Project Syndicate: Missing the Economic Big Picture: BERKELEY – I recently heard former World Trade Organization Director-General Pascal Lamy paraphrasing a classic Buddhist proverb, wherein China’s Sixth Buddhist Patriarch Huineng tells the nun Wu Jincang: “When the philosopher points at the moon, the fool looks at the finger.” Lamy added that, “Market capitalism is the moon. Globalization is the finger.” With anti-globalization sentiment now on the rise throughout the West, this has been quite a year for finger-watching… **Read MOAR at Project Syndicate
Tag: Economic Growth
Inclusive Growth?: PIIE Conference
http://tinyurl.com/dl20161117a
PIIE: Conference on Income Inequality and Inclusive Growth: “Keynote Speaker: Paul Krugman (Graduate Center, City University of New York)
November 17, 2016 8:30 AM to 2:00 PMADD TO
The Peterson Institute for International Economics (PIIE) and the McKinsey Global Institute (MGI) will cohost a conference on income inequality and inclusive growth on November 17, 2016. Paul Krugman, Nobel laureate and Distinguished Professor of Economics at the Graduate Center of the City University of New York, will conclude the conference with a keynote address, titled “After the Elephant Diagram,” at 12:15 pm.
The conference morning will consist of two panel discussions. The first panel (8:45–10:15 am) will focus on global inequality and begin with a presentation by MGI partner Anu Madgavkar on MGI’s new report, Poorer than their parents: A new perspective on income inequality. (link is external) Sandra Black, member of the US Council of Economic Advisers, will offer her remarks drawing on the CEA’s recent research on the topic. Paolo Mauro, assistant director of the African department at the International Monetary Fund, will share his insights from his PIIE Working Paper, The Future of Worldwide Income Distribution.
The second panel (10:30 am–12:00 pm) will focus on inclusive growth policy ideas for the next US administration. The panelists include Brad DeLong, professor of economics at the University of California, Berkeley; William Spriggs, chief economist at the AFL-CIO; Jonathan Woetzel, McKinsey & Company senior partner and MGI director; and Jeromin Zettelmeyer, senior fellow at PIIE since September and previously director-general for economic policy at the German Federal Ministry for Economic Affairs and Energy.
The Roots of Growth: Review of Joel Mokyr: “A Culture of Growth”
The roots of growth: Brad DeLong examines a study that places the origins of the Industrial Revolution in fifteenth-century Europe.
A Culture of Growth: The Origins of the Modern Economy
Joel Mokyr Princeton University Press: 2016.
ISBN: 9780691168883
What is modern economic growth? Going by the best available measure (it might be more honest to say ‘guess’), today’s average material living standards and economic productivity levels are some 20 times what they were in the agricultural era (about 6000 BC to AD 1500). And the efficiency with which humanity uses technology and organization to transform resources into useful commodities is currently growing at 2% per year — perhaps 100 times the rate common before the Industrial Revolution… Read MOAR at Nature
Musings on the Science of “Scaling”: Blum Center U.C. Berkeley
This is not at all the so-called “replication crisis”.
The devices built work as assessed by all engineering yardsticks: cheap, easy to maintain, rugged, and simple to operate. The interventions conducted work as assessed by all social science standards: they pass gold-standard RCT tests with effects that are statistically and substantively significant.
And yet…
“Scaling” is very hard…
My largely uninformed and probably wrong view is that it has everything to do with organizational and systematic robustness. In the engineering lab and in the social science RCT 98% of things go right. But out in the real world societal capabilities vary: while Toyota can hit six nines–99.9999%–at times I think U.C. Berkeley is lucky to hit nine sixes, and Berkeley is, in global context, a relatively functional organization. So: engineering and societal organization institutions designed for robustness, to degrade gracefully when you cannot attain the degree of organizational tautness of a Toyota. How do we do that? That, I think, is the BIG QUESTION here.
(And, of course, if we can attain the degree of organizational tautness of a Toyota, we no longer have a problem of economic development in any sense, do we?)
