Might tech super-firms mean the Great Stagnation is over?

by on November 10, 2017 at 7:13 am in Economics, Web/Tech | Permalink

I am now giving this a chance of somewhat over 50 (!) percent, and that is the topic of my latest Bloomberg column.  Here is one bit:

Gross domestic product growth for the last two quarters was over 3 percent, even in light of hurricane damage in August and September, and middle-class income growth has resumed. You might think that would mean high price inflation from credit growth and “overheating,” but the 12-month change in core prices for personal consumption expenditures has fallen to 1.3 percent.

And:

Low rates of inflation, however, reflect productivity gains that already are here. The tech giants — Google, Amazon.com Inc., Facebook Inc. and Apple Inc. — have become major managers of our information, our businesses and our lives. They’re meeting political resistance, but whatever you think of those complaints, they are signs the major tech companies are having transformative effects. I used to say that we are overrating what tech has done for us to date, and underrating what it will do in the future. Perhaps reality has caught up with that prognostication.

And:

The major tech companies are growing their platforms quickly, supporting low prices with scale, product diversity, data ownership and superior service. Hardly anyone today worries about the eventual disappearance of competition and monopoly prices from Amazon or the other major tech companies. Do you really think Amazon is going to double book prices five years from now?…The tech companies have shown that their radical model of low price, high market share, high quality rapid expansion will keep them profitable for a long time to come.

Big if true, as they say…do read the whole thing.  The still-remaining negative possibility, of course, is that the current positive wave is like 1995-1998, and we will sink back to less positive economic times, as we did back then.

1 A Truth Seeker November 10, 2017 at 7:44 am

So that is what America has become: a Facebook economy, a digital Potemkin village.

Reply

2 GoneWithTheWind November 10, 2017 at 11:07 am

It looks to me like a giant unstable bubble which will burst. The stock value of Amazon is perhaps half a trillion dollars but if they went bankrupt tomorrow the total value of their assets that could be sold to pay off debts is perhaps a couple of billion dollars. This kind of inflated mega-bubble is true or Google and Facebook and other well known high tech companies as well.

Reply

3 A Truth Seeker November 10, 2017 at 11:29 am

A sobering thought.

Reply

4 stephan November 10, 2017 at 12:29 pm

Their valuation doesn’t stem from their physical assets but in the value they create for their customers.They’re extremely innovative companies that have created new business models and are transforming our world. Similarly the value of the Michelangelo brand wasn’t limited to the paper and charcoal pencils he owned.

Reply

5 A Truth Seeker November 10, 2017 at 1:24 pm

Maybe, but Michelangelo couldn’t make hundreds of billions of dollars vanish if the pope was not OK with his last work.

Reply

6 P Burgos November 10, 2017 at 3:24 pm

Free cash flow? CREAM

Reply

7 Anonymous November 10, 2017 at 3:25 pm

Their patents alone are probably worth over $10B. Plus their Trademarks, trade secrets, worldwide physical plant.

Reply

8 Elite November 10, 2017 at 4:59 pm

It’s not 1950 anymore.

Reply

9 rayward November 10, 2017 at 7:50 am

Cowen: “Hardly anyone today worries about the eventual disappearance of competition and monopoly prices from Amazon or the other major tech companies.” Hardly anyone? What Cowen likely means is hardly anyone he knows. When Walmart opens a store in small-town America, the consequences are evident for all to see: disappearance of small business especially retail. It’s not as easy to see with Amazon since, other than all those UPS trucks racing around, Amazon’s only presence is on a computer screen. As for Google and Facebook, these “tech super-firms” make their revenues by selling advertising primarily for products made the old-fashioned way in the industrial sector, the industrial sector in China and other low-cost countries. Speaking of Apple, the fourth of the “tech super-firms” mentioned by Cowen, which manufactures the i-phone and other products in China and other low-cost countries while avoiding U.S. taxes with schemes that allow Apple to report much of its income in tax havens. Whatever one may think of these “tech super-firms”, the investors in their stock have done extraordinarily well. Indeed, the investor class has done so well during this economic recovery that the Congress is responding to their needs by proposing large tax cuts for the investor class while proposing tax increases for working Americans including those working at the “tech super-firms”: https://www.nytimes.com/2017/11/09/opinion/trump-ryan-republican-taxes.html

Reply

10 Albert November 10, 2017 at 10:17 am

That’s exactly what I was going to say. You’d have to be an idiot to think “Hardly anyone today worries about the eventual disappearance of competition and monopoly prices”. That’s exactly what people are worrying about.

