Brad Delong on stagnationist arguments

by on December 4, 2013 at 7:08 am in Economics, History | Permalink

He has a very long and interesting post — over 9000 words –  so do read the whole thing.  Here is one excerpt:

…we have an argument that we were not as rich as we thought we were, an argument which indeed seems to me to be true, but that is not an argument that future growth will slow but rather that past growth was misperceived because of irrational exuberance. Only with “no new net job creation in the last decade…” is there even a datum that I see as about a “great stagnation”. But then Tyler branches off into failures of American governance, failures that seem to me to be no greater than the failures of American governance have always been. Yes, failing governance. Yes, overestimated wealth at the end of the 1990s and in the mid-2000s. Yes, a somewhat more sclerotic-appearing labor market as far as cyclical adjustment is concerned. Yes, a successful class war waged by the 1% on the rest of us–or, rather, if my household income in 2014 is what I think it will be, on the rest of you. Yes, a huge demand shortfall-driven business-cycle downturn.

Where in all of this is the promised “great stagnation”? I do not see it.

The latter part of his post, however, is more sympathetic to stagnationist arguments, so do read the whole thing.

I would offer a few points in response:

1. I am not the “pessimist” Brad thinks I am; I sometimes say I am a revenue pessimist, but a happiness optimist.  In this regard Brad’s case for an ongoing growth in well-being is not opposed to all stagnationist ideas.  But we are still short a few transformative technologies compared say to 1870-1960, and that matters for what kinds of changes we are going to get.

2. For all the usefulness of the AD-AS model for the short run, I don’t see AD and AS as so clearly separable over the medium term and certainly not over the long term.  In this regard I think today’s Keynesians are often taking that model too literally.  Had we done a better job of generating wealth, demand today and looking forward would be stronger.

3. I don’t see a belief in the efficacy of institutional changes as an  alternative to stagnationist views.  One can and probably should believe both a) big institutional changes could bring us significant growth benefits, and b) given some approximation of the current set of policies, we have been on a relatively unfruitful part of the technology yield curve.  On top of that c) policies don’t always change so quickly and so “b)” remains an important consideration, and d) the “golden years” for growth themselves had some pretty terrible policies and institutions, not the least of which was an extreme legacy of racial, gender, and other kinds of (grossly inefficient) discrimination.  Transformative technologies can overcome a lot of human stupidity, and it would be nice to have more of those.

Chip December 4, 2013 at 7:50 am

“. But then Tyler branches off into failures of American governance, failures that seem to me to be no greater than the failures of American governance have always been.”

Eh?

Debt, deficits, employment rate, slumping confidence in the future, regulatory over-reach, shambolic foreign policy, failure of signature domestic policies, corruption of the IRS, bankrupt cities – but same old same old, business as usual.

Oh please, American governance has never been worse – mostly because it’s rarely been so pervasive.

The state is ascendant. And incompetent.

Adrian Ratnapala December 4, 2013 at 8:31 am

If you think the problem with American governance is that it has no smooth process for making more laws, then yes its “no worse than it’s always been”. But if you think the problem is largely in the old accumulated laws, well that’s different.

Michael December 4, 2013 at 8:57 am

I think American governance was a little worse when slavery and civil war were the norm–or maybe you’re a pro-slavery secessionist?

derek December 4, 2013 at 10:46 am

And those two things took a big chunk out of growth and prosperity.

Do some asking around. Talk to someone who had a small business, 30-40 years ago. Ask them about their interaction with government. Take a sector that is growing and thriving, compared to one that is stagnant and at best holding it’s own. Is there a difference in the regulatory burden?

JWatts December 4, 2013 at 11:08 am

Talk to someone who had a small business, 30-40 years ago.

The level of regulatory burdens and associated fees is much, much higher. I would suspect the regulatory burdens on some small businesses is at least an order of magnitude higher than 40 years ago, and in some cases maybe 2 orders of magnitude higher.

