Tag Archives: economic growth

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.

automatic fiscal stabilizers

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This doesn’t sound like an exciting topic, but I have been thinking, if the federal government decided to match metro-scale infrastructure projects say, between 25 cents and 75 cents on the dollar, and vary that amount based on economic conditions, what kind of trigger would you use for the economic conditions. My initial thought is to base it on unemployment – maybe 25 cents on the dollar if unemployment is below 5%, 50 cents if it is 5-7%, and 75 cents if it goes over 7%. But I just made that up based on no data other than a vaguely remembered undergraduate economics class in the 1990s. Here is a serious idea called the Sahm indicator:

The “Sahm indicator” measures the difference between the three-month moving average of the unemployment rate and its minimum over the prior 12 months (see chart). The use of the unemployment rate avoids the long lags (and frequent large revisions) associated with other indicators (like GDP). Since 1970, whenever the Sahm indicator crossed the threshold of 0.5%, a recession was underway―there were essentially no false signals. Moreover, the trigger occurred early in these downturns (on average within 4 months of the start). Sahm also proposes using an unemployment rate test to turn the stabilizers off. To avoid a premature return to fiscal austerity, she suggests deactivating programs when the unemployment rate falls to a level that is less than 2 percentage points above the initial trigger.

The infrastructure projects have to be ready to go, and part of plans, not just projects. Maybe you could set aside some of the money in a maintenance trust fund, which gets released to local metropolitan area governments to give them some relief in tough times. Maybe federal or state workers could be trained to do basic maintenance tasks. This is really the issue we saw after the 2007-2008 recession – how do you get people hired and trained and contracts and construction plans all in place fast enough to make a difference economically. It’s hard to do that and still build smart, thoughtful, future-ready infrastructure. But catching up on unglamourous deferred maintenance – think fixing potholes, lining leaky pipes, etc. could make sense.

UAE and AI

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A couple interesting facts I learned in this article: (1) The United Arab Emirates has a “Minister of AI” and (2) 89% of workers in the country are foreign-born. The author makes a case that the citizens of the country value their leisure time more than westerners and are willing to embrace state ownership of the means of production with as much automation as possible.

my campaign platform

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I always fantasize in election years about what my campaign platform would be, in a fantasy world where I had political skills and was running. It’s not a useless fantasy, because it gives me a benchmark to measure candidates against when I’m thinking of who to vote for. So here goes:

  • Education – “free college” and trade school yes, but also universal preschool, lifelong education, and strong incentives for private sector skills training and retraining.
  • Infrastructure – I’ve talked a lot about this. Plan at the metropolitan area scale, take a broad view of infrastructure to include housing and green infrastructure. Include strong incentives for private sector capital investment.
  • Innovation – Flood universities with funding for basic research across the board. Make some bets on a few “moon shot” technologies like quantum computing, nanotechnology, fusion power, and advanced biotechnology. Include strong incentives for private sector R&D.
  • Corruption – also known as “campaign finance”, but that sounds boring. This is really about having voters rather than dollars decide elections, and having elected officials write laws that benefit a critical mass of citizens rather than a few large campaign donors. It’s really a prerequisite to achieving anything else in the long term. Hammer the fuckers relentlessly and voters might respond.
  • Nuclear Weapons – Sure I want world peace, but the public is incredibly cynical about that and this is a place to start. Remind people how horrifying and dangerous they are, and that we have way more than we could ever rationally need for any purpose. If we want others to give them up or stop pursuing them, we can easily lead by example. Just put them away as they wear out and don’t make new ones.

Maybe I’ll elaborate on these in future posts, if I get a chance.

Now, which politician do I think is the best match? I have a lot of research and paying attention to do. I think Bernie Sanders would be the strongest on campaign finance, and just making progress on that issue in an 8-year administration might be worth putting him in office. I also think he might be strong on peace. I think his instinct is to expand the welfare state without taking the first three steps to accelerate income growth over time. I’m not sure who I think would be strongest here. Possibly a rational, moderate Republican actually, if such an animal still exists. But I will never support any politician from that party as long as it continues to stand for bigotry, science denial, and war.

June 2019 in Review

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Most frightening and/or depressing story:

  • The world economy appears to be slowing, even though U.S. GDP is growing as the result of the post-2007 recovery finally taking hold, juiced by a heavy dose of pro-cyclical government spending. The worry is that if and when there is eventually a shock to the system, there will be little room for either fiscal or monetary policy to respond. Personally, the partisan in me is thinking any time before November 2020 is as good a time for any for a recession to hit the U.S. I am a couple decades from retirement, and picturing that bumper sticker “Lord, Just Give Me One More Bubble”. Of course, this is selfish thinking when there are many people close to retirement and many families struggling to get by out there. And short-term GDP growth is not the only metric. The U.S. is falling behind its developed peers on a wide range of metrics that matter to people lives, including infrastructure, health care costs and outcomes, life expectancy, maternal and infant mortality, addiction, suicide, poverty, and hunger. And it’s not just that we are no longer in the lead on these metrics, we are below average and falling. Which is why I am leading the charge to Make America Average Again!

Most hopeful story:

  • There have been a number of serious proposals and plans for disarmament and world peace in the past, even since World War II. We have just forgotten about them or never heard of them.

Most interesting story, that was not particularly frightening or hopeful, or perhaps was a mixture of both:

  • In technology news, Elon Musk is planning to launch thousands of satellites. And I learned a new acronym, DARQ: “distributed ledger technology (DLT), artificial intelligence (AI), extended reality (XR) and quantum computing”. And in urban planning news, I am sick and tired of the Dutch just doing everything right.

 

is the U.S. becoming a developing country?

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This Bloomberg article has a list of areas where the U.S. is following behind its peer group of developing nations.

  • roads, highways, bridges
  • high construction costs for all types of infrastructure, particularly high speed rail causing planned projects to be canceled
  • health care costs and outcomes
  • life expectancy
  • maternal mortality
  • rents rising faster than inflation
  • opioid addiction
  • suicide
  • lead in drinking water
  • poverty and hunger

The article offers the cautionary tale of Italy, which has been sliding backward over a decade or so following many years of similarly flashing warning lights before that.