Tag Archives: economic growth

house of cards

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James K. Galbraith has a very pessimistic view of the U.S. economy going forward.

America’s economic plight is structural. It is not simply the consequence of Trump’s incompetence or House Speaker Nancy Pelosi’s poor political strategy. It reflects systemic changes over 50 years that have created an economy based on global demand for advanced goods, consumer demand for frills, and ever-growing household and business debts. This economy was in many ways prosperous, and it provided jobs and incomes to many millions. Yet it was a house of cards, and COVID-19 has blown it down.

Project Syndicate

Slow, underlying trends can undermine the resilience of a system, without obvious impacts on the surface. Then, when a crisis hits, whether or not that crisis is related to the underlying trend, the system is not able to bounce back the way it would have without the trend. Imagine rising temperatures and invasive species very slowly putting pressure on a healthy forest or water body. The ecosystem can resist these pressures, maybe for a long time. But then one day, a major storm, fire, or drought comes along. Absent the underlying pressure, the the ecosystem could have rebounded to its original state, but with the underlying pressure, it rebounds to something short of its underlying state. Even if the shock is less than catastrophic and the system rebounds to something just a little short of the original state, successive crises over time can lead to a long, slow slide that might only be obvious in retrospective. Or, if the shift is very slow, “shifting baseline syndrome” sets in, where the people involved lose their memory of what the system used to be like, and don’t fully realize what has been lost.

is this the great depression?

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The words “great” and “depression” are being used in close proximity these days. Joseph Stiglitz says a depression is when people only spend money on food, and by that definition we are kind of there. Noah Smith at Bloomberg says the U.S. unemployment rate currently stands around 11% and could be headed for 20% or 30%. The Great Depression topped out at 25% so by this definition too, we are headed there. The article points out that it is not just the depth of the recession that is important but its duration. At this point, there has not been a spike in interest rates or widespread bank failures, and the stock market has stabilized (i.e., it’s fluctuating around a lower level than its recent peak, but not wildly fluctuating). As people are legally allowed to resume normal activities, we will see if they do or if they choose not to out of fear. That is when banks and investors could get even more nervous about lending to businesses without good prospects of success, interest rates could spike, and a long-lasting wave of bankruptcies, defaults, and job losses could ensue.

November 2019 in Review

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Most frightening and/or depressing story:
  • The Darling, a major river system in Australia, has essentially dried up.
Most hopeful story: Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both:

more on fully automated luxury communism

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Here is the Amazon review of the actual book:

In the twenty-first century, new technologies should liberate us from work. Automation, rather than undermining an economy built on full employment, is instead the path to a world of liberty, luxury and happiness—for everyone. Technological advance will reduce the value of commodities—food, healthcare and housing—towards zero.

Improvements in renewable energies will make fossil fuels a thing of the past. Asteroids will be mined for essential minerals. Genetic editing and synthetic biology will prolong life, virtually eliminate disease and provide meat without animals. New horizons beckon.

In Fully Automated Luxury Communism, Aaron Bastani conjures a vision of extraordinary hope, showing how we move to energy abundance, feed a world of 9 billion, overcome work, transcend the limits of biology, and establish meaningful freedom for everyone. Rather than a final destination, such a society merely heralds the real beginning of history.

Amazon

Fully Automated Luxury Communism

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This is an idea where computers manage the economy perfectly so we can all live lives of leisure.

The most ardent advocate for FALC, Aaron Bastani, a London-based media executive and writer, has written a new book on the topic. In it, he advances a curious, passionate argument, with a dire assessment of the present and a messianic vision for the future. Bastani believes that we are already living through a potentially epochal transformation of the economy, as epochal as the establishment of agriculture and the introduction of engines and electricity. Artificial intelligence, machine learning, and advanced computing might be about to eliminate the need for human labor in no small part, Bastani claims.

The Atlantic

This article doesn’t quite tell you what it is. Without reading the book, I imagine the idea might be that you invest in the right technologies to grow the economy while minimizing ecological harm, then reinvest some of the gains in an optimal way while paying an equitable dividend to everyone in the world. Maybe at some point, you work things out so that money is no longer necessary to keep the system in balance. That’s my guess as to what is in this book – maybe I should read the book and find out.

industrial policy

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This article is about industrial policy. It worked for countries like Japan, Korea, Singapore and China. Basically, they were able to put vast pools of low-cost labor to work producing things to export to markets much bigger and richer than their own economies, using technology imported from those economies. That is no a recipe for success in today’s advanced economies. The article argues for investments in education, research, and innovation as the “industrial policy” of today. One interesting thing it does is draw parallels to the migration of manufacturing from the U.S. northeast to south.