Reply

11 BC November 11, 2017 at 2:15 am

No, people are not (credibly) worried about monopoly prices. Just the opposite, they are “worried” that Walmart and Amazon will drive out competition through *low* prices and will be very profitable in doing so. rayward’s rant is a perfect example. Notably, high consumer prices are not mentioned *at all*, because it would be uncredible to do so. He mentions small businesses disappearing (because they do not serve consumers as well), tax avoidance (which by the way means *consumers* as well as firms avoid taxes), and investors doing well (because, again, those firms serve customers well). No mention, though, of consumers paying high prices due to monopoly.

Reply

12 OneGuy November 10, 2017 at 11:11 am

I disagree with your statement that Walmart destroys small businesses. In most cities a Walmart store is built and 100 small businesses pop up around it enjoying the benefits of the high traffic that Walmart generates. Walmart is a driving force in small business not a hindrance.

Reply

13 carlospln November 12, 2017 at 12:52 am

Thread winner!

Most hilarious comment.

Reply

14 John de Rivaz November 10, 2017 at 7:53 am

Amazon is a vast marketplace, as is eBay, not just a book seller.

Unlike other endeavours, such as medicine and law, tech companies look for volume rather than to price gouge vulnerable yet wealthy individuals. Look how pocket computers (ie smartphones) have spread around the world, and most people seem to manage to get one regardless of wealth.

On the other hand, low income is often a bar to getting quality medical or legal advice. This is why tech companies are looking at health as another market to disrupt. They have already made inroads into law, with software replacing tax filings, previously an avenue for rich pickings amongst private practice accountants. I read the other day of an application to enable couples to file their own divorce settlements. There are will writing applications, and there is talk of a blockchain application to enable people to buy and sell houses in a fraction of the time and at a fraction of the cost at present.

Reply

15 Ian November 10, 2017 at 10:43 am

John here is right and Rayward and Albert above are wrong.

Reply

16 a clockwork apriori November 10, 2017 at 11:04 am

Why doesn’t Tyler mention the Podesta group’s work in Peru, and the failure of government bonds. Clearly he can’t call a spade a spade. The ads against the ratings agencies are a low blow. In Peru of all places, where the mate, and the teamsters, do Tyler’s digging. Of course, Tyler dig’s holes..

Reply

17 chuck martel November 10, 2017 at 7:56 am

“even though Apple’s iPhone X is a specially priced luxury item, the trend is for pocket computing power to become cheaper and better.”

Sure, smart phones and their associated networks are a technological miracle but what does their computing power mean in the big scheme of things? Nobody is designing airliners or bridges with cell phones. They’re shopping for lingerie at Victoria’s Secret, watching cat videos and looking at each others’ wedding pictures.

” There has been a significant drop in quality-adjusted prices for wireless telephone services, which Fed Chair Janet Yellen cited in a recent speech as one reason for lower inflation.”

Yellen has been perturbed by low oil prices keeping inflation down but that’s going away. Now it’s cell phone plans sabotaging inflation. What’s a central banker to do when money refuses to turn into wastepaper?

“Quite possibly the American productivity drought is over. There are major technological changes on the way — Waymo, the autonomous car unit of Google parent Alphabet Inc., premiered this week in Arizona a car that doesn’t have a human in the driver’s seat at all.”

A driverless shuttle bus was involved in an accident in the Glitter Gulch area of Las Vegas during its first two hours of operation on Nov. 8.

Reply

18 Nick November 10, 2017 at 9:29 am

> “but what does their computing power mean in the big scheme of things?”
It means we have so much computing power available that we can waste some on leisure. Compare to theories about washing machines.