How many man hours did it take to open up a barbershop in 1973? How many does it take today? It was probably under 20 man hours of time and fees in the 1970′s across most of the US. Now it’s a thousand man hours just to get licensed in many locales plus the cost of the schooling which is the equivalent of hundreds of extra man hours. That’s just patently ridiculous. Then there is extensive permitting and fees to open a shop. All told it probably takes your average hair cutter in many areas the equivalent of a years wages, just to start their job.

This leads to a significantly lower standard of living for a lot of people.

Michael December 4, 2013 at 11:19 am

Yes, local regulations are bloated and annoying–but this isn’t a Federal issue, it’s a city, county, and state issue.

Boonton December 4, 2013 at 12:40 pm

who exactly are we supposed to be talking too? Someone who opened a new Barbershop 30 years ago (in 1983) and a new one today? We are supposed to ask this person if he remembers how many ‘manhours’ he spent doing this in 1983 versus today?

I can tell you my fahter-in-law spent nearly a year getting a license to run a garbage business in the 80′s, today it happens in less than a month. Fact is we have no really good metrics to measure this. Memory is clearly unreliable (that’s if you happened to have an old timer whose opened businesses decades ago as well as today). My impression is that it’s actually easier today. I would look for evidence of that by lookng for ‘churn’ in the market. How many new hair cutting places opened in 2013? How many opened in 1973? If the world was easier in 1973 you should see more back then and fewer today on a per capita basis. After all, if it takes more hurdles to jump today to open your salon then salons that already opened have a competitive advantage and should stay open. Back then new salons should have sprung up all the time to challenge the established ones. My impression is that today things open up a lot faster, at least with hair places you see both individual shops and chains all over the place, most of them do not look like they are even 10 years old let alone 30!

JWatts December 4, 2013 at 7:51 pm

who exactly are we supposed to be talking too? Someone who opened a new Barbershop 30 years ago (in 1983) and a new one today? We are supposed to ask this person if he remembers how many ‘manhours’ he spent doing this in 1983 versus today?

Well you could just start by checking the date of the regulation/law require 1,000 hours of class to get a cosmetology license?

“1) New York State Education and Examinations (eligible for temporary license)
You must complete a 1,000-hour, New York State approved course of study and pass both the New York State written and practical examinations to get a license to operate in this state”

http://www.dos.ny.gov/licensing/cosmetology/cosmetology_faq.html

Boonton December 5, 2013 at 6:02 am

There were no such requirements in 1983? What was Milton Friedman talking about then when he used cutting hair as an example of unnecessary licenses?

I think those who argue that regulation is worse today than in the past have yet to present a real metric that can be used to verify that assertion beyond simple feelings or anecdotes.

One method that might work to measure the burden of regulation indirectly is the assumption that regulation favors incumbents in any particular market. Therefore a market that is suffering from increasing regulation would exhibit it’s suppliers getting older and older on average and having less and less turnover. Therefore if you plucked any barbershop or hair salon at random, it would be more likely to have been established in 1983 than in 2013. At least with hair I don’t think that’s the case as it seems they come and go all the time as hair stylists move around from salon to salon quite frequently. While I only have memory to work from, my gut tells me back in 1983 you were less likely to find a brand new barbershop or salon than you are today.

T. Shaw December 4, 2013 at 9:41 am

“The state is ascendant. And incompetent”

Not sure I agree with the second sentence,. The state needs sheeple that are reduced to an equal, level of desperation and destitution. Beginning in 1913 (Federal Rreserve and Income tax), the state has greatly increased its effectiveness at generating desperation and destitution.

Anyhow, this latest (2008) government-induced, economic excrement sandwich’s symptoms were there for all to see. US experienced GDP growth while real household incomes stagnated. Housing prices soared while household disposable incomes stagnated. Individual savings rates fell while debt levels tripled. That was made possible by 100 years of alphabet soup: FRB, IRS, FDIC, FSLIC, FHA, FHFA, FHLB, FNMA, FHLMC, GNMA, HUD, VA, LTCM, CRA, HMDA, HUD, . . .