Blum Center: The Science of Scaling: Building Evidence to Advance Anti-Poverty Innovations:
September 26 @ 8:00 am – 5:00 pm
100 Blum Hall, Haviland Road
U.C. Berkeley
Berkeley, CA 94720 United StatesThe Development Impact Lab (DIL), headquartered at UC Berkeley and funded by USAID…
…has developed a “Development Engineering (Dev Eng)”… interdisciplinary framework for designing and testing new povertyalleviation and economic growth technologies in the field… encourag[ing] researchers to build scal[ing] into the R&D process, from the beginning. Yet… there are few generalizable mechanisms for scaling evidence-based interventions in emerging markets…. [Thus] DIL[s]… annual State of the Science conference [is] on The Science of Scaling:
The conference will bring together academic researchers, development practitioners, technology developers, and investors to review the evidence on scaling successful anti-poverty innovations…. Are there proven methods for technology transfer from university to government agencies and non-governmental organizations? Why do some products and interventions scale quicker than others? What facilitates the adoption of new technologies by end-users? This event will explore these questions and help articulate a research agenda for the “Science of Scaling”…
http://delong.typepad.com/2016-09-26-08.3057-scanner-pro.pdf
Brookings Productivity Puzzle Panel: VIdeo
On September 9, 2016 the Initiative on Business and Public Policy and the Hutchins Center on Fiscal and Monetary Policy at Brookings hosted a forum on the policy implications of the growth slowdown.
The Long-Run Economic Trend Is Our Friend: No Longer so Fresh at Project Syndicate
Over at Project Syndicate: The Long-Run Economic Trend is Our Friend
These are days of grave disappointment at the state of the world. Sinister forces of fanatic religion-linked murder that we thought had been largely scotched by 1750 are back. They have been joined by and are reinforcing forces of nationalism, bigotry, and racism that we thought had been largely scotched in the ruins of Berlin in 1945. (There is a bright spot: the other principal fanaticism of the twentieth century, that of ideology, is comatose if not dead.) In addition, the state of economic growth since 2008 has been profoundly disappointing. There is no reasoned case for optimistically expecting a turn for the better in the next five years or so. And the failure of the globe’s institutions to deliver ever-increasing prosperity has undermined the trust and confidence which in better times would be strong factors suppressing the murderous demons of our age. Read MOAR Over at Project Syndicate
In these days of pronounced pessimism, it is past time to engage in enthusiastic and positive contrarianism with respect to the state of global economic growth not over the next five but over the next 30 years, and beyond at least to the next 60.
The reason that the 25 to 50-year economic growth future looks very bright is that the biggest of the macro trends that have been operating since the end of World War II are still, under the surface, at work. Technology continues to diffuse. World trade continues to grow. The population explosion continues to ebb. The innovative heart of the world economy in the global north continues to beat–albeit perhaps more sluggishly than it has since the 1880s (maybe). War and terror continue to destroy, terrorize, shock, and horrify, but on a scale much less than the holocausts and megadeaths of 1914-1978.
And these trends are likely to continue.
Our best source of summary information on global economic growth remains the Penn World Table research project started two generations ago by Alan Heston and Robert Summers. Take the geometric mean of individual country estimates of real GDP per capita as our first summary statistic of the state of the global economy. The Penn World Table then tells us that the world in 1980 was some 80% better off than it had been in 1950, and the world in 2010 was another 80% better off in measured material-well being terms that it had been in 1980. That places us today more than three times as well off as our predecessors in the 1950s were.
Moreover, this more than tripling of world material well-being is an underestimate. First, our real GDP measure was designed to be something Simon Kuznets could estimate quickly from data that was easily available. It does not not take proper account of use-value surplus accruing to users but only of market-value revenue captured by sellers. Over time the commodities we are producing are shifting in a direction that makes user surplus a greater and market value realized a smaller proportion of their total contribution to societal well being. And I find attempts to claim either that it has always been thus profoundly unconvincing given how much of our leisure and even our work time is spent interacting with information systems where the revenue flow is not of the essence but is only a small dribble tied to ancillary advertising.