> “a driverless shuttle bus”
Was hit by another vehicle. I don’t see how even a perfect self driving car could really avoid being hit by another vehicle while stopped.

Reply

19 raj November 10, 2017 at 10:27 am

It was involved in a trivial fender bender, while stopped, that was the fault of the human driver. Of course it speaks of room for improvement in but is by no means a failure

Reply

20 Al November 10, 2017 at 10:43 am

“Yellen has been perturbed by low oil prices keeping inflation down but that’s going away. ”

Not enough is written about how low oil prices have impacted this expansionary period.

Reply

21 Brian November 10, 2017 at 6:05 pm

Yes!

If true, it’s funny how closely the the great stagnation coincides with energy independence, or lack thereof.

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttntus2&f=m
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrntus2&f=a

Reply

22 Mark Bahner November 11, 2017 at 12:35 am

“A driverless shuttle bus was involved in an accident in the Glitter Gulch area of Las Vegas during its first two hours of operation on Nov. 8.”

Well, that settles it. It’s OK if 30,000+ people are killed every year in the U.S…nearly 90 percent of them by people who are intoxicated, speeding, or distracted. This driverless shuttle accident proves the autonomous vehicle alternative is worse.

Reply

23 Gary Steinmetz November 10, 2017 at 8:50 am

That’s what I’ve wondered – whether the size and influence (and cool factor) of these mega tech companies will have the power to overcome the regulatory protection of entrenched interests.

Reply

24 Al November 10, 2017 at 10:38 am

This is a great question.

Reply

25 Anonymous November 10, 2017 at 11:12 am

These are now the entrenched interests, but I think there is a strong case that restrictions on AT&T are why they even exist. Do you remember the monopoly on telephones and the forced agreement to break it? Without that, there certainly could not be an iPhone. There would be an AT&T phone, probably more slowly advancing in the same direction.

A blast from the past, 1984:

“For the consumer, the breakup might appear to mean only new and bewildering choices about which long- distance company to choose or which telephone to buy.”

Reply

26 Elite November 10, 2017 at 5:02 pm

Their size, influence, and most importantly their utility will overpower entrenched interests. Look at Uber – it’s basically been the world’s worst corporate citizen for the last few years and still cannot be stopped. The benefit to consumers is too great.

Reply

27 dearieme November 10, 2017 at 9:29 am

“do read the whole thing”: why? You boast that you never do.

Oh, I see: it’s a running joke. Fairynuff.

Reply

28 Bob November 10, 2017 at 9:54 am

This is a far bigger wave than 95-98, and it will be about more than just the companies that will reach 100b of valuation. What it all really is about is a change in how to run companies. The power of computer automation is about putting more and more of the company’s knowledge into code. The first computer revolution just turned paper forms into digital records, but ultimately you just have the same company, doing the same things with fewer bookkeepers, This next stage of the transformation moves so much more into algorithms that being able to interact with said algorithms and help them improve is the one way to be useful. Therefore programming becomes pretty much mandatory: Everyone is a tech worker, along with their specific business knowledge.

The trick here is that when creating better algorithms, a key piece is data. Without reaching a sensible size, and having enough data, the advantages you need vs an established opponent using a similar approach are staggering. There’s cases where you can self train a model, but most of the time, you can’t, and whoever has more data pretty much wins. If I started a new automated driving company tomorrow, I’m millions of testing miles behind. Going to market more than a year or two later will put a competitor in a tremendous disadvantage. There’s very little fraud in chinese companies that handle money, because there’s just too many interactions with them to pretend to be who you are not. Walmart has great logistics because they see so much of the US economy they can make good predictions: The same logistics are impossible with 30 stores, because the data isn’t good enough to make good predictions.

It’s all this data, which companies hoard so closely, that will make the big difference, and what will probably lead to problematic levels of concentration. The megacorps from cyberpunk are coming: There will be smaller corporations that take on more boring markets (say, data analytics for farmers), but barring changes in how a company must run, we’ll end up in niches with little competition, and therefore, a new stagnation, after our economy is transformed. It’ll take decades though.

