What if there are no more economic miracles?

Here is my Bloomberg column on the passing of the economic miracle, here is one excerpt:

Most of the world’s wealthiest and best-governed countries got there without super-rapid bursts of growth. Denmark, which has a per capita income of about $52,000 and is frequently ranked as one of the happiest countries in the world, never experienced what anyone would call an economic miracle. If you Google that phrase, the main entry will be a research piece detailing how, in the 1990s, the country lowered its unemployment rate without having to dismantle its welfare state.

Denmark’s overall economic record is gloriously boring. From 1890 to 1916, per capita growth averaged about 1.9 percent per year, and if in 1916 you had forecast that this pace would continue for another 100 years, you would have been off by only about $200. Denmark had positive growth about 84 percent of the time and no deep recessions, according to a recent study by Lant Pritchett and Lawrence Summers.

And this:

…the experience of Denmark and other “no drama” growth stories provides some clues to the future of developing economies. The East Asian growth model, for all its wonders, belongs to history. Slow and steady may be the only option left. For whatever reasons, few countries have been able to scale up their educational successes as rapidly as the East Asian tigers. Trade growth, which exceeded overall output growth in the late 20th century, now seems stagnant. Many export industries are automated and hence don’t create as many middle-class jobs as they used to.

In other words, today’s world may resemble the 19th century more than the last few decades.

Do read the whole thing.

Comments

By the way, Denmark has had immigration restrictionist governments for most of the 21st Century.

A whole 16 years, huh? And that's what accounts for the 20th century's steady growth?

They're mostly worried about non European immigration which they started to restrict in 1972. Before that it was not much of an issue.

https://en.wikipedia.org/wiki/Immigration_to_Denmark

I dont trust it.

How can a country be rich and peaceful if they dont have vibrant communities. How is it possible without immigration. Something must be wrong.

Luckily they now have a lot of migrants from the middleeast to help increasing wellfare. Good times are ahead for the danes.

You so clearly understand those you disagree with.

Someone did something one way, ergo all those who succeeded and/or want to continue doing it the other way are necessarily wrong.

Did you thank Islam for saving Western history yet? The Romans and Germanics would have lost and/or destroyed much of it, but the found copes of the Greek and provided many translations. We know our own history because the Muslims saved it and then exchanged it with us once we were done playing lord-and-slave-peasant for 1000 years.

That having been said, we seem to have stirred up quite the hornet's nest in recent centuries and it would be nice if we could find a way to simmer things down. How about another WWII-sized aerial bombardment campaign? Surely that will "pacify" them, no?

"Someone did something one way, ergo all those who succeeded and/or want to continue doing it the other way are necessarily wrong."

There's a tendency for strong immigration proponents to argue that high immigration is necessary for growth. However, this and other data argue that it might be complementary but it's clearly not necessary.

"we seem to have stirred up quite the hornet’s nest in recent centuries"

Islamic wars of conquest killed quite a few more Europeans over the centuries than the reverse since 1918 [nor "centuries"] in our involvement in the Middle East.

"Did you thank Islam for saving Western history yet?"

What would have happened to "Western history" if the Arabs had won at Tours or the Turks had taken Vienna?

You act like the West is the cause of all the strife. Takes two to tango.

For many documents, if they'd decided that the Greeks were worthless, i.e. if they had been unable to recognize the value in preserving and translating the Greek works, then by the time Europe was climbing out of the dark ages, who knows, maybe all copies and knowledge of them would have faded mostly to dust.

The only people who could read spent their lives studying only the Bible and taking care of various registers and records, etc. At that time, the Muslims were quite ahead in many regards.

Now, in return you could almost say, much effort is being put into preserving the libraries of Tomboctou, take up by Christian monks. I guess we will see in following centuries what might be gleaned from those works. But, similarly to many Greek works, we would never have been able to know if someone had not seen fit to preserve the works in the first place. Which Islamic jurisdictions did while knowledge decayed in Europe for the case of much Greek stuff.