And, the beat goes on.

I don’t need to read 9,000 words to know delong’s an idiot.

msgkings December 4, 2013 at 12:21 pm

Whatever the state has been doing since 1913, the country has gotten far richer and its people far healthier since then.
If someone offered you the chance to live your life back then you’d be a fool to accept.

AlanW December 4, 2013 at 12:31 pm

+1. If you’re unwilling to consider the progress in material standards of living, longevity and lifestyle in the past 100, 50, or even 25 years, you’re arguing ideology, not evidence.

msgkings December 4, 2013 at 12:37 pm

Well, my state-hatin’ friends will usually reply that without the crushing boot of Leviathan since then that we’d be even better off today.
I think it’s as simple as more populous and complex societies by definition will have larger and more involved entities (the state) for coordination. You can’t run a nation of 325 million with a 1913-era Federal government.
As I said, haters gonna hate.

gilbert December 4, 2013 at 8:24 pm

If you think the progress in material standards of living, longevity, and lifestyle are the result of more and more government micromanaging our lives, you’re arguing ideology, not evidence.

Boonton December 4, 2013 at 2:31 pm

http://research.stlouisfed.org/fred2/series/PSAVERT/

The personal savings rate doubled since 2008, it didn’t fall.

msgkings December 4, 2013 at 12:18 pm

Chip, your laundry list could easily apply to the 1970s, or the 1930s, or many other periods in our history.
The current one is no worse than those and in very significant ways much better.

But haters gotta hate I guess.

Boonton December 4, 2013 at 12:21 pm

Oh please, American governance has never been worse – mostly because it’s rarely been so pervasive.

Evidence? In the 1970′s the gov’t was telling individual oil well owners what price they could sell their oil for. Wages and prices were being periodically ‘frozen’ by Federal decree. Interstate trucking rates were set and regulated by the ICC. Let’s not even talk about the phone company.

Ohhh sure some things have changed. It used to be you could do almost anything you want on an airplane. Drinking and driving was also less ‘intensely’ regulated. But as a whole I’m not buying that the ‘state’ is at some pinnacle of regulatory burdens in the US today.

Fred December 4, 2013 at 1:01 pm

Boonton I am entirely sympathetic to the thrust of your argument. But there seems to be one important area where government regulation (inaction) is far more pervasive than before: with respect to investment in plant and equipment, especially new investment in transportation, energy, and waste disposal infrastructure. Any new building is hard; where federal funds are implicated nearly impossible. This is mostly a matter of delay, but delay induces very big wedges in ROI, which are only partially offset by low capital costs. Moreover, when uncertainty seems high, it seems that decision makers focus more on payback than NPV.

Boonton December 4, 2013 at 1:28 pm

I’m not buying it. I suspect even if you limit yourself to just looking at buildings you’re not going to find much of a relationship. If you did you’d discover that buildings older than 30 yrs outnumber buildings younger. But in terms of square feet, I don’t think there has been a slowdown.

Nor if there is one would it really be due to ‘regulation’. Nor if there is one does it contribute much to GDP or lack of GDP growth.

waste disposal infrastructure

Reglatory wise it took my father-in-law nearly a year plus thousands of dollars to get a license to run a garbage business in the early 80′s. Today I understand it’s a lot less onerous. That’s just an ancedote, though….which is the problem here. No one has a very good metric to compare regulatroy drag on the economy in, say, the 70′s versus the 90′s versus today.

Sam December 4, 2013 at 1:03 pm

Brad Delong is making a true statement about the *flow* of government failure- it hasn’t changed much. But those failures build up, that’s the stock of failure. Tyler’s analogy is that regulations are like pebbles in a stream. Even individually good regulation can be bad in the wider context of long run aggregate supply.