Reply

29 clockwork_prior November 10, 2017 at 10:00 am

‘Do you really think Amazon is going to double book prices five years from now’

No, but this is what happened 5 years when a publisher started to also sell books using Amazon – ‘Baen is finally on the verge of getting its titles placed directly into Amazon (and is negotiating with others such as Barnes & Noble, etc.) The problem is, that comes with pesky contractual obligations.

The changes amount to the following:

“Old” bundles containing books that have already been published will no longer be available for bundle-priced purchase. (Already-purchased ones should still be available for download, though it is possible some books may need to be removed. Some books may need to be removed from the Baen Free Library as well; Toni hopes to get advance notice when such removals are necessary, but recommends backing them up while you can.)

Future Webscription-style e-book bundles will be still be available for purchase as serialized pre-publications only until the official publication date, after which they become single-purchase-only titles (in order not to run afoul of that pesky contractual price-matching). Prices for backlist e-books will be going up, too; instead of $6, e-books of books Baen is finally on the verge of getting its titles placed directly into Amazon (and is negotiating with others such as Barnes & Noble, etc.) The problem is, that comes with pesky contractual obligations.

The changes amount to the following:

“Old” bundles containing books that have already been published will no longer be available for bundle-priced purchase. (Already-purchased ones should still be available for download, though it is possible some books may need to be removed. Some books may need to be removed from the Baen Free Library as well; Toni hopes to get advance notice when such removals are necessary, but recommends backing them up while you can.)

Future Webscription-style e-book bundles will be still be available for purchase as serialized pre-publications only until the official publication date, after which they become single-purchase-only titles (in order not to run afoul of that pesky contractual price-matching). Prices for backlist e-books will be going up, too; instead of $6, e-books of books whose print edition is currently hardcover will be $9.99, trade paperback $8.99, and mass market paperback $6.99.’

The price rise by a publisher agreeing to use Amazon can be seen immediately above – with the highest rise being on the order of 66%. Baen is a decent publisher, and much of the price rise was passed on directly to its authors. However, many books that Baen used to offer for free had to be removed, as Amazon does not agree with the idea of a publisher simply offering e-books on its web site for free.

And notice that there was no benefit to the readers, only higher prices and less material available for download for free directly from Baen.

Reply

30 clockwork_prior November 10, 2017 at 10:01 am
31 Albert November 10, 2017 at 10:19 am

Amazon also continues to cut payouts to authors publishing through KDP (specifically through Kindle Unlimited, which they are trying to push people into).

Reply

32 clockwork_prior November 10, 2017 at 3:00 pm

Really? Scalzi followed this for a while – https://whatever.scalzi.com – but not recently, to my knowledge.

Reply

33 Butler T. Reynolds November 10, 2017 at 10:09 am

“The tech companies have shown that their radical model of low price, high market share, high quality rapid expansion will keep them profitable for a long time to come.”

Low price, high quality, high market share? Time for the DOJ to break them up!

Reply

34 Al November 10, 2017 at 10:39 am

Agreed. This will likely be the mantra of the left.

Reply

35 derek November 10, 2017 at 10:44 am

You don’t get 3% growth with a new Iphone version.

Reply

36 mulp November 10, 2017 at 1:03 pm

“Gross domestic product growth for the last two quarters was over 3 percent, even in light of hurricane damage…”

I would say “Gross domestic product growth for the last two quarters was over 3 percent BECAUSE of hurricane damage”

Natural disasters unlock Federal jobs programs because Republicans won’t object to big deficits to fund government jobs programs for their constituents. Eg, Ted Cruz has not done a filibuster of any of the tens of billions in deficit spending bills for the South like he did not the northeast.

The way to easily increase gdp by 1% is to add 1% of gdp to government spending. And if you tax money not paid to workers to fund it heavily enough, businesses will pay workers more to keep more of their money in the form of built capital.

And the tax changes proposed will only increase the incentive to kill jobs in the US to increase the amount of money taxed at 10% instead of 20%.

