Inspired by some remarks by Arnold Kling and bolstered by my experience that human beings are better at perceiving a change in speed than they are speed I began noodling around and produced the graph above which illustrates the changes in the real GDP growth rate as measured from a fixed trend. Essentially, my guess was that people aren’t particularly good at perceiving the level of economic activity but they’re probably better at perceiving the change in economic activity over time.
Here’s the method I used for producing it. First, I downloaded the real GDP figures from 1948 to present from the St. Louis Federal Reserve’s FRED database. Then I calculated the year on year change as a percentage. Then I calculated the difference between that percentage and an arbitrarily selected trend. The trend I picked was the average GDP growth rate for the period (3.25%). If I had picked a different trend for calculating my differences, it would have made on difference in the general shape of the graph, only in the height of the peaks and depth of the troughs. Then I graphed the result.
The graph illustrates a clear trend: down. Obviously, that’s not good news.
You can see why those who spoke and wrote of a Great Moderation starting in the 1980s and continuing through the middle of the Aughts thought they were onto something. Maybe they were but the case is a bit weaker than it used to be. Rather than a Great Moderation in which, while the peaks are lower, the troughs are shallower, too, we may be seeing a general slowing of the rate of economic growth over a considerable period of time. The slowing has proceeded under Republican presidents and Democratic presidents, with Democratic control of the Congress and Republican control, and various permutations of the foregoing.
The time and persistence suggests, at least to me, that changing the trend will be very difficult, if not impossible to correct. A United States of persistent slow or no growth will be very different than the one I grew up in.
I imagine Steve V and Ice will be along shortly to pick at your methodology. In the meantime I have what is undoubtedly a stupid question: If we all had absolutely everything we wanted, but we were able to make that basket of wishes more efficiently and at a lower cost, wouldn’t we see GDP drop even as we got everything we wanted?
“If we all had absolutely everything we wanted, but we were able to make that basket of wishes more efficiently and at a lower cost, wouldn’t we see GDP drop even as we got everything we wanted?”
If we were able to meet every consumer’s desires and those desires remained static then yes, you would in theory see a decline in average economic growth. I don’t doubt that some slowing over the last forty years results from a maturing economy, but I find the most interesting part of Dave’s graph to be the accelerating decline in from the 1970’s on.
I don’t think I see the satiation that you do, Michael. I especially don’t see it every time I go to Costco.
Ben’s answer is good enough that I think it deserves a little expansion. The issue of satiation has multiple components neither of which I think is operative. The first is does everyone have everything that he or she wants? I think the answer to this is obviously “No”. But the second part is just or even more important. Does what people want remain the same over time?
The answer to that is most emphatically “No”. When my great-grandfather was my age he wanted and bought a Model T. I have no interest in owning let alone buying a Model T. I buy a dozen different kinds of tea; my great-grandfather probably bought one.
Ben:
I bring it up because I have a lot of things that didn’t even exist in 1980, plus all the stuff I had then. (More because I was broke, but for the sake of argument.) But a lot of the new stuff I have costs little or nothing — apps, ebooks, WiFi, GPS, vast amounts of data, games, movies, tunes.
My point is our houses are bigger, our cars are better, we eat better food, we travel more, we get better medical care, we’re drinking better beer and wine, we’ve added computers and cell phones and the internet — and we’re in some kind of long-term decline? If that’s three decades of decline can we have more?
Obviously things have been getting better for most of us — until this recession. So I’m missing something.
Dave:
No, that’s not quite where I was going. I’m going more to the fact that a large proportion of what I want is now free or so cheap it might as well be free.
And I’m wondering how we could go from Schlitz to Chimay and call it decline.
The technical term for what you’re describing here is “consumer surplus”. One of the explanations for what has been going on for the last couple of decades is that while GDP hasn’t grown as rapidly consumer surplus has increased more rapidly. I’m unconvinced.
One last question: can we assume that the desire for “more” is immutable? Isn’t is possible that consumerism will wax and wane over time? Are we sure that my kids will want more than I wanted?
The prevailing wisdom in the West for the last several thousand years has been that there are some things that are not self-limiting and wanting more is one of them. Anger and pride are others.
Admittedly, that’s a small sample of geography and history. As to waxing and waning I’m not sure that it’s necessary for wanting more to accelerate in order to sustain an economy based on it. Merely that people want more over time.
I think that here in the United States there are social reasons we might expect that to be true. Kids don’t grow up to want what their parents had at their age. They want what their parents had at a much older point in their lives, the point they remember. They come to believe that what their parents have now is what they deserve now.