Boonton December 4, 2013 at 2:04 pm

The problem with the analogy is pebbles are all more or less the same size and if you put them in a stream they will remain there essentially forever (at least in terms of a few years).

The same isn’t true of regulations. Many regulations die naturally over time as they are overwritten by new regulations or they cease to become enforced or they become moot.

For example, suppose I told you there is a phone book’s worth of regulation about the setup of new copper phone lines. Well those regulations have never been officially removed but they are not like ‘pebbles’. Since no one has any interest in putting down new copper lines anymore, such regulation has effectivelly disappeared even if they are still ‘on the book’. So no the pebble model doesn’t work and you can’t say today we are more regulated than we were in, say, 1975 because more regulations have been written than have been erased since then.

dead serious December 4, 2013 at 2:01 pm

Not having read the book, I guess I’d challenge the idea that government’s only, or even main function is governance.

If we accept that the amount of regulation is greater over time and puts more of a burden on businesses, isn’t that (more than) counterbalanced by the provision of transportation infrastructure, police/fire/emergency services, school systems, etc. to serve not only the businesses but the employees of those businesses?

I know, I know. Businesses are famous for providing these things independently, and at much higher quality and lower cost, but still.

Boonton December 4, 2013 at 4:31 pm

If we accept that the amount of regulation is greater over time and puts more of a burden on businesses

This is an assertion that needs some serious support. Was gov’t really less of a regulatory burden on business in the 1970′s and before when there was wage and price control? Where truck companies had to submit their rates to the Fed. gov’t for approval? Where individual oil wells had to sell their output at different prices from the market price of oil?

I don’t buy that argument and I challenge anyone making it to actually present support for it other than some fuzzy emotional feeling that ‘things always get worse over time’.

dead serious December 4, 2013 at 5:19 pm

For the record, I’m not agreeing it’s true – mine is an “if we accept, for the sake of argument” statement in order to make my larger point that any (costly) regulation the government may require of businesses is more than offset by providing (value-added) public infrastructure and services that businesses need in order to thrive.

Brian Donohue December 4, 2013 at 8:43 am

Tyler,

You are impenetrably cagey on the subject- DeLong wins on grounds of clarity alone (aside from the red meat about the 1% class war, but hey, the guy knows his audience.)

I’ll even take Brad’s “past growth was misperceived” and one-up him. You see, the idea of “no new net job creation in the last decade…” is itself a misperception.

Over the past 10 years, private sector jobs have grown by 5.5% and government jobs by 1.5%. Nothing to cartwheel over, but 6 million net new jobs is 6 million net new jobs, and the private/government composition is encouraging.

dearieme December 4, 2013 at 8:46 am

By how much has the potential labour force grown in that period? (And, come to that, is my question even answerable: who counts the illegals?)

Tyler Cowen December 4, 2013 at 8:50 am

Brian, my claim here is correct, keep in mind I wrote it in 2011, http://articles.washingtonpost.com/2010-01-02/business/36886520_1_decade-economists-households

Brian Donohue December 4, 2013 at 8:53 am

Fair enough, but this is kind of my point. Reality moves on, but we’re still hearing old tapes. Little by little…

JWatts December 4, 2013 at 11:25 am

Is that a bad link? It goes to an article by Neil Irwin.

Mike December 4, 2013 at 11:59 am

And it’s from 2010

Brian Donohue December 4, 2013 at 8:55 am

Sure, that’s a different point, though. And with big baby boomer cohorts on the way out, we are seeing all sorts of oddities in the labor force pool over the past several years, which is why I prefer to keep my eye on the jobs numbers.

Matt December 4, 2013 at 12:43 pm

Agree with Brian that this is the main problem with the argument.

It is a bit opportunistic to write a book arguing for a decades-long secular stagnation at a time when rich countries are in the trough of an epic recession. All that does is cherry pick stats from the low point of the business cycle and play on people’s generalized feelings of pessimism.