Reply

37 Anonymous November 10, 2017 at 10:54 am

There has been a bit of a vibe recently about expanding productivity “right around the corner,” driven by Nth stage computing and AI. It is possible, with possible downsides, but I agree with Tyler that the growth itself is good. It is better than a “no more low-hanging fruit” stagnation.

And, as I’ve mentioned, I think that if the new monopolies are too obviously oppressive, they will just get regulated.

Reply

38 Anonymous November 10, 2017 at 11:02 am

Related:

“As tech giants become a new kind of Internet gatekeeper, I believe the same basic principles of net neutrality should apply here: no one company should have the power to pick and choose which content reaches consumers and which doesn’t,” Senator Al Franken wrote yesterday in an op-ed for The Guardian. “Facebook, Google, and Amazon—like ISPs—should be ‘neutral’ in their treatment of the flow of lawful information and commerce on their platforms.”

https://arstechnica.com/tech-policy/2017/11/al-franken-wants-net-neutrality-rules-for-google-facebook-and-amazon/

Reply

39 spencer November 10, 2017 at 11:35 am

Currently the net capital stock per employee is actually falling in the US.

Until this changes I see little or no chance of productivity improving.

The things you are talking about will have little impact on the underlying causes of poor productivity.

Reply

40 mulp November 10, 2017 at 1:24 pm

The only way to increase rents on capital is to reduce the stock of capital.

This is the point Keynes made in 1935. Thus his prescription:

“I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.

“Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.”

High tax rates on money businesses do not pay workers in excess of a normal rate of return makes it cheaper to pay workers to build capital assets as capital scarcity increases rents, which then reduces scarcity and drives down rents.

Since 1970, cutting tax rates on money not paid workers has led to tax rebates for paying workers to build capital assets to create jobs and grow gdp.

And even tax rebates to hire workers to replace capital, as in the subsidy to low wage employers in EITC that let’s them pay wages lower than the cost of working. Basically, EITC, SNAP, Medicaid is subsidizing employers by preventing the destruction of workers from being homeless, hungry, and sick, PLUS they pay businesses for production with too high rents on capital. Eg, Medicaid is paying extremely high rents on drug production capital, that is often decades old. Ie, many generic drugs should pay zero returns on capital, but only the labor costs of maintaining the capital.

But free lunch economics argues capital should gain value, ie, your $30k car should gain value to $50k at 100,000 miles, $100k at 250,000 miles, just like the production lines for Epipens, etc.

Reply

41 P Burgos November 10, 2017 at 3:31 pm

Haven’t the prices of durable goods been stable of declining for the past couple of decades (excluding buildings)? Aren’t durable goods of a higher quality today than they were in previous decades, lasting longer and requiring less maintenance? I know this is true of cars and household appliances, so I assume that it is true for productive assets as well. Also, as services firms go “paperless” shouldn’t their need for office space, and hence capital stock, decline? Also, are enough people telecommuting or working remotely on a permanent basis to have an impact on the need for office space? It seems that there are a lot of trends that would explain falling capital stock without a loss or slow down in productivity growth.

Reply

42 spencer November 10, 2017 at 11:43 am

You seem to take the argument that the new technology is massively under counted and that productivity is better than reported.

However, the spread between unit labor cost and the deflator for non-farm output is a major determinate of profits growth. Yet, this relationship has hardly changed in recent years. I take this as a major argument that the productivity data is reasonably accurate.

Reply

43 Massimo Heitor November 10, 2017 at 12:05 pm

Another point of optimism: tech and particular Amazon’s entrance to pharmaceuticals. This can drive large productivity gains, large cost savings, and improved customer choice and experience. It seems wasteful that every single chain retail pharmacy store employs a high salary pharmacist to put pills in bottles and do menial retail store work.

Reply

44 Uribe November 10, 2017 at 12:08 pm

“Investors now seem to think steady growth… rather than monopoly and high prices. ”

I don’t follow this logic. Wouldn’t investors be MORE likely to bet on a company if they believed the future was high prices?