It's true. I wasn't sure whether to believe it the first time I heard it either. Surely a copy of The Republic or something would have made it through, but not the bulk of the entire Greek corpus of philosophy, science and literature.

Re: What would have happened to “Western history” if the Arabs had won at Tours or the Turks had taken Vienna?

This is hard to say, actually. The Moors could have won at Tours, but been defeated in a later battle. They had after all already won a couple of battle in Aquitaine before they got as far as Tours-- on a raiding expedition by the way.

As for Vienna, it depends whether you are talking about the 1529 siege by Suleiman or the 1683 raid. The latter would have been largely meaningless had the Turks succeeded: the Ottoman Empire was already in a state of decay and would have gone on to collapse regardless (and likely would not have held Vienna very long). In 1529 the stakes were vastly higher-- the French were allied with the Turks, the Germanies were in a state of upheaval owing to the Reformation, England was distracted by Henry VIII's marital problems, the Church was corrupt, the Emperor Charles V was so distracted by his Italian campaigns he made no effort to defend Vienna, and his brother Ferdinand panicked and fled to Prague. Suleiman, one of history's greatest conquerors, was defeated by the efforts of the Viennese, helped by some neighboring nobles-- and, rather like Napoleon in Russia, by unseasonably cold weather and an outbreak of typhus. Had he taken Vienna he might well have gone on to seize most of Germany as far as the Rhine-- where the Protestants might even have welcomed him in preference to the Catholic Emperor. Whether the Turks could have held Germany is another question: land communications through the Balkans were horrible-- roads barely existed, and quite likely the German states would have broken free at some later point. Suleiman's son and successor went down into history as "Selim the Sot", which gives us an idea how capable he was.

'and no deep recessions'

So, that whole WWII thing, including Nazi occupation, was just a trifle, then. https://en.wikipedia.org/wiki/Denmark_in_World_War_II#Economy

In a sense, no: not really. The dip in GDP/capita was around 10%, cf. the United States' 30% dip from 1930 to 1932 (Maddison World Tables).

My guess is that with countries the story is much the same as stocks. Boring and low-volatility clocks in higher long-run expected returns. Don't think it's much different with GDP growth or capital gains. Patience and plainness tends to pay off. Everybody wants a sexy story, but for there's a dozen Pets.com for every Google. And the hot growth story is usually at the center of an inherently unstable nexus. Japan is the country-level analog of Yahoo.

This is just wrong. High risk stocks do perform better (on average) then low risk ones. Google returned much more than 1200%, so the fact that there were 12 pet.coms for it doesn't matter

Google wasn't public when pets.com and their ilk were around. The safest tech bets during that time were probably Microsoft, Oracle and Sun. Sun is gone. Microsoft and Oracle only recently returned to their dotcom highs. Never mind JDS Uniphase and Microstrategy.

The Nasdaq took 10 years to return to it's previous high. Better than Nikkei I suppose.

At 1.9% per year, it takes ~ 37 years to double. 1.9% a year is pretty much the long term forecast of the OECD for OECD countries for 2016 through 2060. I'll take it. I'll be happy if it happens

https://data.oecd.org/gdp/gdp-long-term-forecast.htm#indicator-chart

For the world they have about 2.6% growth through 2060

Maybe they had their economic miracle at an earlier time....
Denmark growth outperformed most European countries between 1870 and 1914, a period where they caught up countries that had industrialized before. Interestingly, that was also the period of the Scandinavian Monetary Union. So a little economic miracle can help, even if in the long run steady growth makes the difference

What if a developed western economy went all out economist and replaced income and corporate taxes with piguvian taxes, removed unnecessary immigration restrictions and occupational licensing laws etc etc?

Sure, why not? We just have to make sure that it's a controlled experiment. We don't want it to start offloading its bad decisions or their consequences on its neighbors, like Germany with the refugees. Basically, it has to swallow all of its negative externalities by itself, in order for the experiments to be conclusive.