Second, there is the case of China–and, more recently, of India. According to the PWT, China’s real GDP per capita in 1980 was more than 60% below of that of the country at the then-geometric mean of the world distribution. Today China is 25% above that moving benchmark. India in 1980 was more than 70% that benchmark, but since 1980 it has closed half the gap vis-a-vis the contemporaneous geometric mean. In the scatter of country experiences, India and China are only two counties. But they are 30% of humanity.
Now do not push optimism too far. There has been no sign of the world’s countries drawing together in their levels of prosperity. In 1950 two-thirds of countries had GDP per capita levels between 45% and 225% of the geometric mean of the world’s nations. By 1980 you had to widen that spread to 33% to 300%. And today it is 28% to 360%. That on the level of individuals the world economy is a more equal place than it was in 1980 is due to rulership that has been on the whole much better than average in China and India since the accessions of Deng Xiaoping and Rajiv Gandhi. But there are no more countries of the size of China or India to stand up. And few observers have anything like the confidence in and hopes for Xi Jinping and Narendra Modi that they had in their predecessors. It may be harder to find an export niche in the world economy to accelerate technology transfer in the future than it has been since the end of World War II. It may well be that the engine of innovation at the world’s leading technological edge will beat more slowly. But it will continue to beat. And technology will continue to diffuse. And the world will continue to grow.
Expect–terror that somehow triggers global nuclear armageddon aside–my successors in 2075 or so to be writing about how their world is, once again, three times as well off in material terms as we are today.
And beyond that? It is harder to project. We are already letting global warming, a potentially very large demon for the post-2080 world, out of the Pandora’s Box we hold. Our children’s children’s children will not thank us for that.
- 2016-08-30 PWT Extended Basic Charts: Non-Oil Large Country Sample https://www.dropbox.com/s/ox5x1i2t4lhi2ve/2016-08-30%20PWT%20Basic.Rmd?dl=0 | https://www.dropbox.com/s/9ob9rpymxqvvkmq/2016-08-30_PWT_Basic.pdf?dl=0 | https://www.icloud.com/numbers/03uSYHIJBfSd4z4Yz7Q7s7GuQ#2016-08-30_PWT_9_Basic
Musings on Productivity
Musings on Productivity (Triggered by (but not to be presented at) the September 8-9, 2016 Hutchins Center Brookings Institution Productivity Festival)
J. Bradford DeLong :: U.C. Berkeley, NBER, and WCEG :: 2016-09-07 http://tinyurl.com/dl20160907a
Brookings Productivity Festival on Friday
The current discussion of “slow growth in measured productivity” here in the U.S. seems to suffer from a great deal of confusion. From my perspective, there are six things going on:
- Since the 1920s, the rise of non-Smithian information goods…
- Since 1973, the productivity slowdown…
- Since 1995, the semiconductor-driven infotech speedup…
- Since 2004, Moore’s Law hitting the wall…
- Since 2008, what we will soon be calling “The Longer Depression”…
- And, remember, policy changes to speed productivity growth may well be nearly orthogonal to all of the above save (5)…
To talk about the cause of “slow growth in measured productivity” as if it is just one, not five, things causes confusion. To identify one or a small number of causes of a single thing that is “slow growth in measured productivity” causes great confusion. And then to insist that the best policy move is to undo that one or small number of thing causes even greater confusion…
The productivity puzzle: How can we speed up the growth of the economy? Friday, September 9, 2016, 9:30 – 11:00 am, Falk Auditorium: The Brookings Institution:
After nearly a decade of strong productivity growth starting in the mid-1990s, productivity growth has slowed down over the most recent decade. Output per hour worked in the U.S. business sector has grown at only 1.3 percent per year from 2004 to 2015, and growth was even slower from 2010 to 2015 at just 0.5 percent a year. These rates are only half or less of the pace of growth achieved in the past.
The United States is not alone in facing this problem, as all of the major advanced economies have also seen slow productivity growth. This slow growth has been a major cause of weak overall GDP growth, stagnation in real wages and household incomes, and it strongly impacts government revenues and the deficit.