I haven’t had what my dad did at any age but my circumstances are out of the ordinary. My dad grew up in a wealthy household. He paid for college by selling assets. The first time he had ever worked for pay was after he graduated from law school, spent a year in Europe using the last of the cash portion of his inheritance, and returned home. He inherited our first home from his grandfather.
My point is our houses are bigger, our cars are better, we eat better food, we travel more, we get better medical care, we’re drinking better beer and wine, we’ve added computers and cell phones and the internet — and we’re in some kind of long-term decline? If that’s three decades of decline can we have more?
I’m in the same house I was 43 years ago, and hoping I don’t lose it. (And hoping it doesn’t fall down around me.)
I”m in older cars, and hoping I don’t lose them.
I’m eating cheaper food, but not better food, than I was five years ago. The plus is I’m actually losing some wieght because I just can’t eat the stuff I like.
I laugh at the idea of getting better medical care, after the doctors almost killed my daughter and wife, and did kill my mother. The medical system is terrible, and the doctors don’t give a shit about their patients so long as they can pay. It’s all about getting to send a bill in to an insurance company or Medicare. And if you can’t? You get the extra crappy care at the emergency room.
Can’t afford beer or wine anymore.
I’ve got old computers. Here’s hoping they don’t die because I can’t afford new(er) ones. When these die I won’t have computers and the internet.
I do have a cell phone. It’s old and dying. I’ll probably be able to get a replacement. They give those away to get you on a data plan. Yay for the modern times!
Yeah, times are great….
Well, take it from this direction, then: what we want more of may not show up in GDP numbers. Let’ say we gave john personna a million dollars, tax free. (I only know him from the internet, so I’m taking liberties.) Does he go out and buy a $90,000 German car like Drew might? Or like I would have a few years ago?
No, I think he buys a $1,000 bike and a $25,000 hamster-driven, 90 mpg tin can. Because that’s his vision of rich. He’s greedy, if you will, for things that cost less. I’m moving in that same direction. 2012 is looking prosperous (if I don’t die or something) but I have no plans for major purchases. I’m keeping my old car, I’m going to keep renting (I can’t imagine why I ever bought), I may travel a bit but not a lot, my TV is big enough. Some of that’s my advanced years (so very old) but I’m just not sitting around thinking of stuff to have.
Consumerism has driven our society for a long time now, but I just have the feeling it’s a weakening force. I deal with a lot of teenagers, and I really get the feeling that the consumerist force is weak in them. They don’t really seem to want cars or houses or yachts or whatever, they want to break 100 friends on Facebook. Maybe they’ll grow into consumerism, but maybe not.
“One last question: can we assume that the desire for “more†is immutable? Isn’t is possible that consumerism will wax and wane over time? Are we sure that my kids will want more than I wanted?”
I’m inclined to agree with Dave: Though the effects of societal attitudes toward consumerism are devilishly hard to quantify, I’m fairly confident arguing that decreased economic performance over the last forty years primarily stems from inadequate demand due to stagnating wages and misallocation of capital to non-productive financial schemes and the vast increase in personal debt acquired by a middle class attempting to tread water via credit.
It’s also possible the slowing of large-scale scientific discoveries means fewer entrepreneurial opportunities (think air travel, radio, transistors, DNA). Some have suggested the low-hanging scientific fruit has been picked and further advances require exponentially greater investments to achieve.
Some have suggested the low-hanging scientific fruit has been picked and further advances require exponentially greater investments to achieve.
The actual fear is that they will require a significant increase in the intelligence of the researchers. Despite the beliefs of the Singularity folks, there isn’t any reason to believe that people are getting smarter, nor are their machines.*
* The programming of machines is getting more clever, as is the power of the machines. That’s not the same thing as active intelligence, though it can be extremely useful.
NEWSFLASH: MMT CONQUERS THE COSMOS, OR SOMETHING LIKE THAT
http://mikenormaneconomics.blogspot.com/2011/12/we-won-mmt-got-everything.html
I’m fairly confident arguing that decreased economic performance over the last forty years primarily stems from inadequate demand due to stagnating wages and misallocation of capital to non-productive financial schemes and the vast increase in personal debt acquired by a middle class attempting to tread water via credit.
Give the man a cupie doll! And now an increasingly large chunk of the middle class is noticing the air go out of their water wings and they still can’t swim.
It’s easy for someone like Michael to believe everything is fine. It’s easy to come up with a rationalization that people will be happy (or even happier) with less. That is bullshit, and it’s along the same line of thinking that the darkies were happy on the plantations, with their mastas doin’ all dat hard thinkin’ fo’ ‘um.
Michael is rich, and probably mostly associates with other rich people. It’s easy for people that are rich to think, “Gee, do I really need all this stuff?”
