Category: Economic Growth

Dynamism Dying from Bad Attitudes or Bad Policies?

I agree with Tyler that the U.S. is less dynamic than it once was. But I mainly blame our bad government policies, while he mainly blames our own bad attitudes.

(p. A15) Is the “land of opportunity,” with dynamic labor markets and fresh sources of renewal, a thing of the past?

That’s the fear of Tyler Cowen, who argues in “The Complacent Class” that America is increasingly defined by an aversion to risk as well as to anything that is unfamiliar or different. He sees a broad swath of the American population losing “the capacity to imagine or embrace a world where things do change rapidly for most if not all people.” This mind-set, he says, has “sapped us of the pioneer spirit that made America the world’s most productive and innovative economy.”
. . .
To make his case, Mr. Cowen draws a contrast between the changes that Americans experienced in the first half of the 20th century and the changes of the past 50 years. The earlier period saw dramatic improvements in health and education as well as a proliferation of automobiles, airplanes and telephones. By comparison, the changes since 1965 have been modest. “A lot of our technological world seems to have stood pretty much still,” he writes, “albeit with a variety of quality improvements along the way.” He even notes that, while popular narcotics in the past were mind-altering (LSD) or activity-inciting (cocaine), today’s drugs of choice, such as heroin and opioids, “induce a dreamlike stupor and passivity.”
. . .
Given Mr. Cowen’s own innovative thinking, it’s disappointing that he does not focus more on potential remedies to the torpor he describes.

For the full review, see:

Matthew Rees. “BOOKSHELF; How American Workers Got Lazy.” The Wall Street Journal (Tues., Feb. 28, 2017): A15.
(Note: ellipses added.)
(Note: the online version of the review has the date Feb. 27, 2017.)

The book under review, is:
Cowen, Tyler. The Complacent Class: The Self-Defeating Quest for the American Dream. New York: St. Martin’s Press, 2017.

Chinese Government Stimulus Inflated Egg Futures Bubble

(p. A1) HONG KONG — China is pouring hundreds of billions of dollars into its economy in a new effort to support growth. Some of it is going into roads and bridges and other big projects that will keep the economy humming.
And some of it is going into eggs.
China’s latest lending deluge has sent money sloshing into unexpected parts of the economy. That includes a financial market in Dalian where investors can place bets on the future productivity of the country’s hens.
Egg futures have surged by as much as one-third since March, the sort of move that would be justified if investors believed China’s chicken flocks were headed for an unfortunate fate.
But the market’s usual participants say the flocks are fine. In fact, the actual price of eggs in the country’s markets has fallen from a year ago, according to government statistics.
The reason for the unusual jump in egg futures, they say, is China’s tendency to experience investment bubbles when the government steps up spending and lending. China’s previous efforts to bolster growth unexpectedly (p. B2) sent money into real estate and the stock market — markets that had unexplained rises followed by striking drops.
“Many commodities prices have gone up crazily,” said Du Shaoxing, a futures trader in Guangzhou, in southern China. “We surely hope for a more stabilized trend where futures can reflect economic fundamentals. The way in which recent commodity prices went up is worrisome.”
China’s latest bubble illustrates the potential risks of its newest effort to spur growth. The Chinese economy is already burdened with too much debt, economists say. And sometimes, stopgap measures to help the economy create long-term problems.

For the full story, see:
NEIL GOUGH. “China’s Flood of Cash Roils Egg Futures.” The New York Times (Weds., May 2, 2016): A1 & B2 [sic].
(Note: the online version of the article has the date May 1, 2016, and has the title “China Lending Inflates Real Estate, Stocks, Even Egg Futures.”)

“The Powers of a Man’s Mind Are Directly Proportioned to the Quantity of Coffee He Drinks”

(p. C9) . . . certain aspects of 18th-century Parisian life diluted the importance of sight. This was, after all, a time before widespread street lighting, and, as such, activities in markets (notably Les Halles) were guided as much by sound and touch as by eyes that struggled in the near dark conditions. Natural light governed the lives of working people, principally because candles were expensive. Night workers–such as baker boys known as “bats,” who worked in cheerless basements–learned to rely on their other senses, most notably touch.
. . .
“For Enlightenment consumers, a delicious food or beverage had more than just the power of giving a person pleasure,” writes Ms. Purnell; taste, it was held, could influence personality, emotions and intelligence. Take coffee, “the triumphant beverage of the Age of Enlightenm ent.” Considered a “sober liquor,” it stimulated creativity without courting the prospect of drunkenness. Sir James Mackintosh, the Scottish philosopher, believed that “the powers of a man’s mind are directly proportioned to the quantity of coffee he drinks.” Voltaire agreed and supposedly quaffed 40 cups of it every day. Taste was also gendered: Coffee was deemed too strong for women; drinking chocolate was thought more suitable.

