Don’t be so sure the economy will return to normal

That is my recent Upshot column for The New York Times, here is one bit from it:

…there is a much more disturbing possibility that could turn out to be more accurate: namely, that the recession was a learning experience that we haven’t fully absorbed. From this perspective, the radical and sudden changes of the financial crisis were early indicators of deep fragility and dysfunctionality.

Slowly but surely, we may be responding to these difficult revelations by scaling back our ambitions for the economy — reinforcing negative trends that were already underway. In this troubling view, we have finally begun to discover some unpleasant truths. Borrowing a phrase from the University of Toronto economist Richard Florida, it’s possible that we are experiencing a “Great Reset.”

And this:

Here is another change that might be a broader sign of a pending reset: A heavy burden of adjustment in the overall labor market is being borne by the young. Wages for the typical graduate of a four-year college have dropped more than 7 percent since 2000, and the labor force participation rate of the young has been falling. One consequence is that young people are living at home longer and receiving more aid from their parents. They also seem to be less interested in buying their own homes.

…Earning a lower wage in earlier years is predictive of lower wages through the rest of one’s career. While we are seeing economic problems for the relatively young, they will eventually become dominant earners in the economy and the major force behind broader statistics.

Do read the whole thing.

Comments

Why has there been so little discussion, as to how relatively lower wage capacity will affect financial realities for community infrastructure and maintenance needs? There should have been plenty of infrastructure innovation long before now, for the cities, towns and regions which are going to have to learn to make do with less.

There are some prior doing this. Google "Strong Towns"

people* doing this

Strong Towns is racist.

"There should have been plenty of infrastructure innovation long before now, for the cities, towns and regions which are going to have to learn to make do with less."

So, you think that, for example, computers entered society as innovation by cutting the spending on computers annually from 1940 to 2000?

Did you spend less on personal computers in the 1970s than in the 1960s, less in the 1980s than in the 1970s, less in the 1990s than in the 1980s?

As someone in the computer field since the late 60s, spending on computer systems increased and that was what drove the innovation. We were constantly looking for ways to cut the entry price to find new customers to convince to buy their first computer to replace adding machines and ledger books. For a 10-20% reduction in entry cost, the number of customers doubled, and those customers would increase spending by 100%.

Innovation increases spending, but innovation REQUIRES increased spending.

You can not innovate without anyone paying you more that they would for not innovating.

And for infrastructure like roads and bridges, material scientists and civil engineers can not make much improvement in technologies that been subject to innovation for at least 5000 years.

In the end, nature and entropy trump economists waving one hand.

As for economists and their "innovations" TANSTAAFL

Conservatives have argued privatization would be cheaper because the private sector is smarter than government and the profit motive leads to innovation. They proposed public-private-partnerships. Well, the Tea Party objects to P3s as just another way to hike taxes. The privatization of the Indiana Tollway led to toll hikes with drivers finding alternatives leading to bankruptcy restructuring of debt, and that is for a really simple project.

But hey, if you think its easy to cut infrastructure costs, you can make billions on trillions in revenue on the many trillions in infrastructure investment needed in the next decade to get it back to where it was circa 1970 when about half of it was less than 30 years old.

That is because it is all going to pensions and healthcare for gov't workers. The municipalities never accrued the obligations, but instead made the problem worse by taking windfalls and giving them out to buy votes.

This is a scary, but plausible, possibility

Will living standards continue to rise? Yes.

I suspect the global rise in living standards will continue at the same rate, and some countries will experience catch-up growth to certain points.

You're question left out the key word: Global.

Will US living standards continue to rise? No

Us median vs Us top 1%....different trajectories...

Why can't everyone in the US pay less for stuff while everyone in the US earns more?

Can't you come up with a way to make free lunch economics work?

Maybe the Fed printing $25,000 for each US citizen and mailing it to them as wages? Can't require businesses to pay higher wages because that would hurt their profits. But the stagnant incomes are hurting businesses because no one buys what they could product, so many operate below capacity.

Median US living standards will continue to rise, just not as fast as the global average.

Median US living standards will continue to be much higher than the global average, even in the long term.

So average is over is over, in a disturbing world where we haven't learned the lesson that the rich getting richer should be the natural order?

I'll say it for you PA:

KOCH!

MERCATUS!!

I'll say it for you- cronyism & Peronism ( like Obamism but with a better musical)

In a system of voluntary exchange, one can only get richer by offering superior value propositions to more people, increasing overall utility by much greater amounts than the value retained.

It's also not clear why so many people labor under the false impression that "the rich" are the people that are "getting richer" when so many of the great fortunes around today were created in the last few decades, precisely by such means.

