningful work and their basic needs are met.

IMF World Economic Outlook

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The IMF predicts a worldwide slowdown over the next 2-3 years, although not an outright contraction. Of course, we know these things are not predictable.

Global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January. 

Beyond 2023, global growth is forecast to decline to about 3.3 percent over the medium term. War-induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected last January. Multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic are essential.

IMF

U.S. labor market growth

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Axios has a brief piece on the demographics of the labor force in the U.S. A tight labor market is not just a short-term phenomenon during the pandemic recovery.

In the 2010s, the massive millennial generation was entering the workforce, the massive baby bo0m generation was still hard at work, and there was a multi-year hangover from the deep recession caused by the global financial crisis. But now, boomers are retiring, millennials are approaching middle age, and the Gen Z that follows them is comparatively small.

Axios

So combine this trend with anti-immigrant politics, and we may have a problem. It could lead to the double-edged sword of higher wages and inflation, a trend toward toward greater automation and technological innovation, a general drag on economic growth (which could ultimately lead to deflation), left wing politics, right wing politics, business pressure for more globalization/offshoring, or some combination of any of these (other than inflation and deflation, but maybe it is possible to have a sudden reversal between these and hard for policy to react quickly even if we knew what to do). It is hard to know what to do, but rational immigration policies based on skills and education to fill jobs available would be a start.

What’s new with “decoupling”?

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Decoupling is the idea that environmental impact per unit of economic growth is declining. If it were to decline fast enough, in theory, it would be possible for growth the continue indefinitely at the same time absolute impact is declining. This article tries to measure the rate this may or may not be happening, and concludes the long term trend is not even close to being on a path where we could turn the corner and see absolute impact stabilize, let alone decline.

While globally, CO2 emissions per unit of GDP are declining, the decoupling rate from 1995 to 2018 was only -1.8 percent annually. To achieve net zero by 2050, the rate would have to accelerate to -8.7 percent, assuming population and GDP growth projections as given, or by a factor of almost five.

Bruegel.org

This seems about right to me. The idea that we need to choose between “growth” and sustainability in the long term, of course, is logically flawed. If impacts continue to grow, there will come a point where the system breaks and human welfare is no longer able to increase.

There are a few flaws in the decoupling argument. “Growth”, as usually measured by GDP, is a measure of gross economic activity, which includes both benefits and costs to humanity. So in comparing impacts (costs) to GDP (sum of benefits and costs), you have an equation with too many unknowns, unless you can come up with some agreed-upon reasonable measure of costs. If you can do that, you would simply subtract costs from benefits to get net benefits, and figure out whether those are growing or not. They may or may not be growing right now. Even if they are, you need to consider whether they can continue to grow in the future, or whether the underlying system is eventually going to break and no longer be able to support further growth. You also need to consider risks of really bad things happening, as well as the odds of really good things like major technological breakthroughs happening. I would also point out that at the moment we are using carbon emissions as a proxy for sustainability more generally, but there is a lot more that should be considered in a holistic view of a sustainable long-term human-planet system.

Did productivity triple during the pandemic?

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I’m hearing claims that “productivity tripled during the pandemic”, and maybe this is the computer and internet and mobile chickens finally coming home to roost and deliver on the promises made way back in the 1990s. Maybe there is some truth to this, but it seems much more likely that the denominator contracted suddenly (hours worked) than that the numerator suddenly expanded.

Here’s one graph I have seen referenced.

What could be going on here? Well I don’t know, you should consult the experts. But of course I can speculate:

  • Lower-productivity (economic output measured in dollars per hour worked, not in the worker’s sense of satisfaction, sanity, or self-worth) jobs suddenly disappeared, and higher-productivity ones (reverse caveats above) were left, so average productivity went up.
  • I’ve heard it suggested tat workers who still had jobs suddenly had no commuting time, so they worked some extra hours, and got more done but didn’t necessarily report the extra hours worked to their employers. I might buy this as a marginal, short-lived effect. Maybe a few young go-getters did this, but certainly not us middle-aged parents who suddenly had small children bouncing off the walls 24-7.
  • I will buy the idea that workers were more productivity with the new software (Microsoft Teams, Zoom, etc.) than they would have been in the same situation with software and communication options available a few years ago. I’m not sure I buy into the idea that they were more productive at home with these tools than they would have been in the office.
  • Maybe there was a sort of mania of productivity for the work-from-home set at the start of the pandemic, for 2-3 months or so. Then it crashed back to earth, which you can sort of infer from the limited number of data points here.

So no, the data are interesting but I am going to say the singularity did not occur last year. I think there may have been a bump in average productivity per (remaining) worker when some workers just disappeared from the economy, which is not a net positive, and I think there may have been a short-term mania among work-from-home professionals that is now feeding into our widespread burnout situation a year and a half or so down the line, and that is not a long-term positive. I do think the rapid/non-voluntary adoption of new software and communication tools on a massive scale probably gave a bump to technological progress, which might pay longer-term dividends.

The pandemic also gave a sudden boost to biotechnology, which may ultimately end disease as we know it, create unimaginably horrible weapons that kill us all, or both.