Perhaps the argument against that is that the losers would outweigh the winners, but would they? We are talking about incumbent companies already listed in the indexes. And, in fact, some of those companies are losing big right now, but their losses aren’t outweighing the winners.

Reply

45 Rafael R November 10, 2017 at 3:48 pm

Maybe the windfall from Chinese and Indian growth momentum is starting to impact the US now? As I said before, the next wave of global growth will be driven by mainly growth/innovation from the 3-3.5 billion people in newly industrialized countries and not the few hundred million in the US.

Reply

46 George November 10, 2017 at 3:50 pm

I’m not a statistician but is two strong quarters statistically significant?

“Low rates of inflation, however, reflect productivity gains that already are here.” 1. Couldn’t they reflect low rate of growth in wages? 2. Are there statistics to back the claim of “productivity gains that are already here” or are you inferring them from GDP numbers?

From https://www.bls.gov/news.release/prod2.nr0.htm: “Nonfarm business sector labor productivity increased 3.0 percent during the third quarter of 2017…In the second quarter of 2017, nonfarm business sector productivity increased 1.5 percent” I don’t believe the numbers for one quarter are statistically significant. One number is double the other but GDP growth in both quarters was the same, doesn’t that indicate that productivity growth does not correlate with GDP? 🙂

By tech super firms I assume you mean roughly Facebook, Amazon, Netflix, Google and Apple. I don’t see how Facebook, Netflix and Google help business productivity. Google makes finding information easier which helps business but I’m unaware of any recent improvements that would make business more productive. I have no idea how Netflix could improve business productivity, does anybody? Not sure how Facebook does either. How exactly do IPhones increase productivity? I thought the impact of much tech was not showing up in GDP numbers, if so it can’t account for recent increases in GDP numbers. If they are now showing up what changed? All of the above companies are enormous sources of distraction for employees which would seems to lead to decreased productivity.

Reply

47 msgkings November 10, 2017 at 4:10 pm

You’re missing a lot if you think that, for example, Google is just about search. Google Docs alone has probably added 0.1% to productivity all by itself.

Reply

48 carlospln November 12, 2017 at 12:57 am

‘0.1% to productivity all by itself’

You ARE expert at mosquito circumcision!

Reply

49 msgkings November 12, 2017 at 1:55 am

Well, that’s about 5-8% of recent productivity growth from one piece of software. But carry on with whatever you think you are doing.

Reply

50 George Colpitts November 20, 2017 at 8:48 am
51 Alex November 10, 2017 at 4:20 pm

What is the commonality between Facebook, Google, Amazon, Microsoft and Apple that’s helping the US economy? Yes they’re all tech companies but what is happening to drive growth? With Amazon I can guess at some picture. But not the others.

Reply

52 msgkings November 10, 2017 at 4:27 pm

Here’s a short list, by no means complete: cloud computing (huge), smartphones (tons of work/business done on those), tablets (even more so), search, documents and business software, networking, on and on…

Some economists have noted that one reason capital investment has been depressed is workers provide their own capital now: smartphones, home offices, etc, and this doesn’t show up in the statistics.

Reply

53 Alex November 10, 2017 at 5:23 pm

Cloud computing, smartphones existed five years ago. Tablets, not so much, but I’m not sure why they’re unique. Why’s this happening now when it didn’t five years ago?

Reply

54 msgkings November 10, 2017 at 7:24 pm

Sure but it takes a while for innovations to make their way into the real economy and affect productivity. The internet existed in 1993 but it wasn’t doing much for business then.

Anyway not sure how this belies the point. The megatechs are likely helping productivity numbers in some way. It’s hard to measure but it’s real.

Reply

55 Elite November 10, 2017 at 5:04 pm

One word – software

Reply

56 Tom Warner November 10, 2017 at 4:59 pm

Quarter-on-quarter GDP figures are for day traders and journos.