For the full review, see:
MARK SMITH. “The Stench of Progress.” The Wall Street Journal (Sat., MARCH 11, 2017): C9.
(Note: ellipses added.)
(Note: the online version of the story has the date MARCH 10, 2017.)

The book under review, is:
Purnell, Carolyn. The Sensational Past: How the Enlightenment Changed the Way We Use Our Senses. New York: W. W. Norton & Company, 2017.

Fewer Regulations and Lower Taxes Rouse “Animal Spirits” in Small Businesses

(p. B1) More than any other president since Ronald Reagan, President Trump is moving to strip away regulations and slash taxes, said Jeffrey Korzenik, an investment strategist with Fifth Third, a large regional bank in the Midwest and Southeast. In meetings with clients, Mr. Korzenik has been making the case that these policies will rouse the slumbering animal spirits in businesses across America.
“And now we have seen this huge spike in small-business confidence since the election,” Mr. Korzenik said, pointing to a chart. “So I have to ask you: Do you feel more confident now?”
There was a moment of silence, broken only by a howling northwestern Ohio wind that rattled the floor-to-ceiling windows in the bank’s boardroom.
Then, with rapid-fire speed, came the responses.
The president of a trucking company spoke of a “tremendous dark cloud” lifting when he realized he would no longer be feeling the burden of rules and regulations imposed by the Obama administration.
The owner of an automotive parts assembler gave thanks that he would not be receiving visits from pesky envi-(p. B3)ronmental and workplace overseers.
And the head of a seating manufacturer expressed hope that, finally, his health care costs would come down when the Affordable Care Act was repealed.
“My gut just feels better,” said Bob Fleisher, president of a local car dealership. “With Obama, you felt it was personal — like he just didn’t want you to make money. Now we have a guy who is cutting regulations and taxes. And when I see my taxes going down every quarter — well, that means I am going to start investing again.”
. . .
A heavier regulatory burden and uncertainty born of a weak economic recovery have kept small-business owners from making big bets in investments or hiring.
But in Toledo, this reluctance is changing — and quickly.
Louis M. Soltis owns a small company that manufactures control panels for large factories and machines. After four years of not adding to his work force of 22, he has seen orders for panels jump in the last two months and is looking to take on as many as six new workers.
There may not be a direct correlation between his surging order book and the new president, but there is no doubting the psychological boost.
“That guy is a junkyard dog, doing his tweets at 3 a.m. and taking on the news media — I just get strength from him,” Mr. Soltis said over a wine-soaked dinner with a large group of his small-business friends and peers from around town. “And I have to say, it makes you feel gutsy — ready to step up and start investing again.”
. . .
Yet there is a downside to animal spirits that persist too long, especially in labor markets, like Toledo’s, that are operating on the tight side.
And that is a sharp uptick in inflation.
In his presentation to Fifth Third’s banking clients, Mr. Korzenik raised this issue, suggesting that the broader economy was in the “seventh inning” of what has been a pretty long business cycle.
. . .
Still, no one in the room seemed overly concerned. As the group saw it, the party was just beginning.
“Most businesses I know are just taking a deep breath, happy that there is finally someone in the White House who understands what they do,” said Mr. Fleisher, the owner of the Lincoln car dealership. “So you say we are in the seventh inning — well, I am not sure we are.”

For the full story, see:
LANDON THOMAS Jr. “Small Businesses’ Hopes Are Up.” The New York Times (Mon., MARCH 13, 2017): B1 & B3.
(Note: ellipses added.)
(Note: the online version of the story has the date MARCH 12, 2017, and has the title “The President Changed. So Has Small Businesses’ Confidence.”)

