Tag: Economic Growth

Must-read: Chris Dillow: “Innovation and Well-Being”

Posted on by Brad DeLong

Chris Dillow: Innovation and Well-Being: “Diane Coyle and Emily Skarbeck point out that…

…‘the way GDP is measured makes it impossible to capture fully the effect of innovation’ [as] GDP data don’t capture ‘the explosion in variety’…. [But] not only does innovation not appear in the GDP statistics, it doesn’t appear in subjective well-being statistics either. The OECD has reported (pdf) that the UK ‘experienced no consistent change’ in life satisfaction between the mid-70s and late 00s, and the ONS estimates (pdf) no change since then either….

Here are two theories. First… ‘more of the same’ gives us increases in real incomes in a steady environment…. Increases in variety, however, entail creative destruction… generates uncertainty for workers. And many (pdf) people hate uncertainty…. Second… as variety increases, so too does opportunity cost: we can’t afford both the new phone and the PS4, or if we’re holidaying in the Maldives, we can’t be in Dubai. Variety brings with it regret…. I don’t say this to deprecate increased variety…. Intuitively, it seems to me that variety must be a great good…. Perhaps… not only is GDP an inadequate measure of a healthy economy, but so too in some respects are measures of subjective well-being.

Must-read: Timothy Aeppel: “Silicon Valley Doesn’t Believe U.S. Productivity Is Down”

Posted on by Brad DeLong

Must-Read: Timothy Aeppel: Silicon Valley Doesn’t Believe U.S. Productivity Is Down: “Contrarian economists at Google and Stanford say the U.S. doesn’t have a productivity problem…

…it has a measurement problem. Google Inc. chief economist Hal Varian says sluggish U.S. productivity doesn’t reflect a high-tech wave of innovations that save people time and money. ‘There’s a lack of appreciation for what’s happening in Silicon Valley,’ he says, ‘because we don’t have a good way to measure it.’…

U.S. productivity, meanwhile, has hit the skids. From 1948 to 1973, it grew at an annual average of 2.8%. The rate through the 1980s slowed to half that, even as computers spread through the economy, driving everything from welding robots in auto plants to bank ATMs. In 1987, during the last period of productivity hand-wringing, Nobel Prize winning economist Robert Solow quipped: ‘You can see the computer age everywhere but in the productivity statistics.’ From 1995 to 2004, it finally looked like the digital age was paying off: Productivity growth rates closed in on post-World War II highs of near 3%. Then average gains fell to 2% from 2005 to 2009; since 2010, they have dipped below 1%…. ‘You can’t be in the Valley without thinking we’re in the middle of a productivity explosion,’ Mr. Bloom says. ‘And when they do discuss it, everyone jumps to Hal’s conclusion here.’…

Outside Silicon Valley, the arguments aren’t as persuasive. University of Chicago economist Chad Syverson said there might be some measurement problems, but that has always been the case. And, he says, he doubts it would account for more than a small part of the recent productivity slowdown…. ‘I’m always reluctant to point a finger at failure in measurement because it feels like you’re making excuses, ’ says Marco Annunziata, chief economist for General Electric Co. One explanation for the paradox of low productivity in a time of technical advances may be the uneven way innovation spreads, he says…. American business since the recession has, in fact, been stingy about investing in new equipment…

Must-read: Dani Rodrik: “From Welfare State to Innovation State”

Posted on by Brad DeLong

Must-Read: Dani Rodrik: From Welfare State to Innovation State: “A specter is haunting the world economy – the specter of job-killing technology…

…When the new industrial working class began to organize, governments defused the threat of revolution from below that Karl Marx had prophesied by expanding political and social rights, regulating markets, erecting a welfare state that provided extensive transfers and social insurance, and smoothing the ups and downs of the macroeconomy. In effect, they reinvented capitalism to make it more inclusive and to give workers a stake in the system. Today’s technological revolutions call for a similarly comprehensive reinvention…. The bulk of these new technologies… entail the replacement of low- and medium-skilled workers with machines operated by a much smaller number of highly skilled workers…. Skill and capital-intensive technologies are the leading culprit behind the rise in inequality since the late 1970s. By all indications, this trend is likely to continue…. It doesn’t have to be this way. With some creative thinking and institutional engineering, we can save capitalism from itself – once again….

Achieving the socially desirable level of innovative effort… requires either foolhardy entrepreneurs… or a sufficient supply of risk capital. Financial markets in the advanced economies provide risk capital…. But there is no reason why the state should not be playing this role on an even larger scale…. As Mariana Mazzucato has pointed out, the state already plays a significant role in funding new technologies…. Designing the right institutions for public venture capital can be difficult. But central banks offer a model of how such funds might operate independently of day-to-day political pressure….

The welfare state was the innovation that democratized – and thereby stabilized – capitalism in the twentieth century. The twenty-first century requires an analogous shift to the ‘innovation state.’ The welfare state’s Achilles’ heel was that it required a high level of taxation without stimulating a compensating investment in innovative capacity. An innovation state, established along the lines sketched above, would reconcile equity with the incentives that such investment requires.