On September 9, 2016 the Initiative on Business and Public Policy and the Hutchins Center on Fiscal and Monetary Policy at Brookings will host a forum on the policy implications of the growth slowdown. Senior Fellow Martin Baily will present an overview paper on the causes of the slowdown, followed by a panel discussion on the most effective policies to enhance productivity performance. After the panel discussion, panelists will take questions from the audience. The event will be webcast live.
Join the conversation on Twitter at #Productivity
Welcome: Louise Seiner
Paper: Martin Baily
Panel: Moderator: David Wessel
- Jonathan Baker
- Robert Barro
- J. Bradford DeLong
- Bronwyn Hall
Five Revisions of Its Model That the Fed Should Make or Test
Must-Read: Five Revisions of Its Model That the Fed Should Make or Test: And I do not think that the Fed is handling the process of revising its thinking properly.
I say that the Fed should, right now, be rethinking its estimates of:
- the long-run real natural rate of interest,
- the natural rate of unemployment,
- the slope of the Phillips Curve, and
- the gearing between recent past deviations of inflation from its target and expectations of future inflation.
Ryan Avent says that the Fed is rethinking (1) and (2), but also rethinking a (5): its estimate of long-run potential output growth. I don’t think there is evidence to rethink (5). I think that the consilience of a low pressure economy and apparent sluggish potential output growth is just too large for people to be satisfied rejecting it as a mere coincidence. Ryan agrees with me, and asks why the Federal Reserve seems to want to jump to conclusions about (5) rather than testing it. I agree. But I also want to ask: why isn’t the Fed rethinking its views on (3) and (4) as well? There is powerful evidence that they are different from the implicit model Fed policy has been running off of for the past decade as well:
Ryan Avent: Absence of Evidence: The Fed Rethinking One Thing too Many:
OFFICIALS at the Federal Reserve, a few of them anyway, seem to be rethinking their views of the economy in some dramatic ways….
Ben Bernanke suggests… top policy-makers still have confidence in their mental model of the economy; they have just been tweaking a few of the parameters… long-run… GDP growth… unemployment… and their benchmark interest rate…. The latter two [what I call (1) and (2)]—a lower unemployment rate and a lower long-run interest rate—clearly imply that rates will rise more slowly to a lower overall level. The projection of a lower potential growth rate [what I call (5)], however… suggests, for instance, that the American economy is running closer to its “speed limit”… push[ing]… toward a more hawkish stance…. These three revisions are not created equal…. [(1) and (2)] are clearly justified…. [(5)] is different, however. Available evidence is consistent with a world in which long-run potential growth has fallen… but… also… with an economy… growing slowly because of too little demand… in which both strong employment growth and low productivity growth are side effects of the low level of wages.
The only way to resolve the question in a satisfying way is to test it: to push the economy beyond the estimated potential growth rate and see if inflation rises…. Bernanke argues that Fed officials are willing to be a little patient with the economy, to see whether running it a little hot brings more workers into the labour force and encourages productivity-enhancing investments. It certainly seems clear to me that overshooting is the right way for the Fed to err….
But I am less confident than Mr Bernanke in the Fed’s openness to overshooting. It did not exactly intend to run the unemployment rate experiment that demonstrated how run its previous projections had been…. Now, the Fed looks all too willing to revise down its GDP growth projections without ever really testing them…. There is far too little radicalism at the Fed. It risks making permanent a low-growth state of affairs which is largely a consequence of its own excessive caution.
I would say may be rather than is. But one thing we agree on is that it is definitely the Fed’s responsibility to find out. And on its current policy trajectory it will find out only by accident–only if the economy turns out to be stronger than the Fed currently projects.
