Tag Archives: economic growth

Capitalism without Capital

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Bill Gates reviews Capitalism without Capital, a new book about “intangible” products and services.

They start by defining intangible assets as “something you can’t touch.” It sounds obvious, but it’s an important distinction because intangible industries work differently than tangible industries. Products you can’t touch have a very different set of dynamics in terms of competition and risk and how you value the companies that make them…

What the book reinforced for me is that lawmakers need to adjust their economic policymaking to reflect these new realities. For example, the tools many countries use to measure intangible assets are behind the times, so they’re getting an incomplete picture of the economy. The U.S. didn’t include software in GDP calculations until 1999. Even today, GDP doesn’t count investment in things like market research, branding, and training—intangible assets that companies are spending huge amounts of money on.

Measurement isn’t the only area where we’re falling behind—there are a number of big questions that lots of countries should be debating right now. Are trademark and patent laws too strict or too generous? Does competition policy need to be updated? How, if at all, should taxation policies change? What is the best way to stimulate an economy in a world where capitalism happens without the capital? We need really smart thinkers and brilliant economists digging into all of these questions. Capitalism Without Capital is the first book I’ve seen that tackles them in depth, and I think it should be required reading for policymakers.

Recently I was reading something suggesting that countries should keep a balance sheet, which keeps track of stocks, in addition to GDP, which is more like an income statement keeping track of flows. This seems right to me. Spending on education and training adds to the stock of human capital at some rate, but efficiency may vary and the stock is also being depleted at the same time. Drawing down natural capital increases income on the short term but comes at the expense of the long term. Research and development are a little different because they affect the pace of progress, or at least improve the odds of the gamble.

China’s population could “drop sharply”

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According to this New York Times article, China’s working-age and child-bearing age population has already started to drop, and the population as a whole may follow. Considering that China represents 1/7th or so of humanity, this is supposedly bad for the economy. It could be good for the planet, but just a reminder that peak population does not necessarily peak ecological footprint if “living standards” (i.e. fossil fuel burning, private car driving, plastic consuming, meat eating, etc.) per person continues to rise.

 

 

 

alternatives to GDP

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This article in The Conversation (which is a new publication to me) goes through some of the alternatives and potential augmentations for GDP.

One approach is to have a dashboard of indicators that are assessed on a regular basis. For instance, workers’ earnings, the share of the population with health insurance and life expectancy could be monitored closely, in addition to GDP…

Another approach is to use a composite index that combines data on a variety of aspects of progress into a single summary number. This single number could unfold into a detailed picture of the situation of a country if one zooms into each indicator, by demographic group or region.

One challenge is to select the dimensions that should be covered. Through an international consultative process, the commission led by Sen, Stiglitz and Fitoussi defined eight dimensions of individual well-being and social progress, including health; education; political voice and governance; social connections and relationships; and the environment.

They also mention the Better Life Index from the OECD and the Human Development Index from the UN.

adjusting productivity/GDP for ecosystem services

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Here’s a new paper on a method of adjusting productivity/GDP (they seem to use the terms interchangeably, which confuses me) for ecosystem services and natural capital depletion.

Environmentally Adjusted Multifactor Productivity: Methodology and Empirical Results for OECD and G20 Countries

This paper extends the analytical framework for measuring multifactor productivity in order\ to account for environmental services. A growth accounting approach is used to decompose a pollution-adjusted measure of output growth into the contributions of labour, produced capital and natural capital. These indicators allow the sources of economic growth, and its long run sustainability, to be better assessed. Results presented here cover OECD and G20 countries for the 1990–2013 period, and account for the extraction of subsoil natural assets and emissions of air pollutants and greenhouse gases. The main findings suggest that growth in OECD countries has been generated almost exclusively through productivity gains, while BRIICS countries have drawn largely on increased utilisation of factor inputs to generate additional growth. Regarding natural capital, in countries such as Russia, Saudi Arabia, and Chile, reliance on subsoil assets extraction has contributed to a significant share of income growth. Results also point to a shift towards more environmentally friendly production processes in many countries. In fact, most OECD countries have decreased their emissions over the last two decades, and these pollution abatement efforts result in an upward adjustment of their GDP growth rates, allowing for a more accurate assessment of their economic performance.

It’s a little hard to tease out (from the abstract, since I haven’t read the paper) whether this means we are turning the corner and becoming more sustainable as a planet, or simply becoming more unsustainable at a slower rate than the past. I suspect it is the latter – so while it might be good news, it doesn’t necessarily mean that we are on a sustainable path.

July 2018 in Review

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Most frightening stories:

  • The UN is warning as many as 10 million people in Yemen could face starvation by the end of 2018 due to the military action by Saudi Arabia and the U.S. The U.S. military is involved in combat in at least 8 African countries. And Trump apparently wants to invade Venezuela.
  • The Trump administration is attacking regulations that protect Americans from air pollution and that help ensure our fisheries are sustainable. Earth Overshoot Day is on August 1 this year, two days earlier than last year.
  • The U.S. has not managed a full year of 3% GDP growth since 2005, due to slowing growth and the working age population and slowing productivity growth, and these trends seem likely to continue even if the current dumb policies that make them worse were to be reversed. Some economists think a U.S. withdrawal from the World Trade Organization could trigger a recession (others do not).

Most hopeful stories:

  • Looking at basic economic and health data over about a 50-200 time frame reminds us that enormous progress has been made, even though the last 20 years or so seems like a reversal.
  • Simultaneous Policy is an idea where multiple legislatures around the world agree to a single policy on a fairly narrow issue (like climate change or arms reductions).
  • I was heartened by the compassion Americans showed for children trapped in a cave 10,000 miles away. The news coverage did a lot to humanize these children, and it would be nice to see more of that closer to home.