In a recent International Monetary Fund working paper, we use these past successes to identify three principles that underlie what we call a “true” industrial policy. In the Asian “miracle” economies – such as Singapore and South Korea – as well as in Japan, Germany, and the United States, the government intervened early on to support domestic firms in emerging, technologically sophisticated sectors. The successful policies placed special emphasis on export orientation, and held firms accountable for the support received. Given the strong focus on cutting-edge sectors, this “true” industrial policy is essentially a technology and innovation policy (TIP).

Technology and innovation are key to economic growth. China’s Made in China 2025 program essentially emulates the strategy used by South Korea (and Japan before it) to escape the so-called middle-income trap. Likewise, the new UK and Franco-German industrial strategies focus on the industries of the future: renewable energy, artificial intelligence, and robotics.

Project Syndicate

revisiting the trophic theory of money

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One of my most popular posts ever is a brief musing about the “trophic theory of money” I wrote back in 2014. Brian Czech, who developed or at least clarified and named the theory, has a new journal article about it here. He writes pretty well for a lay audience so I would encourage people to read the paper rather than rely on me to summarize, but nonetheless here are a few key points in my own words so people can start yelling at me:

  • Before humanity figured out how to produce an agricultural surplus, everybody was trying to scratch a living out of the dirt and there was no need for money to be invented. Once the agricultural surplus became significant, many people were freed up to do other things and this led to money. So money is essentially measuring the amount of activity happening outside of agriculture, and indirectly measuring the amount of agricultural surplus that allows this to happen.
  • Towards the end of the paper, Mr. Czech acknowledges that improvements in technology over time (usually driven by intentional investment in research and development) have been able to reduce environmental impact per unit of economic activity, even though total environmental impact has continued to grow. However, he believes this process has nearly reached its limit and will not continue much longer.
  • It is possible the economy could transition to a steady state where GDP (adjusted for inflation) is no longer growing. It is also possible our environmental impact will overshoot the planet’s carrying capacity enough and for long enough that a sharp contraction in GDP (and necessarily, the amount of agricultural surplus) will occur.

Where do I stand on this? I take the laws of thermodynamics, and the fact that humanity is a species existing within and not apart from nature, as a given. I think there is a lot of knowledge out there yet to be discovered, and if our society took the right steps we might be able to keep growing in a sustainable way for some time. I don’t think there is any evidence that our sociopolitical system even understands the problem let alone is likely to take those steps. I don’t think action on the necessary scale will take place unless and until we reach a crisis stage. About the most positive I can be is to hope for a relatively minor crisis rather than a civilization ending one.

the climate town hall

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A blog called “DeSmogBlog” has a pretty good run-down of the Democrats’ “town hall meeting” on climate change. I have to admit, I have not watched the whole thing, or very much at all.

Here’s my take. First, there are short- to medium-term practical issues that need to be tackled immediately and simultaneously. The first is disaster preparedness and disaster response – storms, fires, floods, droughts. We need to be ready for a major earthquake, plague or terrorist attack too although we can’t blame the climate directly for these. The second is the long-term stability of the food system under projected temperature and water supply trends. The third is dealing with the systemic corruption that has allowed the fossil fuel industry to buy and control our politicians for decades.

I think Bernie Sanders and Elizabeth Warren understand these issues best. I don’t think other candidates understand them at all. I think they divorce them from larger socioeconomic issues to a certain extent, and that is a mistake. It should be possible to take advantage of fluctuations in the economy, employment, and financial system to make the right investments at the right time and minimize the pain.

Beyond these, we need to deal with our interwined land use, energy, transportation, food, and ecosystem issues. It could be done in ways that would be a win for everyone. Invest in the right kinds of infrastructure, education and training for workers, and innovation. It is unlikely to be done because our education system does not provide the public with the mental tools needed to understand systems, and therefore we do not elect politicians who understand systems and have workable ideas on how to fix them. This will still be true even if the corruption issues can somehow be solved.

August 2019 in Review

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My work-life balance situation continues to not favor a lot of blog posts. Or is it work-life-family balance? Or is family part of life? Yes, I guess so. Anyway, what there is not a lot of time for is personal leisure activities like reading, writing, and thinking. Not that I don’t enjoy reading Green Eggs and Ham for the 50th time. I do. Anyway, here are a few highlights of the slim pickings that constituted this blog in August 2019. Most frightening and/or depressing story:
  • Drought is a significant factor causing migration from Central America to the United States. Drought in the Mekong basin may put the food supply for a billion people in tropical Asia at risk. One thing that can cause drought is deliberately lying to the public for 50 years while materially changing the atmosphere in a way that enriches a wealthy few at everyone else’s expense. Burning what is left of the Amazon can’t help. 
Most hopeful story:
  • I explored an idea for automatic fiscal stabilizers as part of a bold infrastructure investment plan. I’m not all that hopeful but a person can dream.
Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both:

July 2019 in Review

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Most frightening and/or depressing story: Most hopeful story: Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both:
  • I laid out the platform for my non-existent Presidential campaign.