“Thank You, Industrialization” (Thank YOU, Hans Rosling)

The TED talk embedded above, is one of my favorites. I sometimes show an abbreviated version to my Economics of Technology seminar.

(p. B8) Hans Rosling, a Swedish doctor who transformed himself into a pop-star statistician by converting dry numbers into dynamic graphics that challenged preconceptions about global health and gloomy prospects for population growth, died on Tuesday in Uppsala, Sweden. He was 68.

The cause was pancreatic cancer, according to Gapminder, a foundation he established to generate and disseminate demystified data using images.
. . .
Brandishing his bubble chart graphics during TED (Technology, Entertainment and Design) Talks, Dr. Rosling often capsulized the macroeconomics of energy and the environment in a favorite anecdote about the day a washing machine was delivered to his family’s cold-water flat.
“My mother explained the magic with this machine the very, very first day,” he recalled. “She said: ‘Now Hans, we have loaded the laundry. The machine will make the work. And now we can go to the library.’ Because this is the magic: You load the laundry, and what do you get out of the machine? You get books out of the machines, children’s books. And Mother got time to read to me.”
“Thank you, industrialization,” Dr. Rosling said. “Thank you, steel mill. And thank you, chemical processing industry that gave us time to read books.”

For the full obituary, see:
SAM ROBERTS. “Hans Rosling, Swedish Doctor, Teacher and Pop-Star Statistician, Dies at 68.” The New York Times (Fri., FEB. 10, 2017): B8.
(Note: ellipses added.)
(Note: the online version of the obituary has the date FEB. 9, 2017, and has the title “Hans Rosling, Swedish Doctor and Pop-Star Statistician, Dies at 68.”)

G.D.P. May Understate Growth by 2% or More

(p. B1) As the economy has shifted from one that primarily produced things — refrigerators and cars, guns and shoes — to one that now deals largely in services and information, economists have grown more and more skeptical that the traditional measure of gross domestic product — the nation’s total output — is accurately capturing much of the economy’s innovation and improvements.
“I think the official data on real growth substantially underestimates the rate of growth,” said Martin Feldstein, an economist at Harvard.
. . .
(p. B2) Mr. Feldstein likes to illustrate his argument about G.D.P. by referring to the widespread use of statins, the cholesterol drugs that have reduced deaths from heart attacks. Between 2000 and 2007, he noted, the death rate from heart disease among those over 65 fell by one-third.
“This was a remarkable contribution to the public’s well-being over a relatively short number of years, and yet this part of the contribution of the new product is not reflected in real output or real growth of G.D.P.,” he said. He estimates — without hard evidence, he is careful to point out — that growth is understated by 2 percent or more a year.
. . .
For Mr. Feldstein, it is misleading measurements that are contributing to a public perception that real incomes — particularly for the middle class — aren’t rising very much. That, he said, “reduces people’s faith in the political and economic system.”
“I think it creates pessimism and a distrust of government,” leading Americans to worry that “their children are going to be stuck and won’t be able to enjoy upward mobility,” he said. “I think it’s important to understand this.”

For the full story, see:
PATRICIA COHEN. “Is the Slogging Economy Blazing? Growth Our Old Gauge Can’t See.” The New York Times (Tues., FEB. 7, 2017): B1-B2.
(Note: ellipses added.)
(Note: the online version of the article has the date FEB. 6, 2017, and has the title “The Economic Growth That Experts Can’t Count.”)

Mokyr Credits the Great Enrichment to a Culture That Values Scientific Inquiry

(p. A13) Life is “solitary, poor, nasty, brutish and short” Thomas Hobbes proclaimed in 1651, and it had been that way ever since humans had inhabited the Earth. At the time Hobbes wrote those words, life expectancy averaged about 30 years old in his native England and income per person typically was around $5 a day (in 2016 dollars). Thanks to the Industrial Revolution and the Great Enrichment that followed, the typical subject of Queen Elizabeth II lives to almost 80 and has an income of over $100 a day. Perhaps more impressively, most people in the world today face the prospect of living at least that well within a generation or two.

What brought about the Great Enrichment? And why did it all start in England? Joel Mokyr, in his fine book, attributes it to the unique and productive culture that evolved there. It was a culture that welcomed change and favored scientific inquiry that spurred radical technological improvements.

