Economic Progress Isn’t Linear

It’s interesting to see just how parochial Larry Summers is in his understanding of just how much the world has changed over the last dozen years or so. From his op-ed at Prospect, bemoaning the slow rate of economic growth:

It is striking to contrast the changes during my grandmother’s lifetime with those during mine. I have seen the microwave become universal in American kitchens. Automotive air-conditioning has gone from common to universal.

A much wider range of TV programmes are now available and with a much sharper picture. There is a wider array of healthy foods. And, of course, I carry a smartphone that keeps me more connected to information sources, friends and colleagues than was imaginable 50 years ago.

But whereas my grandmother would have been at sea if returned to her girlhood home, I would miss relatively little if suddenly placed in the home I grew up in. It takes longer and is less comfortable to fly from Boston to Washington or London than it was 40 years ago. There are more highways now but much more traffic congestion as well. Life expectancy has continued to increase, though at about half the pace it did during my grandmother’s day. But the most important transformation—child death being an extraordinary event—had already happened by the time I was born.

I wonder if he is aware of the thousands of American companies who are exchanging orders and engineering design changes with their Chinese suppliers on a real-time basis (or pseudo-real time, why split hairs)? Apparently not:

Gordon acknowledges a “third industrial revolution” built around software and IT but argues that it is much less significant than the “second industrial revolution” of the mid-century because its impacts are largely confined to telecommunications and entertainment. He further argues that it may already be largely played out, and that in any event concerns of technology replacing jobs are not new; workers displaced by new technologies tend to find new jobs, often in sectors created by those new technologies.

Gordon is right in pointing to the huge disjunction between the techno-optimist narrative and the productivity statistics. It is hard to see how technology could be displacing huge numbers of workers without raising measured productivity. And if its effects are so pervasive as to lead to large shifts in the distribution of income with innovators capturing huge rents, why do we not see more evidence of increased output?

While I disagree with the way in which he reaches his conclusions, I agree with the conclusions themselves. Global economic growth is likely to be slow for the foreseeable future because of the huge overhang of debt and the mammoth, excessive productive capacity in China. Unless world demand increases fast, that capacity will be enough to supply a world unable to expand fast enough to drag many of its people out of poverty for many years to come.

What has happened over the last decade or so is that China has time-shifted its own economic growth from what was then the future (today) into the present (which is now the past). Consumption needs to catch up and, because of that debt overhang I mentioned, that will take a very long time.

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Objectivist House Hunters

For your reading pleasure over at McSweeney’s, Ayn Rand as a real estate agent in Objectivist House Hunters. A snippet:

NARRATOR: House 3 is a tiny house, recently built. At 425 square feet, it’s a tight squeeze, but the low asking price would let Jack and Rachel have more money for travel.

AYN: This house is absurdly small, and its aesthetic is an offense to decency. You asked me to bring you here: as your agent, I complied.

RACHEL: Sometimes I just want to simplify my life, you know? This house might be perfect for that.

JACK: I’m not sure we need a bigger space to store more stuff.

AYN: Run for your life from any man who tells you that possessions are evil. That sentence is the leper’s bell of the approaching looter.

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The Reactions

I was rather surprised at the reactions in the comments section of this post at Outside the Beltway on the calls for President Obama to get the U. S. involved in a campaign against DAESH in Libya. The most substantive reaction was the evergreen variant of “two wrongs make a right”: “But Bush invaded Iraq!”.

Much of the discussion involved shouting down a particularly obnoxious commenter and musing over whether the U. S. should cultivate a closer relationship with Iran. Iran is irrelevant to Libya. Shi’a Islam is practically unknown there and the relationship with Iran is largely in the hands of the Iranians. From time to time over the period of the last 30 years we’ve attempted a rapprochement only to be given the cold shoulder (yes, there’s blame on both sides).

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What Is the Purpose of Higher Education?

This post at RealClearPolicy is pretty sobering:

Only one-third of college enrollees graduate within six years and then get jobs requiring college degrees.

That is the conclusion of my new report in the Manhattan Institute’s Issues 2016 series. Only 59 percent of four-year college students graduate within six years. Those who graduate face an additional hurdle — only 56 percent of recent college graduates work in a job that requires a college degree (though the figure for all college graduates is 67 percent, suggesting some underemployed graduates move up later in their careers).

