by Tyler Cowen
on April 4, 2011 at 7:13 am
in Data Source, Economics, History, Science, Uncategorized
Here is a chart from the excellent David Beckworth:
Notice how the drops always occur during Republican administrations (haha).
That’s because the Reps have to first clean up the mess left behind by the Dems. Kinda like now.
I’d like to chart that with the rise of the welfare state.
There is more than a little irony in asking someone to do something for free so you can show that welfare is bad.
Welfare isn’t charity. There goes your irony.
Don’t recall asking anyone to do it. Just making a mental pic is all.
Funny your default position is asking for a freebee.
slower growth stagnation
no growth = stagnation
Sorry – the greater than and less than signs disappear. (Wordpress bug that’s clearly a sign of stagnation)
slower growth != stagnation
no growth = stagnation
Nice use of the truncation on the time axis. Let’s scroll back in time before 1947, observe the lower TFP growth, and then we might instead label 1947-1973 The Great Explosion.
Yes yes yes! I keep saying this, but we need pre-1947 data to know which time period is the outlier.
Hmm, somewhere around 1970 it became more profitable to invest in finance products than actual products. I wonder why that is?
I honestly wish I knew what this meant. I hear it a lot, but it has little meaning to me.
If you use 3 % of GDP (or 6 % of nongovernmental/healthcare GDP) in finance, more resources is left to investments in the part of the economy that make useful stuff than if 8 (or 16) % is used for that purpose.
The only way total output of useful stuff would be bigger with 8 (or 16) % of GDP to financial services is if these extra 5 (or 10) % would decrease various market failures to the same or a greater extent. I haven’t seen anyone that even tried to argue that that is the case – but I would love it if someone could direct me toward a source that did.
But it’s not a zero-sum game, right? By your logic we should reduce finance to 0% of GDP. Surely finance has some value or people would not be so willing to pay for it?
Some does not equal all, it may not even equal most.
I didn’t say that it was a zero-sum game.
If we would spend one percent of GDP on finance, I´m rather confident in that it would increase the efficiency of the remaining economy by more than one percent. Given the imperfections of the real world (compared to the Arrow–Debreu–McKenzie world), I wouldn’t be surprised if one percent to finance would be to little.
If we spend eight percent, I can´t imagine that it will increase the efficiency of the real economy by more than eight percent. I just can’t imagine in what way that would be achieved, but would love to see someone trying to make the case.
hmm..breton woods people…only product the US makes of any value is the US dollar….
The plot also seems consistent with a simple increasing, concave function. Over time, low-hanging fruit are picked, and there is a gradual slowdown. This would be less arbitrary than the 1973-74 break. Both approaches would suggest we’re reaching a plateau.
Energy prices ?
There’s a similar discontinuity in the early 70s.
Actually, I also like the late-90s Information Revolution uptick.
With a corresponding lapse around the time of the aftermath of 9/11 and the housing bubble. Had neither of those occurred one might say we’d be doing quite well. Maybe not increasing at the 1947 rate but about halfway between that explosion and the stagnation of the 70’s and 80’s.
Energy prices isn’t sexy enough.
There’s a reason that 1947-73 is called the post-war period. We could easily replicate the growth rates seen in that period. All we’d need is to have a couple decades of depression and war. The catch up growth rates that followed for the next generation would also be spectacular. Can our current generation of leaders stay the course and plant the seeds for this spectacular future boom? I have my doubts.
This is a good point. Maybe we were just like an emerging economy in 1947-1973. Now we’re closer to a steadier state, of developing ideas and implementing them simultaneously rather than rushing to implement a huge stock of exogenous ideas
Similar evidence in other OECD countries?
Runners up include the waning of the three martini lunch and letting women play.
Wasn’t the period of massive investment in roads and bridges, massive investment in all schools, massive investment in water and sewer, massive investment in energy infrastructure, massive investments in dual use (military and civilian) technology (automated manufacturing, electronics, computers and software and networking) for the cold and warm wars, all funded by high taxes or regulatory price supports, from pre-1947 to about 1973?
1973 was the point where Milton Friedman’s views on the PUCs and Texas Railroad Commission joined in harmony with the anti-nuke power movement, and the tax cuts to make government smaller joined in harmony with the anti-war cut military spending, and the high price of oil joined in harmony with the green anti-car subsidies and the tax cut movements to starve the highway trust fund, and a few other synergies, which worked to make government the problem and not the solution.
I would love to see an argument for the period from 1973 to the present being a period of significantly greater government control over every part of the economy relative to pre-1973. I remember Regulation Q that prevented my from earning more than 5% on my S&L Passbook Savings and prevented paying interest on free checking and limited the value of free toasters if you opened an account. I remember the PUCs dictating electric rates, telephone rates, overseeing every single investment decision from the replacement of telephone poles to the replacement of telephone switches to the investment in nuclear power plants because the utilities always got 8-10% ROIC. And the Texas Railroad Commission setting a minimum price of $3 a barrel for oil, with every dentist having a tax haven oil well investment, all pre-1973.
Or the baby boom/women hitting the job market, lowering the incentive for capital investment since labor was becoming more abundant and inexperienced and providing more jobs was more important than more productive ones. Unfortunately this didn’t reverse with experience and saturation though it tried in the late 90s. The service economy just isn’t as open to as great productivity improvement and the product economy becoming too small to impact it.
This is misleading, in my view. They took a period with unusually high growth (post WW II) and then showed things slowed down afterwards. If you look back to 1900, it’s the Depression and WW II that look anomalous. See for example this chart from Tim Kehoe’s web page: http://www.econ.umn.edu/~tkehoe/
Here it says Swedish startups focus more on ‘hard technology’ in contrast to the US focus on ‘social’:
“The simplest explanation would be to attribute it to cultural differences, to argue that Americans have more of a knack for making friends and influencing people. While Scandinavians are more concerned with making things.”
Anecdotally seems somewhat true, there are lots of useless social apps and services getting funding lately from US angel/vc. Would be interesting to see data across more countries.
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