Brian Donohue December 4, 2013 at 8:50 am

So yeah, we definitely aren’t as rich as we thought we were in 2007, but the weeping and gnashing of teeth (are we still in a depression, Prof K?) over the past few years is very tiresome.

Life is, and always has been, a struggle. Get over it.

Michael December 4, 2013 at 9:38 am

I’m not so sure if we aren’t as rich as we thought we were in 2007–our assets don’t have as much monetary value as we thought they did, but technology has made life quality substantially better since 2007. I recently had my personal genome mapped, I can listen to any song at any time through my phone (which also has a better camera in it than the $500 DSLR I bought in 2007), I can stream movies to my television with the tap of a button, and I can read a debate amongst brilliant economists for free on the internet. Oh, and gas is cheaper.

Adrian Ratnapala December 4, 2013 at 9:48 am

I recently had my personal genome mapped,….

Naughty! Don’t do it again!

Finch December 4, 2013 at 10:31 am

> I can read a debate amongst brilliant economists for free on the internet.

Cool! Where did you find that?

Yancey Ward December 4, 2013 at 11:08 am

LOL. I was about to write this comment, too.

JWatts December 4, 2013 at 11:31 am

Nothing to cartwheel over, but 6 million net new jobs is 6 million net new jobs

Brian, US population growth from 2000 to 2010 was 27 million. 6 million net new jobs is bad news.

Mike December 4, 2013 at 12:01 pm

It is still 6 million more than the claimed zero.

dead serious December 4, 2013 at 5:21 pm

Babies and 10-year olds need jobs. Who knew?

Slightly Serious December 4, 2013 at 7:19 pm

Average is over. If you don’t have a job by 10, expect a life of poverty.

JWatts December 4, 2013 at 7:58 pm

Babies and 10-year olds need jobs. Who knew? {facepalm} No, but 18 to 28 year olds need jobs.

dead serious December 4, 2013 at 8:15 pm

So there were 27 million freshly minted 18-28 year olds? Please explain how that works.

Careless December 5, 2013 at 10:05 am

Have you seen our population pyramid, DS? Stop trolling incompetently

Brian Donohue December 4, 2013 at 9:00 am

Here’s some perspective on stagnation theory- a dispatch from the halcyon pre-stagnation days of 1976. Take it away Howard Beale:

“I don’t have to tell you things are bad. Everybody knows things are bad. It’s a depression. Everybody’s out of work or scared of losing their job. The dollar buys a nickel’s worth, banks are going bust, shopkeepers keep a gun under the counter. Punks are running wild in the street and there’s nobody anywhere who seems to know what to do, and there’s no end to it. We know the air is unfit to breathe and our food is unfit to eat, and we sit watching our TV’s while some local newscaster tells us that today we had fifteen homicides and sixty-three violent crimes, as if that’s the way it’s supposed to be. We know things are bad – worse than bad. They’re crazy. It’s like everything everywhere is going crazy, so we don’t go out anymore.”

Therapsid December 4, 2013 at 9:12 am

What are you talking about – pre-stagnation days of 1976? Tyler makes clear that by then the stagnation had already begun.

Have you read his book?

Brian Donohue December 4, 2013 at 9:22 am

So…Howard Beale was losing his shit two years into The Great Stagnation. Prescient.

What I’m talking about is the human propensity to bellyache.

msgkings December 4, 2013 at 12:24 pm

+ a googol

Saturos December 4, 2013 at 9:08 am

I don’t know why Tyler thinks AS and AD are intertwined over the long run; how do AS factors have any independent power to decide whether a country’s price level increases a hundredfold or not?

The Other Jim December 4, 2013 at 9:08 am

Like any good, fringe-left liberal, DeLing has to throw in a boast about being rich.