So enact policies which enable upstart companies to destroy the profit margins of the S&P 500 without necessarily earning profits themselves. More people are employed, and stuff gets cheaper. Worked great for dot-coms and mobile applications, why not for pet food also?

Enlist policy analysts to address the "paradox of specialization" ie. the economy requires specialization in order to progress, but individuals who specialize in a particular domain of endeavour are unemployable once that domain of endeavour has matured (even if it isn't obsolete).

Enact policies that entitle employees to revenue shares of the products and intellectual property that they create (engineers and pharma people especially).

So you must be on of the bitter engineers in the valley not doing well enough working for other people but lacking the entrepreneurial gumption to work for themselves.

The rise in global living standards and reductions in inequality are great, but they are also the main excuses used to dismiss the growing problem of domestic inequality.

Whoops, this was a response to your other comment, higher up.

"the growing problem of domestic inequality."

Evidence that it's a problem? Seems more like people have a solution they want to implement and are in search of a problem.

When almost all this country's economic gains go to a very small group, that means the vast majority of people aren't seeing any of that growth.

I know that doesn't register as evidence of a problem for you, but for most people it does.

Jan: hopelessly confused.

Lad: Oops, not the discussion you want to have? You're boring and your best argument is lalala.

@Jan: let's take it one step at a time. Inequality of income has been increasing among dentists, for example, for a couple of decades. Is this a good or a bad thing? Why?

It's not an excuse, just a reframing of the "we are the 99%". Ummm, no.

I think the first paragraph was a reference to pets.com

Too bad the NYT didn't enable comments on the article. I wanted to see snooty upper-middle class liberal Times readers exhibit their inability to address or even comprehend the points presented.

There are comments on NYT for the article

And they do not disappoint.

Indeed, they do not. I observed two themes from the comments: (1) The eschaton would already be here if it weren't for those damned Republicans; and (2) We already have enough, no one should be allowed to have more.

Sheesh.

What does that make you, a lower-middle class conservative who can't read ? Liberals allow this Country to move forward, if you people were in charge we'd have . . . well, George Bush.

What if the "great reset" is actually "the great return to a mostly blah normal" and policy can no more affect it than it can affect the passing of time? What if ithe tipping point for AGW is in fact long past and it's going to get rather too warm no matter what we do?

Most of human history has actually been kind of grim, why shouldn't we expect that to continue?

Tyler, if we (as nation) spent decades living beyond our means, is it reasonable to think the growth seen during those times was abnormal, not normal?

If future growth was "brought forward" by building up huge debts, then yes, your point seems very reasonable.

But it really wouldn't be difficult to improve American economic prospects - not intellectually difficult, that is. Politically impossible, perhaps, but intellectually simple.

What does it mean to say a society spent decades living beyond its means? This concept makes no sense on a society wide basis. All those VCR tapes made and rented in the late 80's and 90's? Clearly our society had the 'means' to make them. So how is it possible to 'live beyond our means' ever?

An individual may live beyond his means, but he does so by getting someone else to live under his means. The guy swiping his credit card in the 90's was countered by someone else who simply left his money in the bank and didn't like to spend as much. 'Living beyond our means' sounds good because it is a lesson that often applies to us as individuals so it is natural to think it might account for our society wide troubles, but give the concept a bit of scrutiny and you discover it isn't all that meaningful.

Bullshit.

Excellent argument! Can you also please include references?

If you live in a large Canadian city the value of your house has increased substantially year on year. There has been a rush to buy into the market as it is easier to make the equivalent of a middle class income that way. Banks are more than willing to lend you money on your equity. This has been going on in Vancouver since the mid nineties with some lulls in the rate of increase. The money is the foreign outflow from Asia. The prices are far higher than a median income could support.

Great if you got in early, but deadly otherwise. Costs to employ go up as well. The end result is an economy that sets cost so high that only very high margin production is possible, either high productivity technical design or resource extraction. All the rest comes from elsewhere where the base costs of the economy are much lower.

This is what happened to the US, the financial system fell apart and the easy availability of credit disappeared causing a reset of asset prices. All those people who borrowed against an inflated value of their home indeed lived beyond their means. Ultimately an asset is worth what it will get in a fire sale.

Canada will probably do OK for a short while even with commodity prices down because the outflows need to go somewhere and they will accelerate in the short term as the Chinese market and government turmoil continue, but Canada well be left with a very expensive government built on that windfall as well as a broken financial sector owning a bunch of very cheap real estate.

It is almost as if the idea of not eating seed corn has been lost on some people.

Yes, it is indeed possible for a society to live beyond its means, and the concept is meaningful. That some people seem to have to relearn this concept is telling.

'Eating seed corn' is meaningful but it isn't about living beyond one's means. At any given moment your means includes your current income as well as your savings. Presumably you have savings because at some point you expect to 'live beyond your means' (if that means you will at some point spend more than your paycheck brings in). Eating seed corn is code for saying you are going to consume something today that if you had only been a bit more patient could have brought you even more consumption power tomorrow. To use my Starbucks analogy, this would be like putting a $5 coffee on your debit card the day before payday thereby getting you a $30 overdraft fee on Friday. If only you had waited you could have enjoyed 6 coffee drinks.

What's interesting about 'eating seed corn' is that it makes the returns go up dramatically. If the US is experiencing slow economic growth because, say, we failed to maintain our infrastructure, then a modest amount of addtiional infrastructure spending would result in a big increase in GDP growth. If all your roads are falling apart, a modest investment in fixing up potholes would result in dramatically lower transportation costs.

Here again the problem isn't so much 'living beyond our means' but simply using the means in the wrong ways. if instead of giving the coffee drinks to kids maxing out their cards we gave it to construction workers to fix up infrastructure we'd solve the problem. But the 'means' (i.e. how many coffees we can produce in a given time period) is not really the issue

This is a bullshit argument, Boonton. Quid pro quo. When you've received yours by promising to pay sometime in the future, it is possible for a country to live beyond it's means. I mean, unless you are willing to enslave future populations to ensure they work for free? Is that the Progressive end game?

Thomas,

thanks for trying to address my argument, but you haven't. No country as a whole can 'live beyond its means' unless it somehow convinces some other country to 'live below its means'. If I'm putting my flat white at Starbucks on my credit card, somewhere, somebody else must have to means to buy that flat white cash but opts to not do so. Our 'means' would be the amount of flat whites our economy can possibly produce and that is given by how much coffee we have, how many espresso machines, how many gallons of milk, how many paper cups, trained baristas, etc. That amount is finite regardless of financing.

Don't tell us then that the amount of goods and services we produced in, say, 2008, were 'beyond our means'. If they were we couldn't have produced them. Are you saying that the people who consumed them somehow hoodwinked others into consuming less? I'm sure, that's human nature. How many parents could be taking a vacation to Europe now if they didn't pay for their kids fines/back rent/tickets/tuition/etc.?

Can a country as a whole 'live beyond its means'. Yea if it cons some other country into lending to it. If that really happened I think you'd find the country that would be worse off would generally be the one who loaned to the 'beyond its means' country and not the borrower country.

Regardless, 'living beyond its means' would if anything mean higher GDP. After all, if you were living on plastic a decade ago the most likely consquence today would be you'd be working extra hours to pay off your debt. Or you screwed your lender in which case he is working extra hours to make up for his lost wealth. Either way the idea that we have to 'suffer' lower GDP to somehow make up for 'living beyond our means' is still meaningless.

Didn't we live beyond our means by promising things we couldn't deliver, such as pensions and other obligations?

If we expected GDP to grow at a particular rate and spent based on that assumption, we may have indeed lived beyond our means.

Isn't the country living beyond its means of your example Greece? And is that so different from the US, 'conning' China, Japan, etc into lending to it?

Didn’t we live beyond our means by promising things we couldn’t deliver, such as pensions and other obligations?

Not really. That's a bit like the episode of the office where Michael promised some elementary class a decade before he would pay for their college...on the assumption that he now would have become rich by that time. Certainly no fun but that wouldn't be a reason for either Michael or the teenagers to be taking a paycut today.

Isn’t the country living beyond its means of your example Greece? And is that so different from the US, ‘conning’ China, Japan, etc into lending to it?

First, is either really 'living beyond their means'? I mean all the goods and services produced by Greece+the EU or by China+ the US equals some amount. Finance impacts the distribution. If taken together all the GDP was 'within their means' then that really isn't the issue.

Second, did Greece enjoy more goods and services from all this borrowing or did paper assets like real estate and stocks simply get bidded up leaving those holding the bag at the end of the game with a huge debt and lots of stern lectures from everyone else?

Consider this simple model. I own a house that would normally be worth $100K but I find a way to sell it to you for $500K. Bank loans you the money which ends up a as a check to me for $500K. Now the market returns to normal. I have $500K in the bank, you have a house with a huge debt. What here is 'beyond our means'? Certainly not the house since that existed before anything even happened. There is here no consumption 'beyond our means'. if I leave the money in the bank, you are under a lot of pressure to pay back a huge debt burden or you can screw off leaving the bank (and ultimately me) on the hook which means I have only $100K (after foreclosing on your house we only have a $100K asset). If I decide to try to spend the money in the bank you are going to end up getting a raise since my only options are to rent your house (which you'll markup enough to pay your inflated mortgage) or buy some other good or service produced by you in this two person economy. If I leave the money in the bank, then, we both suffer. I worry about you defaulting and you can't pay your mortgage. If I spend it, then we can both be happier. It seems if Germans decided to take some of those debt payments and go on vacations to Greek resorts or buy some good olive oil, both sides can be happier.

"Living beyond our means" on an economy wide level would, IMO, require somehow fooling the entire economy to produce more than it should. One method is inflationary expectations....when inflation first appears everyone thinks they are making more so they work more/offer more for sale. As soon as everyone figures out the increased prices they get are offset by increased prices they pay the game is up and the supply curve shifts back to its more 'rational' position. If you want to argue this is the mechanism causing some type of 'reset' then you need to describe an economy wide delusion of some sort...not simply individual cases of excess borrowing on an individual level or even a national level.

'Living beyond your means' isn't producing more than you should. It's CONSUMING more than you should. Or rather more than you can afford to, because you don't produce enough to pay for the consumption. The difference is financed, until you can't finance it anymore (Greece etc). When the reckoning comes, the lender/producer is hurt because their lent production isn't coming back to them and the borrower/consumer has to ratchet back, also not pleasant.

I get the semantic game you are playing but in this case the 'common sense' definition seems useful.

Look again to my house example. Nothing was produced (house existed before and after the 'sale'). Yet after the $500K sale one person is left with a crushing $500K debt and another has $500K in their savings account at a bank....the bank of course hoping the $500K mortgage they are holding is paid, if it isn't then they may have to welch on the guy with the huge savings account should he ever come to make a withdrawl. No consumption has happened here so you can't complain about anyone consuming more than they should...yet the person with the inflated mortgage may feel a lot of pressure to pull back what would have been their normal consumption because of their financial problem.

OK, housing isn't 'consumed' really, it's an asset that gets transferred and debt attached. What about actual consumption? Can one live beyond one's means buying too much food, toys, clothes, vacations, iphones, education, medical care, etc?

Individual yes, society no IMO.

Logically speaking of society produces some toys, it has the means to make them. If you buy them, then someone else didn't buy them. Suppose you buying them was 'too much consumption'. Then what you are saying is you should not have brought them, someone else should have. So your 'too much' consumption is offset by someone else's 'too little'. Ever loan someone $50, never get paid back and say to yourself "I should have did X with that $50!"? You're saying he consumed too much and you too little.

What if everyone at once starts getting immature and short-sighted? Would society consume too much then, starving investment as well as R&D? Sure but in a world where the average person can't save one weeks' worth of pay, the man who can is able to set himself up as a loan shark. As the supply of investment dries up, returns for those who do save and invest will skyrocket, presumably enough to overcome people's short-shortsightedness

The individual can borrow against his future income but society cannot borrow against future GDP.

One consequence is that young people are living at home longer and receiving more aid from their parents. They also seem to be less interested in buying their own homes.

The parents are more wealthy thus able to aid their children more easily and have bigger homes easily allowing more privacy for more people. Which way is the causaility?

Agreed. Extended childhood may be a luxury rather than a hardship. Also, the statistics on recent college graduates' wages need to account for the fact that more people go to college now. If x percent of people went to college in the past and y>x go now, then we should compare past graduates' wages to the top x/y percent of college grads now. Similarly, we should compare past high school grads' wages with current bottom (1-x/y) college grads plus high school grads.

Are you well spoken child or a rationalizing parent?

It's the least the boomers can do for eating their children's dreams. The real question is how much they gauge on rent.

Exactly what 'dreams' did the boomers eat from their children? I suspect if given a choice most people would rather be a 20 year old in 2010 than a 20 year old in 1970.

If the US let the banks fail, it would be detrimental to the wealth of those in the boomer generation or older. Aside from that, the millennials would be way better off if it wasn't for the bailouts. It's amazing generational political warfare hasn't been stronger in the past half decade.

How did the bailout hurt the millennials (rather than simply saving their parents)?

I agree about generational political warfare, but I see it is mainly an issue of the Boomers getting out way more in SS and Medicare (also many will go on Medicaid for long-term care eventually) benefits than they paid into it. Their taxes should have been higher.

Perhaps he thinks some creative destruction would've made room for fresh players to enter the banking sector......and further maybe the collateral damage which supposedly would've bankrupted many non related businesses would've opened the door for new players in other sectors.

costs are too high and what the other guy said about an ossified economy.

I've been arguing for two decades that we have had 500 years of 'unusual' as we spread the voluntary organization of production around the world (often by force), and conquered and exploited two new continents. And that what we see is the new normal. There aren't enough asymmetries to exploit any longer to maintain the prior asymmetry of wealth.

Or rather, normative asymmetries (institutions) are terribly productive and last for generations if maintained, territorial asymmetries are almost as productive, and can last for generations if trade routes are maintained, while technological asymmetries are decreasingly durable.

Or as technologists tend to say: "technology is not a competitive advantage" because it is so easily neutralized.

Conversely, territorial, trade route, and normative asymmetries produce for the long run.

Hence my (and Taleb's) concern about fragility. And my concern that the progressive fantasy of technology as savior, and norm as inhibitor is backwards.

You state the obvious. The 80's was characterized by the disappearance of vast swathes of middle management, good paying middle class jobs that were simply not there anymore. Now the US economy seems to be built on the notion that they are the middle managers of the world. And doomed to the same fate as those guys in the 80's.

I'm seeing better engineered, higher quality and cheaper products coming out of Asia compared to the US. Not China, except for components or assembly. US old manufacturers are being bought up for the sales and distribution networks.

The housing bubble, the intellectual property focus, the saving of the financial system, the nurturing of high tech and elite universities including the education loan disaster are all attempts to either milk the cow or eat the seed corn. The only real positive is the amazing resource developments in oil and gas..

The 80’s was characterized by the disappearance of vast swathes of middle management, good paying middle class jobs that were simply not there anymore. Now the US economy seems to be built on the notion that they are the middle managers of the world. And doomed to the same fate as those guys in the 80’s.

The Bureau of Labor Statistics classifications have it that 5.7% of the non-farm labor force in 1988 were in managerial occupations and that 5% are in "Management Occupations" today. Changes do not seem that important.

Classifications are an attempt to put information into slots, nothing more.

Apple employment in the US is either sales, management or development. The mass of employment is elsewhere where the items are actually manufactured. Tim Cook made his chops by managing the supply chain for Apple. Not a trivial undertaking, but easily done from anywhere by anyone with the skills. That is a big example. A local auto component firm used to manufacture everything here, now they have R&D, sales, management and have taken advantage of some government money to set up very productive production equipment. Once the government subsidies go, they will load up the equipment in trucks and move them somewhere else.

They face constant attempts by government regulators to increase their costs, which essentially end up the impetus to moving aspects of their operations somewhere else where they don't have to deal with them.

Governments and regulators and politicians have yet to face the reality. Nor has the middle class or the educators or even large swathes of the business class. Canada has managed to thrive digging oil out of the ground, and there is puzzlement on why April showed decreases in employment in cities far from Calgary. Duh. The price dropped significantly and the layoffs and shutdowns take time. Who the hell do they think needs financial services from Toronto? And what the hell do they think these financial people will do if they aren't arranging financing for the oil patch or oil patch related projects? Or even the housing for the people who were well paid to work there? Same with North Dakota and the fracking firms.

Can we all live on product development and engineering services for things to be made somewhere else? The next shoe to drop is when these services find themselves priced out of the market having to pay inflated wages for highly inflated prices for debt induced educations.

The US in it's economic heyday was the low priced producer of higher quality goods. It no longer is, and hasn't been for a while. For it to be competitive requires double digit decreases in costs imposed upon business by health care, regulation land and labor costs. It is far easier to print money, fiddle with intellectual property laws and fool yourself by educating geniuses and having a few cities do really well and hope to tax the hell out of them.

I gather you fancy that only manufacturers produce anything 'real'.

I guess you didn't know the U.S. produces more now than ever before? You may not understand the value add in managing those supply chains, but that's why you're not an apple millionaire I guess.

I wish more of us would state the obvious then, with great repetition.

Your analysis is correct. (Although I think you might not be aware of the fact that Boston Consulting Group and socialism were significant influences on the expansion of middle management which was cast out during the 80's. Or that the franchise boom in the 80's was caused in no small part by this purge of middle management.)

But that does not reflect my post, which is that the new normal is (like focus on management), the result of focusing on technology, when technology is a byproduct of Land, Institutions, Norms - and genetics.

I believe the increase of financial parental support millennials receive has been the most underreported economic news of the past half decade. I also believe this is, or at least will be, a huge contributor of economic inequality in the future.

The Dismal Science. Why are conservatives such pessimists? George Will claims that conservatives are actually happier than liberals because they are pessimistic: when you expect the worst, rarely are you disappointed, and as an added benefit, you are delighted when you are wrong. Will made that observation in 2006. I'd update it by observing that conservatives today aren't aware when they are wrong (ignorance is bliss). Economics was dubbed the Dismal Science by Thomas Carlyle, not in response to Malthus and his prediction that population growth would exceed the rate of increase in the food supply (hence mankind is doomed to starvation) but because Carlyle suggested that slavery is necessary in order to compel the wretches to be productive. It is often stated that conservatives value order above all else. My observation is that conservatives value, not so much order, but the natural order of things, as long as the order places them at or near the top. Marx claimed that capitalism contains the seeds of its own destruction. I'm not sure if that makes Marx a pessimist (hence Marx was a conservative) or an optimist (hence Marx was a liberal). In either case, I say that Marx was wrong, that capitalism doesn't contain the seeds of its own destruction but rather it contains the seeds of self-correction (although it's true that the self-correction can be painful). I suppose that makes Peter Boettke and me the odd couple. On the other hand, Jesus taught that the End Time will bring about a role reversal of the rich and poor, as the rich will be poor and the poor will be rich. Does that make Jesus a pessimist (hence conservative) or an optimist (hence liberal)?

In my opinion, there are two reasons for slow wage gains:
1) Slow productivity increases, which reduce gains in total compensation, and
2) Increases in non-wage labor costs, such as ObamaCare, payroll taxes, labor regulations, etc.

Both of these are caused by government policies. The slow productivity is caused by weak private non-residential investment as politicians raise taxes, increase regulation, and devalue the dollar, while encouraging investment in homes, which is a non-productive asset.

Don't get me wrong. Politicians don't need to "stimulate" investment. They just need to stop discouraging it. They also need to stop pretending that increasing non-wage labor costs doesn't negatively impact wages. There are no free lunches.

Yes it must be the government's fault loool

Doesn't need to it's fault for it to be a contributor. This last recession is a nice example. Seems like some folks want it to drag on.

F*ing Morono thinks the Norweigan Soveriegn Wealth Fund was legislated in to existence. No, Morono, governments do not create wealth today, not unless you think a few hundred wealthy elites can better determine supply and demand than billions of people.

For the love of God, will Congress please legislate more Bakkan Shale Fields in to existence?

Could the US Congress please create more brilliant startups?! I love Google and Tesla, can Congress go for the trifecta of wealth creation please?!

Yes. There's no doubt that Obamacare is at fault for the long-term trend of wages.

We wouldn't be having all these problems with ISIS either, if that hadn't passed.

Shorter Bernard: "I vote Democrat (I'm not a racist!). Everything Obama has done is perfect."

Shorter Thomas: "I have to blame Obamacare because I can't think of anything else."

Tyler:

Towards the end of your NYT piece you say, "... or, perhaps, a new global economy where the United States no longer holds such a dominant position ..." - which I suspect is the most significant and most pervasive explanation. If you consider that the U.S. economy accounted for more than 90% of global GDP at the end of WWII (with other economies either drained or bombed out of significance), and currently accounts for just over 20% of global GDP (and declining), let's just say there are new realities - and new competitive frameworks - with which to be dealt.

But unfortunately, you follow that passage with, "..., to the detriment of American firms and workers." Detriment? Really?

You guys are focusing in the US but i think these problems are global...

They are certainly global, but certainly NOT problems.

Isn't competition great for consumers but not so great (financially anyways) for producers?

This goes to the myth of "American firms", as cited by Tyler - how many "American firms" do you suppose that only have operations inside the borders of the U.S. and also only have markets inside the borders of the U.S.? Answer: Precious few, and only those not subsidized by the U.S. taxpayer.

Further answer: Global competition in open global trade benefits consumers and producers.

Geez, the was always the obvious result of globalization. I made this prediction freshman year, 2007; Introduction to Microeconomics.

A simplistic pseudo-science making large-scale assessments of a complex system for which very little data is available and/or for which very little effort has been expended to correlate that data - that is the psychology and sociology of the main players (to be fair: hindered by privacy expectations). Why has anything that does not fully embrace behavioural economics even suggested - ever. This is Isaac Newton trying to discuss quantum entanglement - stop it.
People in general, are lazy, greedy, and stupid. Though, they are not evil and it is not their fault (their live, work, and play environments either promote it or refuse to antagonize against it). This is the fundamental assumption. All springs forth from here. This informs how they work, play, compete, and economically-interact. How is it we have grown at all ? (tech distraction).
We need to -simultaneously- look at the people in a top-down way (employers, gov't, and consumers) and grass-roots way (producers, consumers, employees, and tax-gathering gov't) and see how their absolute (intrinsic) value (however that can be reliably defined) has changed with time. Have they become more valuable in interacting to create a system that has more value (however you define it) than previously and has (the hard part) each one utilized their potential (and developed/ maintained it) to the foremost to promote that increase in value. This is beyond political science and world affairs. This the cumulative effect of all the players whose behaviours have adjusted in a more-or-less synchronous way but when differently grouped has counter-acted sometimes and reinforced other times - providing an effect hidden or distorted in the large-scale appearances. And that is the point - you have lost sight of the forest's behaviour for your misunderstanding of the trees. Solution: sending out those 10s to 100s of 1000s of census takers and/or grad students and fundamentally pry into the economic expectations, goals, and current contributions of all. Data, dear souls, valid, far-reaching, and behaviourally-adjusted data - soon. I have never taken an Economics course, but I know a lost and floundering profession when i see one. (and this is why China with all its privacy-unhindered ways, social engineering, and responsive-but-not-strictly-democratic system, may best be able to quantify the needed information and go forward with pro-productivity, pro-potential policies)

..and forget not that time-honoured statement of the truthism (absurdism) of our times, thinly-veiled but omnipresent in intent in all major employers and gov't spaces (and maybe some parents?)(from a pre-industrial time, I'm sure) -- "The beatings will continue until the morale improves [regulations and rules will be tightened until productivity/success increases]"

I am not so bullish on China. They are currently falling into the same QE trap the western world is mired in. Short term boosts that get weaker and weaker with each repetition resulting in long term stagnation until somehow the process is reversed and the resulting debt overhang is finally dealt with. Japan lead the way and after several decades still hasn't gotten out of it. The rest of the world is following suit including China.

As the partitions in the ideal gas box are removed, the energetic particles diffuse and eventually evenly populate the box. Without the injection of new, more energetic particles or the construction of new barriers, equilibrium is reached.

A Texas sharpshooter...

If "normal" means higher rates growth for already higher performing entities, that's pretty obviously not a sustainable physical system. You can use any type of analogy from physics you want. Without artificial constraints you will find mean reversion. Or the system will exhibit infinities. If you want to use social science jargon, success creates competition and success reduces marginal incentives to succeed.

The Fed needs to blow the roof off, print money until labor markets are tighter than a high-desert drum.

All this sissy stuff about rate hikes or no QE...egads. Go for boom times in Fat City.

Then Tyler can mull a new, new normal.

Almost word for word of what people were saying in the dying days of the Mulroney years in Canada. So what about the deficit, just borrow a few billions get everyone working. Chretien promised that very thing, infrastructure spending, seeing trucks hauling gravel makes people feel good and start spending. A year later he implemented a draconian deficit reduction plan, balanced the books and oddly enough Canada was then able to respond positively to the economic winds.

What you are really saying is engage in a massive price fixing scheme and we will all be rich. Doesn't work, never has.

Here would be my optimistic case. We had a stagnation from the late 60s to about 1980. That happened to correspond roughly to Baby Boomers' twenties, which they spent using drugs and protesting and rioting in the streets. When they entered their 30s and 40s, which are typically strong productive years, we had the boom of the 1980s and 1990s.

The most recent stagnation, 2000-present, corresponds roughly to Millennials' twenties. While Millennials may not have spent the decade on drugs, they have delayed adulthood. As they enter their thirties, we may be setting up for a 2-3 decade boom, similar to the 80s and 90s. Again, this is the optimistic case.

The big wild card, as usual, is whether government policies will inadvertently stifle this boom or, as in the 80s and 90s, will the government instead get out of the boom's way and allow it to happen. It's possible that Millennials' aging itself may influence the stance of government policies, just as Baby Boomers' conversion from hippies to yuppies did.

The "new normal" may really be about childhood extending into one's twenties, a luxury of a wealthy society.

It is an interesting hypothesis, but I think there is one really big difference in the two cases- the Boomers were much larger than their parental/grandparental cohorts. In the case of the Millenials. The burden on the Millenials, as they age into full maturity, is going to be greater.

I also see that there aren't that much fewer "post-Millennials" than Millennials [http://www.pewresearch.org/fact-tank/2015/01/16/this-year-millennials-will-overtake-baby-boomers/]. That means that we may not really see a sizeable bump in the number of productive 30-55 year olds relative to slacker 20-30 yr olds. At least the ratio should start moving in the right direction though.

Yes, the retiring Boomer generation will affect all of the per capital statistics. Per-worker productivity statistics though should be unaffected (other than missing their boost when comparing against 1980-2005 statistics when they were in their prime productivity ages).

Of course they're 'less interested in buying their own homes'. They're carrying a load of student debt and a large mass of their elders got burned during the housing bubble. The ratio of mortgage debt to domestic product has returned to 2002 levels but it's still high in comparison to the usual during the post-war period.

We all might work for some amelioration of the student debt problem, but that means better secondary schooling, less tertiary schooling, and fewer employment opportunities for aspirant professors.

Further, millenials know they can't expect long-term employment so being able to relocate for a new job is a survival trait.

If the US dropped the proportion of government to the size of the economy down to around 33% there would be no talk of stagnation.

It's happening. Government employment as a % of total employment in the US is currently at 15.50%, the lowest level since May of 1960.

Government jobs don't reset with the alacrity of private jobs, so it's much more of a long-term process. But it's happening.

Expect increased shakedowns from beleaguered and strapped state and local governments.

Are they counting government contractors and consultants?

If not, they are grossly underestimating the number of people employed by the federal government.

Your knee-jerk reaction misses my point. Contractors don't have to deal with government employee pay, bargaining, and work rules, which all are in the way of allowing government pay to reset.

Government is pricing itself out of the market as an employer.

Some historian will review the ascent, plateau and squandering of the US economic position.

The ascent was helped by our position post-WWII, as we got off to a lead and helped via the Marshall Plan and various bilateral and multilateral policies to make the world safer and more stable.

The plateau was rocky with various impacts like OPEC and winding up the Cold War.

The squandering is underway and was helped along by giving away the US patrimony and accumulated societal wealth to China what they weren't already stealing. QE is the last gasp of desperate fools masquerading as thought leaders.

Your children will grow up in a worse world thanks to the geniuses in Washington and on Wall Street.

It is a matter of time before people turn on them, but that will be too late for the average citizen that believed them.

What made the formation and growth of the US remarkable was never learned, or was forgotten, by recent generations.

China hasn't stolen a bloody thing. Other people learn how to make use of extant technology and develop their own technologies. Deal with it.

You stupid idiot.

Google 'China Steals Technology'

..& then have a look at the J-31 Stealth Fighter.

Declining living standards, or really any other economic issue a concern? No problem. Just use Wise Technocrats to make the trend illegal. What could be simpler than that?

We're not suffering declining living standards.

Sounds nice. Tell me what it's like.

OK. I live in a country that has added 28.3 million jobs between 1990 and 2013 seen median wages (which does not include the cost of benefits or many of the intangible improvements in life during that period) increase 11% in real terms in that time period.

http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2013

http://www.ssa.gov/OACT/COLA/central.html

There have been a lot of ups and downs. My country is a rich country and has a safety net, but it's definitely not a 'farting through silk' safety net, so most people have to shift for themselves, and they do.

I suppose some other countries might be ok too, but I think this one is pretty good.

Why doesn't Tyler ever get invited to do a university commencement speech? :-)

Enjoy the beans!

Bean, beans, the marginal legume. The more you eat the less you'll consume.

+1 best comment of the thread

What's the baseline year for "normal"? 1965? How would we know if things returned to normal? How would we recognize it?

"Wages for the typical graduate of a four-year college have dropped more than 7 percent since 2000"

1. What is a "typical graduate"?
2. Assuming you're talking about all graduates, is the 7 percent drop still true if you adjust the mix of degrees to match those awarded in 2000?

I can see why the NYT enjoys this point of view, and wants to promote it.

Hillary can't exactly walk around saying "It's impossible to improve the economy, so you might as well vote for a girl." But if you can get Tyler Cowen to plant that seed in people's brains for you? Pure gold, baby.

We should all abandon the idea that things can be normal again.

Pretty good Tyler, but not your best effort I think.

My favorite part was the Germany/France comparison. Stay tuned on that one.

I think there is some cause to fret about the young, but the biggest causalities are likely the cohorts who entered the labor force in 2009-2011. From what I can tell, it's a pretty good job market for 2015 graduates.

Finally, I think you get a bit jumbled right at the outset:

"One relatively optimistic view is that observed deficiencies — like slow growth in real wages and the overall economy, persistently low interest rates and low levels of labor participation — are merely temporary. In this view, these problems will dwindle after manageable problems like high levels of public or household debt have been reduced.

Another commonly heard view is that we made the mistake of letting the last recession linger too long, allowing some of its features to became entrenched. That analysis suggests that if we correct past policy errors, whatever they may have been, an underlying normality will re-emerge."

A third view is that there were excesses built up in the noughts that we have been wringing out of the system. Households and businesses are in much better shape than in 2007, but government debt has swollen. At the same time, we are looking at an oncoming, largely-demographically driven 'new normal' environment of lower growth (but lots of access to cheap capital!). We're in a race against time to get government debt under control before the demographic wave overwhelms us. I'm much more optimistic than I was in 2012.

Really Nice Post , Converts My Mind.

Richard Florida is not an economist, unless we consider a degree in urban planning as qualification for such title....

I don't know there are a lot of signs that the economy is picking back up. http://www.apprenticepersonnel.com/blog/apprentice-personnel-blog/2015/4/27/college-grads-face-best-job-market-in-years

Comments for this post are closed