Most interesting stories, that were not particularly frightening or hopeful, or perhaps were a mixture of both:

best performing urban economies

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Here are the world’s 10 best-performing urban economies according to Brookings.

  1. Dublin, Ireland
  2. San Jose, USA
  3. Chengdu, China
  4. San Francisco, USA
  5. Beijing, China
  6. Delhi, India
  7. Manila, Philippines
  8. Fuzhou, China
  9. Tianjin, China
  10. Xiamen, China

Here is a brief explanation of the methodology:

This Global Metro Monitor employs several key variables to assess the economic performance of metropolitan areas: gross domestic product (GDP), employment, population, and GDP per capita, all from 2000 to 2016. For static analysis and cross-border comparison, this study employs nominal GDP at purchasing power parity rates. For trends analysis, it uses GDP data at 2009 prices and expressed in U.S. dollars. Data availability and comparability at metropolitan level precluded expanding the economic analysis to other indicators of interest, such as housing prices, employment rates, unemployment rates, and income distributions.

Clearly, there is no consideration of health, ecosystem services, or sustainability here.

U.S. housing bubble starting to deflate?

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This Reuters article suggests the current U.S. housing bubble may be starting to deflate, if not pop. I don’t quite follow the logic, because it seems to suggest at the same time that the rate of housing starts is not sufficient to meet demand, and that the cost of construction is rising due to rising material, land, and labor costs. In basic economics 101 class, if there is an unmet demand, prices are supposed to rise until supply equals demand. But maybe people are just not willing or able to buy houses they want at the current market prices. What do they do instead? Again in textbook economics land, they should move to less expensive locales, buy smaller houses, live with roommates, rent extra rooms on AirBnB, etc. I guess there are all sorts of legal and cultural reasons these things don’t happen enough or fast enough for the market to equilibrate. Still, even knowing that the real world is not the textbook economic world, it’s hard to buy the argument that developers aren’t building houses because there aren’t as many houses for sale as people who want to buy houses.

CIA World Fact Book: U.S. vs. Russia

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Is the U.S. vs. Russia really a contest of equals? Well no, other than nuclear arsenals, it shouldn’t be. Here are some facts and figures from the CIA World Factbook, with China thrown in for good measure.

GDP (purchasing power parity)

  • USA: $19.36 trillion
  • Russia: $4 trillion
  • China: $23.12 trillion

GDP per capita (purchasing power parity)

  • USA: $59,500
  • Russia: $27,900
  • China: $17,000

Military budget

  • USA: 3.29% of GDP ($637 billion)
  • Russia: 5.4% of GDP ($216 billion)
  • China: 1.9% of GDP ($439 billion)

So compared to the U.S., China has a slightly larger overall economy spread out over a lot more people, but directs less of its economic output to the military and ultimately underspends the U.S. Russia’s economy is only 1/5th the size of the U.S., but it diverts a lot of its people’s wealth to military spending so it can be roughly 1/3rd the size of the U.S. military. So Russia really is not a worthy adversary at all, it’s a poor country whose leaders want to project an image of strength to its people as a substitute for actually making their lives better. The average American still has a much higher living standard than the average Chinese in spite of our military spending, but we shouldn’t just take this for granted as we may be still riding past momentum and slowly drifting into the slow lane.

WTO withdrawal could spark recession…or not

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Axios quotes economists who think a U.S. withdrawal from the World Trade Organization could spark a recession…and economists who do not.

Thus far, Trump has mostly damaged U.S. prestige with his anti-globalization actions, including withdrawing from the Trans-Pacific Partnership and the Paris climate agreement, as well as threatening to pull out of NAFTA. He’s also caused global stock markets to gyrate by imposing tariffs on Canada, Europe, and China; and oil prices to rise by pulling out of the Iran nuclear deal. But “the financial shock would be very, very large” should he withdraw from the WTO, said Gary Hufbauer of the Peterson Institute for International Economics…

“Business confidence in the system would be severely shaken,” Hufbauer told Axios, and there would be “quite a hit” to long-term investment in plants and equipment. “You don’t need much of a slowdown in these areas, and you have recession…”

The White House seems to be showing little understanding of the WTO’s history, originating in 1947 along with the World Bank and the International Monetary Fund as vehicles to prevent any future global war by buoying the economies of the world.

Not everybody likes the WTO, but it seems to be the best of many imperfect options for resolving trade disputes, and for not letting trade disputes escalate to be about more than trade.

Trumponomics – just plain made up

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Trump claims recent economic growth is unprecedented. The claim is demonstrably false and just plain made up. According to Politifact:

Trump said, “Watch those GDP numbers. We started off at a very low number, and right now we hit a 3.2 (percent). Nobody thought that was possible.”

This is inaccurate two ways. First, the most recent saw GDP growth of 2.0 percent, not 3.2 percent. And second, exceeding 3 percent GDP growth in a quarter is not an unusual achievement — Obama accomplished it eight times. The real achievement would be a full year at 3 percent, which hasn’t happened under Trump yet.

We rate the statement False.

Much more interesting is that the U.S. has not managed a full year of 3% growth since 2005. Politifact has a much more interesting article here that explains why most economists think a sustained 3% will not be achievable in the foreseeable future.  In summary:

  • Growth in the working-age population is much lower than it was (political response: prevent willing workers from entering the country, oppose measures to provide childcare to working age adults…)
  • Productivity growth has also slowed significantly (political solution: underfund infrastructure, education, research and development; although to be fair, some of the recent changes to corporate tax policy might help if companies choose to invest the savings in plants, equipment, research and development rather than just letting executives pocket them)