Michael December 4, 2013 at 9:55 am

I think it was a joke.

prior_approval December 4, 2013 at 9:32 am

‘I am a revenue pessimist, but a happiness optimist’

I could make a comment about how ‘servant’ is seemingly one of the ways forward into that happier age, as suggested in recent links posted here, but there really isn’t much doubt whose happiness we are talking about so optimistically, is there?

msgkings December 4, 2013 at 12:26 pm

Yeah you could make that comment, how polite of you to refrain. From typing that exact phrase.
I have to tip my cap, you are the biggest douche I’ve ever seen in a comment thread. Anywhere.

Ray Lopez December 4, 2013 at 10:24 am

DeLong is right about how ‘real GDP’ measures stuff that ‘old tech’ produces, and is not the real measure of improvement. For example, how do you measure decreasing CO2 so that planet Earth does not become like planet Venus due to runaway global warming? I purposely pick this example not because I believe in runaway global warming (though with methane being released in Siberian peat fields it is a possibility, albeit probably not like Venus) but rather, improving the quality of life is hard to measure (akin to how a PC falls in price but does a lot more than last year’s model).

DELONG:

What we are really interested in is material well-being; what people want and need, and whether they actually obtain it. We are interested in material production as a springboard to human flourishing: How much of people’s time are they spending in drudgery trying and barely succeeding (or failing) to acquire enough food that they are not desperately hungry, enough shelter that they are not desperately wet (or parched), and enough clothing that they are not desperately cold? And is the surplus over bare biological material necessity of a quantity and type such that it enables them to choose and live the kinds of lives they want to live? These are the questions that a human satisfaction material well-being estimate is for. And real GDP just does not cut it.

Roy December 4, 2013 at 10:30 am

I don’t think preventing greenhouse gas emissions can be counted as quality of life the same way most other technical innovations are. It is rather more like paying for police, prisons, burglar alarms, and armies. An unpleasant drain on economic growth.

Ray Lopez December 4, 2013 at 11:30 am

I beg to differ. Living in a world that is sustainable is not a drain on economic growth. Put another way: if cheap credit gives you artificial growth, or if taking the muffler off a car engine will give 5% more power (at the cost of loud noise), does this mean it’s sustainable growth and sustainable power or something contrived? The economic GDP figures don’t capture this kind of improvement (living in a world without species depletion caused by global warming, for example).

JWatts December 4, 2013 at 11:36 am

I agree with Roy. Most peoples happiness is not increased by spending money to cut greenhouse gas emissions. But their happiness might go down if global warming is significant and bad. So it’s the equivalent of spending money on insurance or defense spending. It might be necessary, but it’s an obstacle to be overcome not an end goal for the majority of the human population.

Chris H December 4, 2013 at 4:34 pm

I kind of think that’s a distinction without a real difference. If I buy cheap, non-tasty food I’m not doing it for the pleasure of eating it, I’m doing it to avoid the displeasure of hunger. That doesn’t mean it doesn’t reflect my material well-being. Who cares whether I’m avoiding harm or achieving new goods? What matters is the level of well being I achieve through whatever combination of those tactics I can.

Ray Lopez December 4, 2013 at 10:27 am

The below by R. Gordon has been proven false: in China (I’ve read), in India (says a poster in this blog) and in the Philippines (I’ve seen): people prefer to have the latest mobile phone gadget rather than indoor plumbing.

Robert Gordon makes much of asking his audiences whether they would rather give up Google or give up their flush toilets, and concluding that the Third Industrial Revolution is very weak tea compared to the Second in its effect on material well-being

sort_of_knowledgable December 4, 2013 at 11:06 am

The fact that I regularly visit my local park but have never vacationed at the French Rivera doesn’t mean I prefer camping to staying in a luxury resort.

