The graph above from the St. Louis Federal Reserve illustrates the annual percent change in real gross domestic product. The way I read it with the exception of recessions (including the brief COVID-related recession) it’s noisy but it has been essentially flat.
That is exactly what you’d expect as services become an increasing component of the economy. Unless those providing services provide more of those services or the number of service-providers increases, there is unlikely to be a lot of GDP growth.
Your graph doesn’t show a non-growing economy. That’s the rate of increase in real GDP, which is positive, about 3% per year, over the period you show; 2% per year for the last twenty years, which encompasses two significant economic disruptions.
https://fred.stlouisfed.org/series/GDPC1
I assumed (Zach), that since Dave is not an idiot, he meant that the rate of growth has been flat.
That brings up interesting questions. With technological advancement and greater competitiveness should we not expect higher productivity, and therefore greater output? And if not, why?
Dave cites the increasing proportion of services in total output. I think that’s correct. How much more productive can barber be? Or a waiter. Or a landscaper? Or a stockbroker? I don’t know how powerful this variable is. I will say that the hackneyed “financialization” charge leaves me thoroughly unimpressed. We aren’t over-financialized. We are under manufacturingized. See below.
But there must be other issues. Others will disagree, but I would suggest that any activity in the government sector will be less efficient than in the private sector, and leave the private sector with fewer resources. A graph Dave produced in a recent post showed the growth and shift in government intervention towards state and local – but the overall percentage of government increasing. I don’t see that as positive for growth.
Any way you look at it, (and no matter your view on regulations) the regulatory burden on the economy has increased. I don’t see that as a positive for growth.
An increasingly litigious society is not good for growth.
Chasing manufacturing and extractive industries offshore because they are icky – although venues that provide target rich environments for productivity gains – is not good for growth. I’ve spent the majority of my career trying to grow and make more productive US based manufacturers.
These factors, and others are at work. And we have pursued bone-headed policies and misdirected resources due to the political and social fevers of the day (see: global warming, DEI, “equity” etc), at great cost to national wealth, the well being of 60% – 70% of the population, and our future prospects. And for what? Bupkus.
I blame, but don’t blame, politicians. They are simply whores. I do blame voters. You can’t make voters vote their self interest. So many are susceptible to free beer and envy politics. But people need to look in the mirror. Per a previous post, 2/3 of Democrats say they are free marketers. Kamala Harris is not a free marketer. But an awful lot of people harmed by policies such as her beliefs will pull that lever. Fortunately, I have insulated myself from this. I pity those who cannot see through the fog.
It reminds me of a cartoon I saw. Two sheep are talking in a field, while looking at a political ad on a billboard. The billboard shows a wolf, with sheep in the background, the wolf saying: “If you elect me I will eat you.” One of the sheep in the field says to the other: “I voted for him, at least he doesn’t write mean tweets.”
Drew: he meant that the rate of growth has been flat.
So? If the world population increases at 1% per year (‘flat’ growth), its gravity will swallow the Sun in just 5,000 years. Economic growth is about 2% per year.
Drew: With technological advancement and greater competitiveness should we not expect higher productivity, and therefore greater output?
And returning to the original point: We do see higher productivity and greater output, about 2% per year. (Dave’s graph would be ‘flat’ if the economy grew at a consistent 3% or even 10%. But the result over time would be far different. So pointing to the ‘flatness’ of the graph of growth misleads.)
Drew: We are under manufacturingized.
Anybody can “manufacturize”. They make cars in Vietnam, electronics in China, and pharmaceuticals in India, for instance. Indeed, the technology of mass production is such that there is a vast overproductive capacity in manufacturing. It’s like agriculture: How many farmers do you need any more? To remain competitive, the United States has to make a better car—or something new entirely.
@Drew
We aren’t over-financialized. We are under manufacturingized.
I agree with “under manufacturingized” (smiley-face emoji), but I fail to understand how you continue to deny “over-financialized”
In the past decade, M2 has skyrocketed. The government can only physically print money. This increase has been through financialization, and it is decreasing through because the government is de-financializing.
Then, the trade deficit requires money or debt, and the trade deficit is additive. It does not reset at the end of the year. So, can I buy a Chinese washing machine for some Facebook stock? I will be sure to buy-the-dip.
I really do not understand why you continue to pretend why the country is not over-financialized – public, private, or personal.
@Zachriel
The reason those countries are able to manufacture cheap goods is because they forego all the minimal requirements of the US. Does India have an equivalent $25/hour minimum wage to manufacture your antibiotics? Does Vietnam have a 40 hr/wk plus 1.5/hr overtime to manufacture your car parts?
What about EPA, FDA, FCC, FTC, and all the other safety regulatory agencies? Yeah, that’s what I thought. Your economic professors, the political pundits, and Wikipedia are idiots.
You are no different than a Northerner wearing trousers made with fabric woven from cotton purchased from the slave era South. If shitty working and living conditions are good enough for Indians, Vietnamese, Chinese, etc., they should be good enough for you.
Being philosophically consistent and instinctually honest can suck.