. . .

According to Mr. Mokyr, three factors led to the ultimate triumph of the new modern search for scientific truth over the largely inaccurate “science” of the ancients. First, Europe’s fractured political environment was a blessing: Scientists who were banned or ostracized in one political jurisdiction fled to other locales more tolerant of their views. The controversial Franciscan monk, Bernardino Ochino (1487-1564), for example, was often in trouble and moving to evade authorities, leading him to flee from Italy to Switzerland and later, England, Poland and Moravia. Second, the invention of Gutenberg’s printing press around 1440 enormously lowered the cost of widely disseminating knowledge over large areas. Third, an extraordinary intellectual community evolved–Voltaire and others called the Republic of Letters–that made the dissemination of new information (through letters to fellow scientists) obligatory for anyone who wanted to gain respect in the growing international community of scientists.

For the full review, see:

RICHARD VEDDER. “BOOKSHELF; The Genesis of Prosperity; What brought about the Great Enrichment? And why did it start in England? It had a culture that embraced change and scientific inquiry.” The Wall Street Journal (Fri., Nov. 11, 2016): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date Nov. 10, 2016.)

The book under review, is:

Mokyr, Joel. A Culture of Growth: The Origins of the Modern Economy, Graz Schumpeter Lectures. New Haven, CT: Princeton University Press, 2016.

Economic Growth Depends Mainly on Micro Policies and Serendipity

(p. A2) In the long run, . . . , potential growth is a job for microeconomic, not macroeconomic, policy. It requires countless, painstaking fixes: raising labor-force participation with training and safety-net programs that don’t discourage work; investment-friendly tax and regulatory policies to incentivize investments that take years to pay off, if ever; and trade deals that let firms market their products to the entire world. It will also take some serendipity as firms keep hunting for the next miracle technology. No one foresaw how the information revolution would revitalize productivity in the 1990s, and the next such breakthrough will probably surprise us as well.

For the full story, see:
GREG IP. “CAPITAL ACCOUNT; Rewriting Recent Economic History.” The Wall Street Journal (Mon., June 2, 2016): A2.
(Note: ellipsis added.)
(Note: the online version of the story has the date June 1, 2016, and has the title “CAPITAL ACCOUNT; Post-Recession Rethink: Growth Potential Dimmed Before Downturn.”)

“We Shall Increasingly Have the Power to Make Life Good”

(p. B13) Derek Parfit, a British philosopher whose writing on personal identity, the nature of reasons and the objectivity of morality re-established ethics as a central concern for contemporary thinkers and set the terms for philosophic inquiry, died on Monday at his home in London.
. . .
The two volumes of “On What Matters,” published in 2011, dealt with the theory of reasons and morality, arguing for the existence of objective truth in ethics.
. . .
“With no other philosopher have I had such a clear sense of someone who had already thought of every objection I could make, of the best replies to them, of further objections that I might then make, and of replies to them too,” the philosopher Peter Singer wrote recently on the philosophy website Daily Nous.
. . .
In February [2017], Oxford University Press plans to publish a third volume of “On What Matters.” It consists in part of responses to criticism of his work by leading philosophers, which will appear in a companion volume, edited by Mr. Singer, titled “Does Anything Really Matter?”
. . .
On Daily Nous, Mr. Singer offered a snippet from Mr. Parfit’s new work:
“Life can be wonderful as well as terrible, and we shall increasingly have the power to make life good. Since human history may be only just beginning, we can expect that future humans, or supra-humans, may achieve some great goods that we cannot now even imagine.
“In Nietzsche’s words, there has never been such a new dawn and clear horizon, and such an open sea.”

For the full obituary, see:
WILLIAM GRIMES. “Derek Parfit, 74, Philosopher Who Explored Identity.” The New York Times (Thurs., JAN. 5, 2017): B13.
(Note: ellipses, and bracketed year, added.)
(Note: the online version of the obituary has the date JAN. 4, 2017, and has the title “Derek Parfit, Philosopher Who Explored Identity and Moral Choice, Dies at 74.”)

The book by Parfit quoted above, is:
Parfit, Derek. On What Matters: Volume Three. Oxford, UK: Oxford University Press, forthcoming 2017.