Chris H December 4, 2013 at 4:35 pm

Perhaps, but I’d be willing to bet your life would be worse of if your park disappeared tomorrow than if the French Rivera did.

dead serious December 4, 2013 at 5:26 pm

Nicely done.

sort_of_knowledgable December 4, 2013 at 6:30 pm

Ok, for the increasing number of homeless in my U.S. city who are bringing cell phones into the shelters, if a disaster destroyed all the buildings in the city they would be affected more by the loss of cell service since they couldn’t afford a permanent place in a building anyway. But I know from firsthand experience that I was much more interested getting the sewer line fixed when it was clogged so I could flush the toilet than getting internet service restored when the line was cut. I suspect that would be most people’s choice when they had both. Of course if you can’t afford indoor plumbing but can afford a mobile phone gadget there’s no reason not to enjoy one.

Ray Lopez December 4, 2013 at 9:28 pm

@sort_of_knowledgable – but I’ve actually seen families in the Philippines, when given a choice between running indoor water (pipes rather than bottles), and a new cool cell phone, buying, with their own money, the cool new cell phone, *which cost more money than the indoor plumbing*. Also in China I read that in houses being built the poor will do the same thing (prefer lack of plumbing to having the latest gadget, when spending their own money). Put another way: there is a substitute for lack of indoor plumbing (namely, squatting behind a tree or water in bottles) but there’s no substitute for lack of a mobile phone.

ummm December 4, 2013 at 10:28 am

Great stagnation? hardly
Blowout cyber Monday sales, blowout retail spending, whiz kids making millions overnight with web 2.0, bitcoin making new highs, stock market making new highs, real estate going nuts in bay area, amazon drones taking flight, self driving cars, social media, etc. The USA still has greater GDP growth than the EU.

Maybe a stagnation for those who cannot keep up, and there will be a lot of those people but for others it’s anything but. Congress has been in a great stagnation since 2009 and debt is high but the innovators and wealth creators aren’t affected.

JWatts December 4, 2013 at 11:38 am

The USA still has greater GDP growth than the EU. Sssh, don’t tell p_a, it will make him cranky. ;)

richard_pryor_approval December 4, 2013 at 2:55 pm

Well, a certain Director of The Mercatus Center…blah blah blah…when I was at GMU in the 1970s…Eurogeddon? bah…Aldi doesn’t take credit cards…blah blah blah…this comment will probably be deleted.

msgkings December 4, 2013 at 3:02 pm

Outstanding. Or should I say, wunderbar

JWatts December 4, 2013 at 12:00 pm

I’m trying to parse Brad Delong’s conclusion and I’m having a problem interpreting it.

Thus I see that 1.7% as carrying with it a 3% per year rate of growth in properly-measured North Atlantic human material well-being.

So, I’m pretty sure he’s betting on a 1.7% growth rate over the mid-term, say the next 20 years. On that last part is he saying that he expects us to see a 3% real growth rate if measured the way he’d prefer or that it’s the equivalent of 3% due to incalculable factors? If it’s the former, then please show us the calculations you’d prefer, if it’s the latter then it’s just a religious type faith.

That being said, Brad Delong seems to peg Tyler Cowen (grouped with Lindsey and Gordon) as believing in a 0.5% mid term (next 20 years) growth rate. However, that’s not how I’ve interpreted Tyler’s comments. Tyler has spoken of a technological plateau that we are currently transversing and has attempted to explain the preceding past decades.

Tyler do believe that we will have a 0.5% growth rate over the next 20 years, or some other rate, or do you believe it’s an unknown at this point?

dirk December 4, 2013 at 12:37 pm

Your happiness optimism seems rooted in the notion that cooler video games are capable of making a lot of low income adults with low quality jobs happy. Or is there something else that you have in mind on this front?

Peter Sperry December 4, 2013 at 12:45 pm

The most interesting quote in the article –

“Tyler Cowen–the world’s leading economics blogger”

High praise coming from Brad Delong. Just a few years ago, he might justifiably have claimed that titel for himself but his current assesment is more accurate.

As to the overall article — goeed but he fails to incorporate Tyler’s most recent book, “Average is Over”, or the points raised by Erik Brynjolfsson and Andrew McAfee in “Race Against The Machine” or Bennett and Lotus in “America 3.0.”