TastyBits: The reason those countries are able to manufacture cheap goods is because they forego all the minimal requirements of the US.
Poor working conditions are typical for countries going through industrialization. The emerging middle class in China is already resulting in changes. Ironically, there is a drive to outsource from China to lower cost countries, such as Vietnam.
But the broad demographics remain. There are billions of people in Asia who can produce most types of manufactured goods just as well as Americans. Americans will prosper if they continue to innovate. Of course, there are billions of people who are competing to innovate, too.
Change is inevitable. Americans can do the hard work, or they can thump their chest.
@Zachriel
Nice attempt at a justification. Do you really believe it?
I guess the Southern plantations were a work program for Africans, and by your logic, it worked. African-Americans are much better off than Africans.
Re-read what you wrote. It is gibberish.
TastyBits: Do you really believe it?
It’s what the evidence supports. Americans have no special advantage when it comes to making most products, such as conventional cars, and there are highly developed manufacturing centers in Shanghai and elsewhere. You can whinge about it or compete.
But, Americans have a right to living and working conditions above a slave?
I have long thought that a Pigouvian tax should be imposed on Chinese goods and those of other countries with health, environmental, safety, and labor laws (or lack of enforcement of those laws) more lax than ours equivalent to the advantage that confers on them.
TastyBits: Americans have a right to living and working conditions above a slave?
While conditions in Chinese factories are hardly up to American standards, it is not the same as slave labor. Even accounting for the differences, the globalization of manufacturing is an inevitable consequence of industrialization and the relative sizes of the respective work forces. You have ignored this point several times, but the point remains.
American can only prosper if they compete on niches for which they are best adapted, which is innovation of new and improved products. But they will lose even that advantage if they dilly dally or waste their energies on nostalgia over lost glories.
There is no such niche. Junior engineers and scientists become senior engineers and scientists. Most junior engineers and scientists these days are in India or China. We’re not producing new senior engineer and scientists. I might add that Japan produces a multiple of the new products annually that the U. S. does.
Maybe financial services. What do the rest of the people do? And why are we accepting people who will never be able to prosper in the economy you’re imagining?
Dave Schuler: There is no such niche.
What you probably mean is that the niche exists but is getting filled by other countries. However, the United States is still a major center of innovation—just not the only one. For instance, more than half of top-tier researchers into AI are in the United States, both in private industry and universities. Not bad for 4% of the world’s population. Gotta compete, not navel gaze while waxing nostalgic for past glory.
Dave Schuler: What do the rest of the people do?
What will people do when automated looms replace textile workers? (Note that unemployment in the United States is about 4%.)
@Zachriel
Why not be intellectually honest and admit you just want a cheap iPhone? If it takes whips and cattle prods to get you one, you are cool with it.
TastyBits: a cheap iPhone?
Good example. While iPhones are assembled in China (with components coming from all over the world), there are over 100,000 employees of Apple in the United States, while the Apple footprint is responsible for over 2 million U.S. jobs.
While work conditions in China are often far from ideal, the middle class in China is already the size of the entire U.S. population.
This is a bit off the original topic, but if you are interested:
TastyBits: If it takes whips and cattle prods to get you one, you are cool with it.
As mentioned above, the U.S. also experienced many of these same problems during industrialization, as workers moved in large numbers into urban centers for factory work. Even today, many of these same problems occur at Amazon distribution centers.
No, what I mean is that there is no niche for product creation isolated from product manufacturing. It takes a little time but production engineering must be near manufacturing and other engineering follows production engineering over time.
Apple manufactures in China, basically, for two reasons. It wanted access to the Chinese market and now it makes use of China’s more sophisticated production engineering. We are lagging badly in production engineering. Watch what happens when Apple can’t sell iPhones in China any more.
@Zachriel
You are spouting wormed over 1990’s Republican talking points.
The Chinese are not superior iPhone assemblers. Illegal aliens are not superior meat packers. These are people who will work and live in conditions you would consider unjust, but you make excuses becauses you want cheap shit.
If these countries were industrializing organically and for their own purpose, it would be as you say, but it is specifically to sell cheap shit to wealthy countries that have intentionally de-industrialized because it is too dirty and dangerous.
Honestly, you should take a shower after buying an iPhone.
Dave Schuler: No, what I mean is that there is no niche for product creation isolated from product manufacturing. It takes a little time but production engineering must be near manufacturing and other engineering follows production engineering over time.
Huh? Apple designs their products in the United States, but manufactures them elsewhere. They employ more than 100,000 Americans, have a job footprint of more than 2 million, plus knock-on effects (housing, food, smart cars).
Dave Schuler: It wanted access to the Chinese market and now it makes use of China’s more sophisticated production engineering.
Yes, increasing specialization means that old-fashioned production engineering gets farmed out. Taiwan is especially adept at producing integrated circuits. If Americans want to compete, they have to do something others can’t do as well.
You seem to think Americans can’t compete, even though the American economy is bustling along quite nicely. You might be confusing the stress of competition and anxiety about what comes next with “The sky is falling!”