Internet Innovations Only Arose After Entrepreneurs Created PCs

(p. B15) Leo L. Beranek, an engineer whose company designed the acoustics for the United Nations and concert halls at Lincoln Center and Tanglewood, then built the direct precursor to the internet under contract to the Defense Department, died on Oct. 10 [2016] at his home in Westwood, Mass.
. . .
After the war, Dr. Beranek was recruited to teach at M.I.T., where he was named technical director of the engineering department’s acoustics laboratory. The administrative director of that lab was Richard Bolt, who later founded Bolt, Beranek & Newman with Dr. Beranek and Robert Newman, a former student of Dr. Bolt’s.
The company was conceived as a center for leading-edge acoustic research. But Dr. Beranek changed its direction in the 1950s to include a focus on the nascent computer age.
“As president, I decided to take B.B.N. into the field of man-machine systems because I felt acoustics was a limited field and no one seemed to be offering consulting services in that area,” Dr. Beranek said in a 2012 interview for this obituary.
He hired J.C.R. Licklider, a pioneering computer scientist from M.I.T., to lead the effort, and it was Dr. Licklider who persuaded him that the company needed to get involved in computers.
Under Dr. Licklider, the company developed one of the best software research groups in the country and won many critical projects with the Department of Defense, NASA, the National Institutes of Health and other government agencies. Though Dr. Licklider left in 1962, the company became a favored destination for a new generation of software developers and was often referred to as the third university in Cambridge.
“We bought our first digital computer from Digital Equipment Corporation, and with it we were able to attract some of the best minds from M.I.T. and Harvard, and this led to the ARPA contract to build the Arpanet,” Dr. Beranek said.
“I never dreamed the internet would come into such widespread use, because the first users of the Arpanet were large mainframe computer owners,” he said. “This all changed when the personal computer became available. With the PC, I could see that computers were fun, and that is the real reason why all innovations come into widespread use.”

For the full obituary, see:

GLENN RIFKIN. “Leo Beranek, 102, Who Pivoted From Acoustics to Computers, Dies.” The New York Times (Tues, OCT. 18, 2016): B15.
(Note: ellipsis, and bracketed year, added.)
(Note: the online version of the obituary has the date OCT. 17, 2016, and has the title “Leo Beranek, Acoustics Designer and Internet Pioneer, Dies at 102.” )

Complex Regulations Stifle Innovation

(p. A15) In “The Innovation Illusion” . . . [Fredrik Erixon and Björn Weigel] argue that “there is too little breakthrough innovation . . . and the capitalist system that used to promote eccentricity and embrace ingenuity all too often produces mediocrity.”
The authors identify four factors that have made Western capitalism “dull and hidebound.” The first is “gray capital,” the money held by entities such as investment institutions, which are often just intermediaries for other investors. Their shareholders, say the authors, tend to focus on short-term outcomes, a perspective that makes company managers reluctant to invest in the research and development that is the lifeblood of the new. The authors’ second villain is “corporate managerialism,” which breeds a “custodian corporate culture” that searches for certainty and control instead of “fast and radical innovation.”
A third villain is globalization, though the authors have a novel complaint: The global economy, they say, has given rise to large firms that are more interested in protecting their turf than pursuing path-breaking ideas. Finally, they decry “complex regulation” for injecting uncertainty into corporate investment and thus stifling the emergence of new ideas and new products.
Echoing the views of Northwestern economist Robert Gordon, Messrs. Erixon and Weigel lament the paucity of big-bang innovation, writing that “the advertised technologies for the future underwhelm.” They wonder why there hasn’t been more progress in all sorts of realms, from the engineering of flying cars to the curing of cancer. Responding to those who worry that robots will drive up unemployment, they say that the real concern should be “an innovation famine rather than an innovation feast.”

For the full review, see:

MATTHEW REES. “BOOKSHELF; Bending the Arc of History.” The Wall Street Journal (Tues., December 13, 2016): A15.
(Note: first ellipsis added; second ellipsis in original.)
(Note: the online version of the review has the date Dec. 12, 2016,)

The book under review, is:
Erixon, Fredrik, and Björn Weigel. The Innovation Illusion: How So Little Is Created by So Many Working So Hard. New Haven, CN: Yale University Press, 2016.