On the other hand I’m poor. I’ve also got too much stuff because I inherited some of Mom’s junk when she died, to go with my junk. (Junk accumulated when I was middle class.) I’m getting rid of the junkiest pieces of furniture. I put it out to be hauled off as garbage and it is GONE, like that. The last time I purged stuff two weekends ago, the neighbors from across the street wanted dibs on everything. There was nothing I took out that they didn’t scoop up and haul straight into their house.
The point is this: I’m poor, I thought it was junk, and they were greedy to get something for free – because it was better than the nothing they had.
I possibly could have sold some of the stuff, but the yard sales here never seem to get any customers. Plus, I was somewhat happy to know that someone was going to get some more use out of it. I’m not quite in the same boat as them, but I’m in the same flotilla.
But when you see people grabbing mattresses out of the trash in the middle of the night because even that mattress will be better than sleeping on the cold hard floor, then perhaps the idea that people just want 100 Facebook friends sounds like a sick fucking joke. You want ’em to eat cake, too, Michael?
Icepick,
I would argue the point of the machines is that they enhance their intelligence, not that they will take over thinking for us. A human and computer together can accomplish far more than either alone.
I would argue the point of the machines is that they enhance their intelligence, not that they will take over thinking for us. A human and computer together can accomplish far more than either alone.
That can improve what the mind can accomplish, like simple tools increase what the body can accomplish. But the work, the IDEAS, have to come from somewhere. Machines were createed to harness various power sources. What’s going to harness MIND?
NEWSFLASH: MMT CONQUERS THE COSMOS, OR SOMETHING LIKE THAT
Who knew methylcyclopentadienyl manganese tricarbonyl would be that powerful, or that ambitious?
Ice:
I don’t associate with anyone in person, let alone rich people.
But to re-cover old ground: 16 year-old mother, abandoned by birth father, adopted by enlisted man who married my mother, molested, constantly uprooted, high school drop-out, trouble with the law, waiter for 10 years, street person, janitor. Have you scraped gum off the floor of a department store for a living? I have. Have you scraped shit out of a toilet for a living? I have. Ever walked barefoot from restaurant to restaurant looking for a job because your one pair of shoes was falling apart and you couldn’t afford 60 cents for the bus? I have. Slept under a freeway overpass? Slept behind a bush? Thought the high point of your week was a McDonald’s caramel sundae? I’m not Mr. Potter.
I’m calling things as I see them. But I see you, too, Ice, and I have a visceral emotional sense of where you are. I have a long memory for humiliation and hopelessness and fear. Been there. Scared every day of ending up back there.
I actually kind of like you, Ice. You make me work, and you make me think. So Merry Christmas asshole.
So Merry Christmas asshole.
Happy Godless Winter Festival to you, you athiestic bastard.
Feel the love!
The thing is, I think it’s possible you are both right
The thing is, I think it’s possible you are both right.
On the last messages we sent? Probably.
Dave Schuler,
Can you post the raw data for your graph. Thanks!
You can download the data from here in a variety of forms.
Dave Schuler: The graph illustrates a clear trend: down.
There is a great deal of fluctuation in your graph; R-squared is only ≈5%. If, instead, we take decades ending 1958 to 2008, then we can get a bit better picture.
http://www.zachriel.com/images/USGDPbyDecade1958-2008.gif
It shows the decline, but more important, it shows the anomaly of the Affluent Society. Notice that much of the GDP growth from 1948-1958 (the first data-point) is due to population growth (the difference between the two graphs). From 1958 to 1968, there is a dramatic increase in per capita GDP. If we ignore that period, growth in per capita GDP is now about the same as the 1948-1958 period.
The unique conditions of the U.S. after WWII led to very high growth rates, but most developed economies grow slower than economies going through the process of industrialization. (That’s because developing economies are moving workers from low-GDP occupations in agriculture, to high-GDP occupations in industry. Once this process is completed, growth returns to more normal levels.) While, the U.S. should make every effort to increase their productivity, there is no reason to believe that they will not continue to prosper and grow going forward.
I think that the U. S. will continue to grow. It’s the rate of growth and assumptions about the rate of growth that I’m more concerned about.
I probably should have put the trend line on my original graph (I thought about it). It shows two things:
1. The declining deviation from baseline (which I commented on)
2. The decline below the long term baseline.
Assumptions, particularly federal, state, and local government assumptions require growth above the baseline. I think that’s highly unlikely.
From our decadal graph of growth in GDP per capita, if you eliminate just the decade ending in 1968, the trend line is actually slightly positive. On the other hand, it is markedly negative if you only consider from the decade ending 1988 on. The latter would seem to support your position better. However, mature economies tend to grow slower, so it may just be ‘normal.’