Multiplied together, these numbers suggest that only 33 percent of students who enter college emerge with both a degree within six years and a relevant job soon after graduation. This is the true crisis in higher education, and one policymakers must address before they offer up more taxpayer money to colleges.

IMO our present system of higher education is targeted with unerring precision at the economic conditions of the 1950s. Then the purposes of higher education were clear. They were

  1. To prepare professionals for their post-graduate education.
  2. To pre-select managers for big businesses.
  3. To function as a place where middle and upper middle class women could meet and marry men of the appropriate social classes.

and none of those are operative today except maybe the first. The system of legal education seems to be collapsing even as I type and Lord knows the system of medical education is in drastic need of reform. How much sense does it actually make for GPs to get the same training as medical researchers?

I don’t think our system makes any sense at all in an environment of mass education. As the stats in the post suggest more than half of the people are guaranteed to fail.

I’ve made no secret that I think it’s a scandal and an outrage that kids are being saddled with debt they’ll never be able to repay. I agree with Bernie Sanders’s goals with respect to education but my tactics would be different. I’ve said it before: the five biggest states should each close one of their non-performing state universities (they all have them), take the money, and create a program of online education they’d be willing to offer an accredited degree for (associates if not bachelors) and in which anyone could participate free of charge.

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Feel Lucky, Punk?

When I first read Robert Samuelson’s Washington Post column reasserting that it’s still the economy, stupid, this caught my eye:

Here’s a report from economists Beth Ann Bovino and Satyam Panday of Standard & Poor’s. There have been, they say, 11 economic expansions — periods when production and employment are generally increasing — since World War II, averaging just over 58 months, or nearly five years each. By this measure, the present expansion — which started in the third quarter of 2009 and has lasted 78 months — is past its prime and could be near its end.

But the S&P economists doubt that. Indeed, they argue just the opposite. “We may be, more or less, at midcycle,” they write, “with room to grow and the underlying momentum to do so.” Translation: With a little luck, the expansion could run another five or six years.

According to the National Bureau of Economic Research, the official scorekeeper on U. S. recessions, the longest economic expansion of the post-war period was 128 months (the expansion of the 1990s). Two questions. Do you really think that our present economic circumstances are comparable to that record-breaking expansion? And do you really think that the economy will continue to expand for another 72 months? That would make the present expansion 150 months in duration.

I would be happy to take the action against that bet with a little cash money. IMO that the economy will continue to expand for another six years is absurd on its face. If the present trend continues, we’ll be in recession by the end of the year. Growth is basically zero.

Economists keep saying that the business cycle has been licked. Somehow that never materializes. Of course with expansions like this who needs recessions?

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On the President’s Remarks at the Baltimore Mosque

When I first heard about President Obama’s remarks made in a mosque in Baltimore, I was mildly irritated that the president was giving the issue more weight than it deserved and that he’d been listening to CAIR too much. The reality, as reflected in the statistics on hate crimes compiled by the FBI, is that, although Islamophobia is a real problem, it’s not a particularly dire one and, indeed, hatred of Jews is a much more serious problem, an order of magnitude more serious problem. The Council on Islamic Relations seems to view every criticism of Muslims as Islamophobia. If the Jewish Anti Defamation League reacted the way CAIR does, there would be nothing on our news other than complaints about the way Jews are treated in the U. S.

However, on reflection I realized that President Obama’s remarks were benign if anodyne and they really did serve a valuable purpose. There is an actual problem. It’s not fear of Muslims as CAIR would have it but fear by Muslims and I thought the president’s remarks did a pretty good job of assuaging those. That won’t last long but what does?

Here’s another objective measurement demonstrating that Islamophobia isn’t much of a problem. Tally up the number of Muslims coming to the United States rather than leaving it. The balance sheet is enormously in our favor.

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I Have a Different Question

There’s a very interesting article at Bloomberg that delves into the question of whether profit margins always revert to the mean. Here’s a sample:

A new note from Goldman Sachs Group Inc. analysts led by Sumana Manohar looks at the bull and bear arguments for the profit margins debate.
Manohar argued that profit margins have expanded, thanks to four key trends: strong commodities prices, emerging market cost arbitrage (companies making things more cheaply in emerging markets), demand growth from emerging markets, and improved corporate efficiency driven by the use of new technology. Continuing one of its major analytical themes of recent months, Goldman also noted that the market has rewarded companies that have undertaken mergers and share buybacks, as opposed to companies that have invested internally, further bolstering margins.