Must-read: William Nordhaus: “Schumpeterian Profits in the American Economy: Theory and Measurement”

Posted on by Brad DeLong

William Nordhaus (2004): Schumpeterian Profits in the American Economy: Theory and Measurement: “Schumpeterian profits… arise when firms…

…appropriate the returns from innovative activity… We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.

Today’s economic history: Writing is (and other things are) not “naturally” human

Posted on by Brad DeLong

Today’s Economic History: For Homer and his audience, writing is unnatural and un-human: “many deadly signs on a folded tablet…”.

What is natural to humans–what we were back in the environment of evolutionary adaptation when we were in biological equilibrium–is grunting bands of 50 or so making their way across the Horn of Africa with their stone tools. Since then, the language Singularity, the agriculture Singularity, the writing Singularity, and perhaps now a fourth have changed human life in many ways beyond all recognition. “What is natural to humans” almost invariably means “what I expect to happen”, which is roughly the same as “what I learned about how things were, were done, and ‘ought’ to be done back when I was a child”.

Homer: Iliad: “Proetus’ wife, the fair Anteia…

…longed madly for Bellerephon, and begged him to lie with her in secret, but wise Bellerephon was a righteous man and could not be persuaded. So she wove a web of deceit, and said to King Proetus: ‘Kill this Bellerephon, who tried to take me by force, or die in the doing of it.’

The king was angered by her words. He would not kill Bellerephon, as his heart shrank from murder, but he packed him off to Lycia, and scratching many deadly signs on a folded tablet, gave him that fatal token, and told him to hand it to the Lycian king, his father-in-law, so to engineer his death.

Bellerephon went to Lycia escorted by peerless gods, and when he reached the streams of Xanthus the king of great Lycia welcomed him with honour, entertaining him for nine days, and sacrificing nine oxen. But when rosy-fingered Dawn lit the tenth day his host questioned him, and asked what token he brought him from his son-in-law Proetus…

Must-read: Sutirtha Bagchi and Jan Svejnar: “Does wealth inequality matter for growth?”

Posted on by Brad DeLong

Must-Read: Sutirtha Bagchi and Jan Svejnar: Does wealth inequality matter for growth?: “We derive a global measure of wealth inequality from Forbes magazine’s listing of billionaires…

…and compare its effect on growth to the effects of income inequality and poverty. Our results suggest that wealth inequality has a negative relationship with economic growth, but when we control for the fact that some billionaires acquired wealth through political connections, the relationship between politically connected wealth inequality and economic growth is negative, while politically unconnected wealth inequality, income inequality, and initial poverty have no significant relationship.

Must-Read: Robert Brenner (2001): The Low Countries in the Transition to Capitalism

Posted on by Brad DeLong

Must-Read: Robert P. Brenner (2001): The Low Countries in the Transition to Capitalism: “The medieval and early modern Northern and Southern Netherlands…

…[were] the most highly urbanized and commercialized regions in Europe…. [They] show that the rise of towns and the expansion of exchange cannot in themselves bring about economic development, because they cannot bring about the requisite transformation of agrarian social-property relations. In the non-maritime Southern Netherlands, a peasant-based economy led to economic involution. In the maritime Northern Netherlands, the transformation of peasants into market-dependent farmers created the basis for economic development.

Must-Read: Duncan Weldon: Are the Robots Taking Enough Jobs?

Posted on by Brad DeLong

Must-Read: I find myself, more and more, wanting substantive integrated studies of the combination of market-firm, nonprofit and government, and within-household productivity. And I find myself less and less satisfied with current conventional GDP accounts as providing a good enough guide to what is really going on. So I am not satisfied with blanket declarations that productivity growth properly accounted-for is relatively slow:

Duncan Weldon: Are the Robots Taking Enough Jobs?: “We are transitioning to a world in which the global supply of labour…

…is less plentiful…. New workers will have to support a seemingly ever rising number of older, retired people…. It is possible to worry that the ‘robots’ aren’t taking enough jobs. That unless we see big increases in both labour-saving technology and in productivity, then the world faces a future of slower growth and an ever greater share of current workers’ incomes will be used to support the retired…

Must-Read: Jason Furman: on Residential Housing Supply, NIMBYism, and Economic Growth

Posted on by Brad DeLong

Must-Read: Jason Furman on residential housing supply, NIMBYism, and economic growth:

Nick Timiraos: Why White House Economists Worry About Land-Use Regulations: “White House economic advisers have produced a steady diet of white papers this year…

…Their latest target: land-use restrictions. Housing is growing less affordable because there’s more demand for rental and, increasingly, owner-occupied housing, but little new supply…. [Some] cities make things worse with zoning and other land-use restrictions that discourage production, said Jason Furman…. Peter Ganong and Daniel Shoag… examines the slowdown in income convergence… more common in states during the 1960s and 1970s regardless of constraints on housing supply. By the 1990s, states with more constrained housing supplies saw far less income convergence than those with less constrained housing supplies…. Only high-income workers can afford to relocate to those high-productivity cities that have tighter land-use regulations…