TastyBits: The Chinese are not superior iPhone assemblers.
True, but they are just about as good overall. That allows increasing specialization and greater efficiencies. This is quite new, by the way. See Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations”, W. Strahan and T. Cadell, London 1776.
@Zachriel
The year is 2024, and I am fairly certain you are a progressive. I expect you to live your convictions, not those of an 18th century Scotsman.
These countries are specializing in cheap labor and shitty working/living conditions for the purpose of selling cheap goods to wealthy countries that have intentionally de-industrialized.
If China wanted to industrialize to improve China, great. If they needed to legally import specialized equipment or technology, great. If China were able to eventually pass the same working and living condition laws as the US, we should trade with them.
You seem to have gotten history backwards, and now, you keep trying to justify importing cheap goods.
You may not be able to change the working/living conditions in these countries, but you do not have to justify them.
And multiple knowledgeable commentators have observed that Apple is no longer an innovative company.
No. I think that Americans can compete but won’t. Either the regulatory load on American companies should be reduced or (my preference) we should penalize goods from countries that don’t have acceptable labor, health, safety, environmental, etc. regulations and enforce them.
TastyBits: I expect you to live your convictions, not those of an 18th century Scotsman.
Have no idea what you are on about. Basic market forces described by Smith are a valid first-order approximation of how the economy works.
Dave Schuler: And multiple knowledgeable commentators have observed that Apple is no longer an innovative company.
And that’s exactly how it works. Apple innovated, then others copied. If Apple can’t keep up, then they get supplanted. The big push now is AI, in which the U.S. has substantial advantages.
Dave Schuler: I think that Americans can compete but won’t.
Americans will continue to compete, often successfully. But they have to come to grips with the fact that the competition is increasingly fierce because of globalization. Making
dumb carscomputerssmart phones is no longer at the cutting edge of economic competition.Dave Schuler: Either the regulatory load on American companies should be reduced or (my preference) we should penalize goods from countries that don’t have acceptable labor, health, safety, environmental, etc. regulations and enforce them.
That will help on the margins, but the fact is that there are a few billion people who want your job and have every intention of competing for it. In the long run, it will lead to greater overall prosperity.
@Zachriel
The 18th and 19th century economics is based upon sound money – a gold standard. As Nixon learned, a country cannot continuously carry a trade deficit and maintain its gold supply.
Had Nixon not closed the Gold Window, globalization would not have taken the form we know. It would have been closer to what you describe, but since it would cost actual gold to have China assemble iPhones, they would be assembled in the US. (Assuming the US had a gold supply left.)
I have read all the same material you are quoting. I know all the theories, and at one time, I spouted it. Then, I stood up, turned around, and left the Cave.
TastyBits: The 18th and 19th century economics is based upon sound money – a gold standard.
The fundamentals of markets remain the same with fiat money, where the currency is also an object of market exchange.
TastyBits: but since it would cost actual gold to have China assemble iPhones, they would be assembled in the US.
Chinese workers and American workers are both happy to take American dollars. A gold standard would not change that.
As Smith showed, moving basic manufacturing back to the United States would be a less efficient use of resources. Assembly labor is plentiful in China, while top-tier innovators are more plentiful in the United States. A gold standard would not change that.
@Zachriel
Today’s monetary system is not that of Mr Smith’s time, and trying to apply principles built with it would be like building a modern skyscraper with steel from over 100 years ago. It is not the same, and it cannot bear the same loads.
Today’s fiat currencies are more correctly termed balance sheet currencies, and they are backed by assets. All central bank balance sheets are tied together, and all public financial institutions are tied in, as well.
The monetary/financial system that exists today is like an iPhone to a telegraph. Both are used for communication, but there are few similarities beyond that.
Today’s globalization is the result of Nixon closing the Gold Window in 1971. Specialization had nothing to do with it. Republicans wanted unions gone, and Democrats wanted dirty and dangerous industries gone. So, the US de-industrialized.
TastyBits: Today’s fiat currencies are more correctly termed balance sheet currencies, and they are backed by assets.
Gold is just another metal. In terms of markets, all that matters is that people are willing to accept currency in exchange for goods and services.
TastyBits: Specialization had nothing to do with it.
We would recommend you read Smith again. That’s exactly what he indicated would and should happen with open international markets.
TastyBits: The monetary/financial system that exists today is like an iPhone to a telegraph.
iPhones are almost universally considered superior to telegraphs.
@Zachriel
Adam Smith and Isaac Newton were not idiots, but the space their theories were developed in has expanded exponentially. Using Newton’s theory to build a bridge is fine, but it is too limited to calculate the expansion of the universe.
I have thought and written about the monetary system for at least the last five years, and frankly, I am tired. Nobody cares about it.
If you think I am an idiot. So, be it.
I will give you a suggestion compare Hegel and Einstein, and the, re-read Sartre and Camus. Hegel predates Einstein, and I predict Sartre predates AI. I wonder what a computer sees when it stares into the abyss, and more importantly, what stares back.
You sound more like me when I was an Objectivist.