I have completely different questions. Why would anyone ever think that the system we have is capitalism or that you could draw conclusions about capitalism from the way our system works?

Basically, we have state capitalism—a system in which outcomes are carefully managed to the benefit of a relative few. Everybody else nibbles around the edges like lamprey.

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It’s Too Late Now

If you want to read a sad article you might want to check out this one at Atlantic, “Unemployment: The All-but-Certain Fate of Too Many Poor Black Boys”. Here’s a snippet:

To investigate the impact of parental income and neighborhood choice on children, Chetty and his fellow researchers looked at data from the IRS from 1996 to 2012 to determine a sample of Americans’ household incomes and locations. After tracking the eventual wages, college-attendance rates, and employment of these parent’s children, Chetty and his colleagues found that by and large, poor children become poor adults, and rich children become rich adults. Also, kids from middle-and upper income families were more likely than kids from poor families to be employed as adults.

But the outcomes are significantly worse for poor black boys. Girls from poor families are more likely to find work and to get further in school than boys who grew up in similar circumstances. The researchers detected a similar gender gap among poor children who grew up in single-parent households, but of all the variables tested, growing up in concentrated poverty and growing up in an area that was predominately black were the strongest predictors of adult male unemployment.

The malign stew of indifference, historical racism, bad choices throughout an entire culture, and mass immigration have put young black men in a box from which I don’t see the way to extricate them.

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The Spiral

Crain’s Chicago reports that the negotiations between the Chicago Public Schools and the Chicago Teachers Union appear to be deteriorating:

Chicago Public Schools, reacting to yesterday’s rejection of a contract offer by the Chicago Teachers Union, said it would cut an additional $165 million from the budget, while Gov. Bruce Rauner reiterated his intention to put the struggling school district under state control.

The union termed CPS’ announcement “an act of intimidation and bullying because teachers refused to accept a flawed contract offer.” Before scheduled press conferences this afternoon by each side, the CTU said it received a letter from CPS disclosing the budget cuts and the possibility CPS would stop making employee pension contributions on behalf of CTU members.

At a news conference in Springfield, Rauner said he told Illinois Board of Education members to look for an interim superintendent for CPS, the Chicago Sun-Times reported, quoting him: “The state’s going to be ready to step in and take action.”

Despite the brinkmanship, CPS today said it plans to proceed as early as tomorrow with plans to sell as much as $875 million of bonds after the deal was postponed last week by investors asking for more time to evaluate the securities. “We have good momentum with our investors,” Claypool said.

The article continues:

Chicago’s schools are running out of cash after drawing down reserves and shortchanging pensions for years, which caused its annual payment to soar. The district has relied on borrowing to help cover budget shortfalls, making it crucial to maintain access to the municipal bond market. On Jan. 29, Moody’s Investors Service cut the board deeper into junk, citing an “increasingly precarious liquidity position and acute need for market access to support ongoing operations.”

The basic situation is that Chicago has among the highest property taxes in the country and the highest sales tax of any major city in the country. It does not have the power to levy an income tax. The mayor just announced the largest property tax in the city’s history a couple of months ago.

CPS has a lousy credit rating which means that borrowing is relatively expensive.

The CPS has been postponing payments into its teachers’ retirement fund for decades which has resulted in its owing large payments to the fund.

To add insult to injury the upshot of the mayor’s caving into the CTU’s demands when the CTU went out on strike a couple of years back was that it made the CPS’s financial position worse, increasing both its expenses and its long-term liabilities.

The city just announced a couple of hundred million dollars more in cuts.

There’s an old saying about not being able to get blood from a stone. I don’t think Chicago’s teachers have heard that one.

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Winning on the Ground

In all of the news articles and opinion pieces on the non-starter talks in Geneva between the Syrian government and their opponents there’s something crucial missing. Inch by inch, town by town, the Russians, Iranians, and the Syrian government are restoring control of the country to the internationally recognized Syrian government. Right now they seem to be advancing on Aleppo.

You’d think that might be seen as an important factor.

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