Expenditure Shares, Price Measurement, and True Relative Labor Productivity Growth in Post-WWII Manufacturing: What the Aggregate Deta Suggest
Tuesday Morning Distraction: Well, I was supposed to be sitting three tables down from Aaron Edlin at the Claremont Peets this morning doing research. But I got myself distracted–convinced myself that I ought to right something about the sharp Matthew Yglesias’s (and why, Harvard Economics Department, was he not an economics major?) piece on premature deindustrialization. And then I got myself redistracted…
Let’s start with one of the standard graphs: the American share of (nonfarm) employment that is in manufacturing:
At the start of the 1930s manufacturing employment was 30% of nonfarm employment. It is now 9% of nonfarm employment. In the absence of our trade deficit in manufacturing, it would be 12% of nonfarm employment. Thus only one-sixth of the reduction in the manufacturing share of nonfarm employment can be traced to the emergence of our manufacturing trade deficit–six-sevenths of the share decline is due to extra-fast improvements in manufacturing labor productivity and to shifts in the types of goods and services that we demand.
How much of the 18%-point ex-manufacturing trade deficit decline in the manufacturing employment share can be traced to demand shifts? Answering that question requires taking a view on what an unshifted demand would look like. Another standard graph is the nominal share of manufacturing production in GDP:
On the same axes as the nominal share of manufacturing production, I have plotted a series called “real” obtained from the nominal share by (a) multiplying it by the chain price index for GDP and (b) dividing it by the chain price index for manufacturing. This is not the real share of real GDP that is real manufacturing production. It is the “real” share. “Real” shares calculated this way do not add up to totals. This is a ratio of two flawed aggregative index numbers scaled so that in 2000 the ratio matches the nominal share of manufacturing in GDP.
At the start of the 1950s manufacturing production was 27% of GDP (manufacturing labor productivity was in value terms some 5/4 of average labor productivity, including the farm sector), and it has since fallen to 11% of GDP (manufacturing labor productivity is still in value terms 5/4 of average labor productivity). But over the course of the last 70 years the measured price of manufactures has fallen relative to the measured price of GDP by 1.4%/year, so that all of the declining share of manufactures in nominal GDP can be, in some sense, accounted for as an extra-fast improvement in manufacturing productivity and thus a relative reduction in market prices.
If there were a single commodity called “GDP” and a single commodity called “manufactured goods”, then we would say that:
- The relative price of “manufactured goods” today is only 40% of its level 70 years ago…
- If the income and price elasticities of demand for “manufactured goods” were one, then we would have expected the decline in relative price to 40% of its initial value to be associated with a 2.5-fold multiplication in relative quantities, and for the nominal share of manufactures in GDP to remain the same. Thus if the “unshifted demand” has associated with it a manufactured-goods demand curve of unit price elasticity, all of the 18%-point fall could be traced to changes in our market preferences away from manufactures. But I see nothing in the world or in our culture to generate such a shift in tastes and thus in market demand away from manufactured stuff. Manufactured stuff is useful, really useful…
- If the income elasticity of demand for “manufactured goods” were one and the price elasticity of demand were zero, then we would have expected the decline in relative price to 40% of its initial value to be associated with stability in relative quantities, and for the nominal share of manufactures in GDP to fall on the same track as the price–as it has. Thus if the “unshifted demand” has associated with it a manufactured-goods demand curve of zero price elasticity, none of the 18%-point fall could be traced to changes in our market preferences away from manufactures.
For our demand for manufactured goods to have a price elasticity of zero seems to me to make little sense: Manufactured stuff is useful. When the price of manufactures drops relative to the price of other stuff, we ought to buy more manufactures–not, to be sure, enough to keep the share of our incomes we spend on manufactures constant, but somewhat.
My view is that our measurements have gone substantially awry, and that the price elasticity of demand is about 1/2. The speed with which the share of manufactures in nominal GDP has declined is, in my view, much more consistent with a manufacturing price and labor productivity growth rate differential of not 1.4%/year but more like 3%/year. That would suggest that the relative price of manufactures properly measured today is not 40% but 12% of its immediate post-World War II level, and that the right “real” share graph sees not a constant “real” share of manufactured goods in output, but rather a tripling of the share.
This has implications for the “true” rate of economic growth–an aggregate-scale underestimate of 0.3%/year from this channel alone…