For the US by far the most telling #s are quarter on same quarter of previous year, aka table 8. The story they tell is: the most recent peak of annual real GDP growth was 3.8 in the period ending March 2015, when non-durables, durables, services, non-residential investment and residential investment were all strong. The tide then turned fairly sharply back to a trough of 1.2 in the period ending June 2016 as all categories except nondurables slowed. Since then we’ve been on another upswing, back up to 2.3 for the period ending September 2017, driven by recoveries of non-residential investment and durables, while residential investment however has continued to weaken. Those numbers give little reason to expect accelerated inflation. Overall the economy has been remarkably stable since 2011. There was no great stagnation then or now, but we do have a highly developed economy that nobody knows how to make grow faster than about 2.5-3% on average in the periods between recessions.

Reply

57 Alex November 10, 2017 at 7:50 pm

Java is Amazon’s #1 language. I have a CS bachelor’s. Right now I work in an Amazon warehouse as a box mover person. I think I’m going to (re?)learn Java.

Reply

58 BC November 11, 2017 at 2:45 am

“I suspect [tech] is the missing piece of the puzzle that helps explain the Goldilocks scenario for the macroeconomy.”

What about the shale energy revolution? Back in the old days, like 15 yrs ago, no one would dispute that an energy supply shock could cause a supply-side recession. A positive supply shock from shale and fracking has the opposite effect, the “Goldilocks” scenario of GDP growth and low inflation. All the wonderful tech cited by Tyler uses energy — even electricity is produced from natural gas — along with everything else in the economy: manufacturing, shipping (including Amazon purchases), agriculture, construction. It is much easier to find a person or firm that does not use facebook, Amazon, or even the internet than one that does not make substantial use of energy.

We saw how the world has changed in the last 1-2 years: when OPEC cuts production, US producers quickly make up the difference. The US is now the world’s top producer of petroleum and natural gas [https://www.eia.gov/todayinenergy/detail.php?id=31532]. As far as I know, it would be illegal for US energy firms to collude in an OPEC-like fashion, so a market structural change from monopoly/cartel to competitive suppliers of a product that every consumer and firm buys would seem to be a significant positive supply shock.

I can’t shake the feeling that, if the energy revolution were being driven by some development in solar or wind, we would be hearing a lot more about its impact, especially if the leading companies were in California or the Northeast instead of Texas and North Dakota.

Reply

59 P Burgos November 11, 2017 at 2:48 pm

That seems like a good answer to me, especially given that the proximate cause of the last recession was a spike in gas prices, which kicked off the start of the decline of home values in the exurbs. Now we have an environment in which fossil fuel prices seem like they will be stable, and an environment in which renewable energy is rapidly coming down in price, and an environment in which it looks like vehicle electrification will be taking off. It seems that likeliest future is one in which energy prices are consistently low in historical terms and relatively stable.

Reply

60 Dominik Lukes (@techczech) November 12, 2017 at 6:56 am

I don’t know if the focus on things (hardware) is not obscuring other trends such as the increasing cost of services e.g. through the introduction of SaaS. This does not apply just to software. You could argue that Amazon reduced the cost of access to books but it also reduced their value. There is no resale in ebooks. Equally, Microsoft Office now costs more over the lifetime of a subscription than it would have some time ago. There are some productivity benefits associated with it through cloud services but there is more of an outlay that makes it more difficult for people on tight budgets to take part. On the other hand, there are free version – Google Docs, etc. so it’s not all doom and gloom. But there are certainly trends going in both directions. Another example is stock photography which has gone up in price significantly since the main players such as shutterstock came onto the market and introducing low prices. It would be interesting to compare if you add up all the subscriptions somebody might be paying for today (Spotify, Audible, Steam, Office365, Dropbox) with the cost of purchasing and replacing their alternatives (buying CDs, games, etc.). In my low budget periods, I certainly did not buy a new CD every month, but now I pay the equivalent of that through a Spotify subscription. I certainly get greater value for that but if I can’t afford that much, I will be left with much less than if I skipped a few months buying CDs – and certainly no way to claw back some value through selling them. We need some sort of a basket of digital and intellectual goods to be able to say definitively.

Reply

Leave a Comment

Previous post:

Next post: