Thursday assorted links

Comments

1) it is possible to describe a virtuous life, a virtuous society, from an economic perspective, but it might not be the direct path to achieving one.

Related: http://blog.traintracks.io/a-swede-returns-to-silicon-valley-from-china-2/

American political polarization is based on a very childish argument about which is worse, business or government. I think healthier cultures recognize that both can be good, or both can be messed up, and both can be improved. Add religious institutions, schools. Whatever the human endeavor, humans are imperfect, their organizations will suffer their flaws.

If you seek economic growth without services, without virtue, will save you, I think you end up with a dystopia .. Kansas style.

What's the matter with Kansas?

I heard that it was the "government schools."

You know, I remember when Democrats were authentic statists. I remember the 80's, and bald faced claims that government created the economy, and not vis versa. I was a happy Reagan Republican because I thought we needed to rebalance the other way.

I am pretty sure we overshot balance. Now no one puts government before business. Democrats are faulted for being pro Wall Street (boggle) but at the same time capitalism with government services is attacked as socialism. Government Schools.

Perhaps Bernie was the mark of a swing back, as are changes in Kansas, and that would be good in my opinion. The center, and an efficient and fair society are just a tad left of here. Not too far left, mind you, just a squidge.

"I remember the 80’s, and bald faced claims that government created the economy, and not vis versa"

Do you remember the 2012's:

"You didn't build that" is a phrase from an 2012 election campaign speech delivered by United States President Barack Obama on July 13, 2012, in Roanoke, Virginia. The phrase was publicized by his political opponents during the 2012 presidential campaign, as an attack on entrepreneurs and the free market."

https://en.wikipedia.org/wiki/You_didn%27t_build_that

"You didn't build that" was publicized as an attack on entrepeneurs and the free market, but that is an uncharitable interpretation of the argument the president was making. Taken in context he was pretty clearly making an argument that public goods and services contribute to the success of private business. Entrepeneurs didn't build the courts that enforce contracts and property rights or maintain the roads their products are shipped on. It was never an attack on the free market or a claim that government creates the economy, it was a rebuttal to conservative claims that government is evil and inefficient by definition.

Yeah, pretttttttty sure Obama wasn't commenting on the state of judicial system. Probably wanted higher taxes to fund more Obama-care for more Obama votes.

It was never an attack on the free market or a claim that government creates the economy

No, it was just an attempt to undermine the contributions of individual entrepreneurs to the economy in order to delegitimize their objections to onerous levels of regulation and taxation. Completely different.

I actually thought about "you didn't build that" as well, but decided that MR could not handle the subtlety. You didn't build that alone. Black lives matter too. The missing word/thought in each is just a bridge too far.

I would note though that if your unkind interpretation was the real dope, you would see real socialism also. Where are the calls for nationalized industries? Where is the missing socialism? I am talking about the real stuff, and not just an increase of school or infrastructure spending by a few percent.

I remember 2009 when conservatives told me that the government would never leave General Motors alone and none of the TARP money would be repayed and this was all a scheme to put everything under the government's grasp.

"Yeah, pretttttttty sure Obama wasn’t commenting on the state of judicial system. Probably wanted higher taxes to fund more Obama-care for more Obama votes."

I guess the roads and bridges building is for hauling all the government collections of insurance premiums from individuals to the for profit insurers and hospitals and for all the doctors and hospital execs hauling their big boats to the waters or driving their $200,000 RVs to the mountains?

I remember when I was young, the sun shone brighter and the future seemed so full of promise.

It was certainly an effort to legitimize taxation and regulation -- that's the crux of what left and right argue about every election, and the value judgement of whether they are "onerous" is largely based on what side of the debate you come down on. Undermining entrepeneurs? Nope, acknowledging that public services can contribute to private-sector growth does not diminish the hard work and initiative of business owners -- this isn't a zero-sum game.

Only rich countries have big welfare states. Liberals point to this correlation and get all confused, as if it was the welfare state that caused the country to become rich. A basic understanding of history indicates the reverse is true.

Government will collect $6.6 trillion in taxes this year- more than $20K per citizen- and it's still not enough for the maw.

I agree that we shouldn't look at large welfare states in rich vs poor countries and conclude that government services make a country wealthier. I'm also happy to concede that taxation on its own has a negative impact on growth. But citing large numbers describing the amount of tax revenue is not a convincing argument that government spending makes a country poorer. You have to try to judge the costs of taxation (or debt) vs the benefits of government spending and weight them against each other.

Brian, few people would expect California to be where it is without the California University system. Few people who understand tech industries and the skills that built them, that is.

In other words, "he didn't say that". More precisely, Obama said "If you’ve got a business -- you didn’t build that. Somebody else made that happen."

Here is the transcript by the way: https://www.whitehouse.gov/the-press-office/2012/07/13/remarks-president-campaign-event-roanoke-virginia

I can't believe that people are still misinterpreting "you didn't build that" incorrectly. It's a bad look for conservatives to base an attack on a comprehension failure that is driven, most charitably, by pure cynicism.

Tom, feel free to miss the point, after all this time. And I quote:

"The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together."

Not a horribly wrong or difficult point, but beyond the reach of so many.

What's the matter with Kansas? It's too damn hot, and Lawrence is full of KU fans and ignernt* democrats. And it's flat and, in the west section of the state, too arid to really farm.

Kansas is not that bad. I'd say its biggest crisis is actually overuse of the main aquifer - our budget can and will get fixed soon. The Kansas budget is not really designed, according to our rules, for deficit spending. We have some form of balanced budget requirement, which limit how far we can actually crash. C'mon, Thiago, I don't mind talking up Brazil, help a brother out!

*this is how it's spelled and pronounced. Ignorant is some weird city slang.

"We have some form of balanced budget requirement, which limit how far we can actually crash."
There are legal limits to public deficits in Brazil, too. Government can't spend more money than it collects in taxes, prints, borrows or confiscates. So we froze the deficit at about 10% of GDP, which may seem much at first glance, but it is less than one-third of the budget, which means two-thirds of government activies can be funded with resources readily. Collapse has been skillfully averted again.

"C’mon, Thiago, I don’t mind talking up Brazil, help a brother out!"
I guess there are worse places in the world. I hear Venezuela and South Sudan are going through a rough patch too.

Haha, I'll take what I can get. Kansas: At Least We're Not South Sudan!

Kansas: 100% Detroit-Free!

Kansas: Not Even Flyover Country, Thank You Very Much

"Count your blessings", I always say, "count your blessings".
Brazil could be Kansas and Kansas could be Detroit. There but for the grace of God, go I.

"dystopia .. Kansas style."

"Unemployment Rate June 2016
National 4.9%
Kansas 3.8%"

State government does not equal the economy. People have more money because of the tax cuts, government has less.

Lol Kansas
https://www.washingtonpost.com/news/wonk/wp/2016/06/17/one-state-raised-taxes-the-other-cut-them-guess-which-one-is-in-recession/

Old news.

Unemployment is third lowest in the nation and its the farm economy that is dragging down everything else.

https://www.kansascityfed.org/en/publications/research/ne/articles/2016/2q2016/diverging-economic-growth-in-nebraska

" Nebraska’s unemployment rate of 3.0 percent was third lowest in the country behind South Dakota and New Hampshire"
* * *
"The increasing divergence in economic growth in Nebraska has expanded due to persistent headwinds in the state’s farm economy and its connection to manufacturing. Although crop prices rebounded modestly in the second quarter, due primarily to developing weather concerns, a prolonged period of low commodity prices has suppressed farm income in Nebraska "
* * *
"The downturn in the state’s farm economy has affected economic activity among other industries connected to the agricultural supply chain."

Please tell me how state budget cuts affect how many pigs farmers sell and at what prices?

Low unemployment and moderate economic growth despite the weakness in the state's major industry is not a "dystopia ".

What's the matter with Nebraska?

So we just talked about universities, human capital, and growth.

Now you want to "say don't blame us if pigs are a poorer market than iPhones?"

When everyone tech moves to California for network effects what should you do? Close government schools and focus on pigs?

Well which is it? GDP growth? Unemployment? Debt? Because if we are looking at unemployment as the great barometer of economic health then you must certainly toast Obama, whose deficit spending has brought unemployment rates down over 5% over the last 5 years.

Also by putting dystopia in quotes you are implying that I made that claim, which I did not and was rather dishonest of you.

Kansas does have GDP growth, it is being held back not by modest government budget shortages but weakness in a major industry which also impacts related industries.

"Also by putting dystopia in quotes you are implying that I made that claim, which I did not and was rather dishonest of you."

The original comment used dystopia, try to keep up.

Comparing California (population 39 million) and Kansas (population 2.9 million) is silly to begin with. Same with citing GDP growth rates without any context of population growth. A few facts that article doesn't mention:

California's unemployment rate has been above the national rate every month since the Bush administration.....the George H.W. Bush administration, that is. The rate in Kansas has generally been lower than average and is currently 3.8%. If we look at the employment/population ratio the difference is even greater- CA is below average while KS is well above the national average.

California was one of the hardest hit states during the recession. It's not surprising that it would have higher growth rates after the recession. Using the 2007 business cycle peak would seem to make more sense for comparison.

As of 2014 the real median household income in CA was 5% below its 2007 peak. Kansas was 3.5% below.

Employment/Population December 2007: California 61.8%, Kansas 67.8%
Employment/Population June 2016: California 58.6%, Kansas 64.9%

Wow, I think DeLong took pigs and iPhones and ran with it:

http://www.bradford-delong.com/2016/08/thoughts-on-the-97f-august-prairie.html

He fills it in better than I

Unchecked concentrations of power - business, government, unions, military - are usually bad. Monopoly providers of services are inefficient and expensive. So just as monopolies need to be busted up and unions need to be eliminated, government needs to be kept in check as well. Because of the lack of homogeneity of the US population and the rise of identity politics there won't be a great support for inefficient monopoly provider "services". There is plenty of evidence they are currently wildly inefficient here in the US. As a different model think of government in the US as an effective cash redistribution mechanism but not a provider or operator of services. That should be left to competitive markets. Things like Social security, school vouchers, subsidized private health markets are all OK. Redistribution OK. Monopolies Bad. Economic Growth = More Redistribution Possible.

2. Maybe Cowen would enlighten his readers why Consumption as a percentage of GDP has been rising in the US. Could it be that (relatively speaking) Investment has been falling, or that Government spending has been falling, or that Exports (less Imports) have been falling? Or could it be that flat or declining Wages means that a larger percentage is devoted to Consumption rather than Savings (Investment)? If one looks at the worldwide data (http://data.worldbank.org/indicator/NE.CON.PETC.ZS), the results are very different as compared to US data (http://data.worldbank.org/indicator/NE.CON.PETC.ZS?locations=US).

Of course, to argue that households are not consuming roads and bridges, water and sewer, telephone lines, is to argue that capital lasts forever.

Especially education - the US has taught probably 400 million people to the 12th grade, so public schools are no longer needed because providing free public education just means the same 300 million people just keep consuming grade 1-12 education over and over because it's free.

Anyway, businesses charge for the capital costs in consumer goods and services so consumer spending is paying for investment.

If the economy is static, every depreciation model, straight line, double declining, useful life vs half useful life vs immediate expending means investment equal depreciation added to the consumer price. Only in a growing economy with depreciation pushed into the future can investment reduce consumption by requiring reduced consumer spending to create the savings to pay the wages to built capital.

On the other hand, a declining economy can consume more than is produced by consuming the capital without replacing that consumed.

If you do not consider government as more than an external agent sucking money from the economy, then not educating kids to the same level as the people dying were educated 60 years earlier, not investing in transport built 60 years earlier, etc are not seen as bad, and instead businesses complaining they can't find educated workers because tax and other public policies punish businesses for training workers like they did 60 years ago, then the diagnosis is that kids today are lazy and stupid, and the boomer kids were geniuses just like their parents who made America Great in the 60s.

I don't think TC wants to enlighten as much as point out the facts. Your first link is exactly the same as the Twitter graph, no difference, just move the slider bar to "1978". It's the exact same graph.

I will take a stab and say that consumption is not the same as net worth, and as the shrinking middle class got richer from 1978 to 2014, they consumed more. It's the super rich (1%, like my household) that saved more than they should have. So the counterfactual is: if there was no 1%, would consumption have increased even more than it has? And the answer is: yes according to theory. Economists love to do these counterfactuals (i.e. "potential GDP" and the "output gap"), but they are not really grounded in science as much as linear projections of preexisting trend lines, assuming no break in the trends (which is unrealistic).

But a nice non-intuitive tweet; screenshot saved on my hard drive file for future reference.

Bingo! All this graphic demonstrates is that structurally our economy consumes more and is more unequal. If you actually look closely, there does appear to be inverse correlation, especially if you remove trend.

[in response to #1]
The kids don't fight on Christmas morning, so let's make every minute of every day Christmas morning!

There are some people who believe in a utopia of abundance sometime in the future; but Kling combined with
Girard can quickly demonstrate why this is foolishness. Things are not fungible, and people are definitely not fungible;
but desires can be (and generally are) copied. In ultimate abundance, people will still be viscious and unhappy,
because they will crave things which can be neither duplicated nor shared. Jealousy is inevitable and more
resources just means more weaponry when conflict comes.

Why are periods of increase seemingly happy? Perhaps because people are
comparing themselves to their neighbor last week, and feel like they are doing
'better' as a result of the lag in perception? It's a testable hypothesis.

The "hedonic treadmill".

Absolutely. And the only thing that can break it is philosophy. Choose one that works for you.

"Why are periods of increase seemingly happy? Perhaps because people are comparing themselves to their neighbor last week"

The Friedman thesis is that when things are improving people don't actually compare themselves to their neighbors -- instead, they compare themselves to their parents (and to their former selves) and see that they are better off, and this works against envy. People who feel their present is better than their past and that their future (and their children's) will be better still are not only happier, but also more tolerant, less inclined toward taking a zero-sum view of the world, envying their neighbors, or pulling up the drawbridge against newcomers. During times of stagnation or decline, the reverse is true.

Rayward is absolutely correct. The reason consumption's share is rising is that essentially everything else is falling. I guess the reason it is due to inequality is that inequality is a major factor causing everything else to fall.

I do not believe that Cowan posted this without comment.

I think the italics and the ahem were comments that mean he agrees with the findings.

is that essentially everything else is falling.

In chained (2009) dollars, gross domestic private investment was $2.231 tn in 2001, $2.664 tn in 2007, and $2.869 tn in 2015. Government consumption was $2.569 tn in 2001, $2.914 tn in 2007, and $2.883 tn in 2015. Net exports showed a deficit of $502 bn in 2001, $713 bn in 2007, and $540 bn in 2015.

#5: "The biggest estimated effect is on the area of Sound Money, given the introduction of the euro in countries which had previously been characterised by high inflation."

I am sure the Italians will be thrilled to learn this. Greeks, too.

6. Big deal. What happens to the money that goes into political campaigns and super PACs? It gets spent in hiring staff and, most of all, in the purchase of media access. What's not to like? The television guys get their cut, as do the PR and marketing flacks. Baby politico wannabes get paid for the experience of running for coffee and copies and, if they've got the right personality, become members of the next generation of pirates. Why would we object to this being financed by other people's money? The real catastrophe would be public financing of campaigns.

I don't think we want foreign governments financing campaigns anymore than we want foreign governments donating to the Clinton Foundation & Slush fund.

False equivalence is a cruel mistress. She can turn on you.

"...is a cruel mistress."

Indeed she is a cruel mistress: http://goo.gl/QtXkas

2: housing. Income inequality is facilitated by the battle to gain entry to labor markets in NYC, Boston, San Francisco, and LA. To get the high income, you have to spend 40% of your income on housing. Those rents are high precisely because investment in housing is blocked.
High inequality, low investment, high consumption. A very high portion of all of that is coming from those cities.

#2

http://journals.plos.org/plosone/article?id=10.1371%2Fjournal.pone.0154196

"It is found that the effect of personal savings on wealth inequality is substantial, and its major decrease in the past 30 years can be associated with the current wealth inequality surge."

(4) Gee, thanks for the concern-trolling. Real beneficial to all of us.

#5 Thanks. I never realized what horrible autocracy and debased currency you find in Norway, Switzerland, Iceland, Vatican City et al compared to the EU member states.

2. Consumption as a percentage of gdp has increased with inequality (ahem).

Well, that's not a very interesting observation, now is it? Because GDP shares are constrained to sum to 100%, if one component of GDP is decreasing as a percentage of GDP, some other component has to be increasing. We might as well point out that government investment and consumption expenditures have been falling as a % of GDP as income inequality has been rising.

We might also point out that investment spending has been rising as a of GDP (with sharp downturns during recessions) since 1970--up from about 12.5% in 1970 to around 16.5% now (investment's share of GDP is up by 30%--4%/12.5%--since 1970)--and that's after investment spending has been depressed by two recessions in the past 16 years. Consumption's share is up from 61.2% in 1970 o 69.3% in 2016--a 15% increase. The investment share of DDP has increased twice as fast (in percentage terms) as the consumption share.

So C+I as a % of GDP is up from 75% of GDP to 86% of GDP as inequality has been increasing--and would be even higher but for the failure of I to recover significantly. Does this tell us anything meaningful? If so, what? All this is, is a "gotcha" moment, not an analytical moment.

I think it's a fact worth bearing in mind when one encounters claims that increasing in-country inequality has been causing structural excess savings (as posited here, for example: http://equitablegrowth.org/research-analysis/equitable-growth-in-conversation-an-interview-with-lawrence-summers/ ).

It may be a fact that spurs a bit of digging for analysis (e.g. I've bumped across this: https://ideas.repec.org/p/chb/bcchwp/08.html ).

I looked at the Consumer Expenditure Surveys, and based on the data from 1984 and 2011, virtually all of the increase in (inflation-adjusted) spending between those years occurred in families in the highest income quintile. Spending by families in the lowest income quintile actually declined by over 4%. So there is no contradiction between increasing inequality and PCE rising as a share of GDP; all that has to happen is for income gains to be concentrated at the top--as they were--and for high-income people to spend more--as they did.

Do you think the seal gave the krill a character reference for the whale?

Love your work.

#2...I did not find the data to do an analysis, but it LOOKS to me like that if you controlled for the trend you'd get the relationship that many would expect. Some other factor is causing the trend. I'm the type of economist that would love to see a positive relationship between consumption and inequality, but I don't see it in this graph.

#4 my daily reminder that vox is dumb, and i should never click any vox link

Wow you have heard of Einojuhani Rautavaara.

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