Although these additional works are not directly focused on economic growth rates, and the authors of “America 3.0″ are not recognized economic heavy weights, all of them raise very real issues regarding how economic growth can be, should be or will be distributed over the next 1 to 2 generations. In doing so they make implicit or explict assumptions about both the level of economic growth and the sources of growth over the nest 20-40 years.

Donald Pretari December 4, 2013 at 1:43 pm

Excellent Exchange…

Bill December 4, 2013 at 1:48 pm

What is the half life of a book that predicts economic futures?

For the fun of it, I think it would be interesting to look at the books predicting Japanese ascendancy, IBMs or Microsofts control of future technology, etc.

Who could have predicted in 2000 that Bush would get us into wars costing more that $1 trillion? Or who would have believed a supercomputer of 1995 could be now on your desktop?

Time will tell.

dirk December 4, 2013 at 2:51 pm

DeLong makes some good points, such as the point that the declining marginal utility of wealth is not the same as declining growth, but he fails completely to address the technology-fueled displacement of the middle class.instead of addressing that issue, he states that he is optimistic about redistributionist policies in the future. Why is he optimistic? Well, because he is optimistic!

nevertheless, he makes a convincing case that real gdp is an increasingly meaningless metric for human well being in a society with growing inequality. Although TC makes a similar point in TGS, pointing out that median income is more relevant than mean.

talk of toilet seats and Gucci Bags got me thinking about how the distribution of wealth in society determines the quality (if one is to judge subjectively) of future investments we make. If most people are middle class, the market will invest in a lot of products which improve the lives of the middle class. Whereas, with vast wealth at the top and little at the bottom, the market will invest in more luxurious handbags and yachts. At the same level of GDP, we are likely to produce a whole lot more useless stuff when inequality is greater.

Floccina December 4, 2013 at 3:46 pm

I would argue that we are richer than we think we are.

JWatts December 5, 2013 at 10:45 am

I think there is clear evidence of that and indeed that was one of Delong’s points. But still there seems to be a gap between how rich we are and how rich we would have been if the 1950 to 1990 trend had continued on in a linear fashion. So, Tyler makes a point, also.

Brian Donohue December 5, 2013 at 11:01 am

What evidence do you have in mind?

JWatts December 5, 2013 at 4:04 pm

Take my iPhone for one. It’s initial cost was $200 and I pay $50 per month to use it. I had a cell phone in 1993 that was a cheaper phone but was far more expensive to use. (And that’s not accounting for inflation). Indeed, I paid $0.25 per minute to make calls, during business hours.

http://www.kpsurplus.com/buy/motorola_76438warsb_bellsouth_mobility_cell_phone/23541

And yet the economic data indicates that I haven’t gained much. But the phone I’m currently using is far, far more useful than the phone it replaced. Every cell phone I’ve had for the last 20 years was significantly better than the one before it. However, economic data is notoriously bad at accounting for quality that’s not expressed in dollar terms.

The Fed is attempting to adjust its data to account for differences (hedonic price adjustments) for 30 years, but it’s a pretty daunting task.

“It was in fact Court who coined the term ‘hedonic pricing method’ while developing price measures for automobiles
in the late 30’s. Court reasoned that using changes in average list prices would not account for the increased ‘welfare
and happiness’ that society as a whole experienced with the rapid improvements in automobiles. His method took this
‘welfare and happiness’ of society into account by relating model prices to those characteristics that lead to consumer
happiness (e.g. power, speed, interior room) and therefore became known as the ‘hedonic pricing method.”

http://www.bea.gov/papers/pdf/hedonicGDP.pdf

And it really effects a large amount of economic data. If you compare housing from 1970 to 2010 by price and square foot alone, you completely missed the vastly improved quality of the housing built today. Houses built in the last decade have substantially improved wiring, plumbing, insulation, fire detection and weather proofing from those built 40 years ago.

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