I also think it's horrifying to run what is basically a huge and irreversible experiment on a shining light unto the world, but you gotta break a few eggs, amirite?

We could run the experiment on Puerto Rico. As I understand it, they're strapped for cash (70 billion), and we could pay some of their debts to run the experiment.

We spend $18 billion on NASA, we could send them a similar or double amount for them to become a free-market hellhole. It's not like the schools could get any worse, and a fair amount of their roads already have tolls.

On the one hand, we'd either learn how bad freedom and capitalism really is, and we could just do away with it, or on the other hand we'd lift a failing state of 4 million people up, with a guide to how improve a nation of 300 million.

A bunch of special interests would start militating in all sorts of ways.

I would predict the release of extensive embarrassing and/or (relatively minor) legal issues relating to the decision makers who could do such a thing. And a massive propaganda campaign who how it would destroy everything. Much allusion to the second amendment would be made, rather than discuss whether the second amendment foot soldiers might do better under such a system.

Anyways, without a proper political process, such technocratic solutions can only morph into excessive control over the economy and daily life. Not "because Stalin", but "because people".

I do not believe that the US political system, were it modified to enable such an approach, is appropriately equipped to be able to stave off the human-originated idiocy and sick politicking that would accompany such a plan, except perhaps for the ability of the states to reject and rapidly erode federally usurped powers/jurisdiction.

Of course, if there's a Hitler to fight people might tolerate such things for a few years. But hear me, people would be led to believe that they were being led down the road of war economy-level control or something, whereas in fact it would probably be a much less controlled and distorted marketplace than under the ridiculous number of rules designed to protect various incumbents.

One small not, but big note: When the tax base relies on my income, the state has an interest in me getting wealthy. So, in whatever ideas about changing a tax system, the notion of aligning the interests of the state and the citizen, where the state can only become more powerful by increasing the abilities and earning capacity of most (ideally all) citizens, should be upheld.

If the state can pay for the next war by press ganging people into service, then the development of the capacity of the state will revolve around its ability to press gang people, rather than, say, educate them.

who determines what's "unnecessary"? growth during the industrial revolution was glorious when you could subject 12 year olds to working in mines and buildings didn't need onerous fire exits.

Do you believe those were the causes of growth?

Again, purchasing power should be used for the dollar GDP value of Denmark.

The U.S. GDP per capita is around $55,000 but Denmark's GDP per capita (ppp) is quite a bit lower at $46,000.

This article describes the economic miracles and I thoroughly enjoy the way you present the topic. It provides some valuable economic thoughts.

http://essayssos.com/

Perhaps "economic miracles" are simply the result of previous "economic hells"? A country who is always well-governed will have a growth rate similar to the rate of technological progress. "Miracles" are perhaps what happens when a country, by some reason (war, isolation, bad economic policies, etc.) had a long period of stagnation and, when these reason is removed, has a period of rapid catching-up.

Exactly.

The question really is this: which poor countries now are in an artificial hell, waiting to break out? It now seems obvious that Korea in 1960 was... but I don't think it was so obvious then.

China's annual GDP increased by roughly $9 trillion in the past 15 years. $9 trillion! Does that mean that global GDP increased by $9 trillion per year that otherwise would not have occurred absent the China miracle? Or does that mean global GDP was roughly the same as it would have been absent the China miracle but simply shifted among countries (i.e., to China from elsewhere)? When Cowen suggests no more economic miracles, I suspect what he means is that the China miracle was a one-time shift of production to China from other countries that won't be duplicated. Why not, given that China is now a relatively rich country - won't the Chinese be consuming goods produced elsewhere that, absent the China miracle, the Chinese could not have afforded? What is unstated is that the $9 trillion in global GDP shifted to China in the past 15 years is not equivalent to the $9 trillion in global GDP absent the shift to China because China has a 50% savings rate and very high inequality (much higher than in the U.S.).

Ten years, not 15.

Perhaps take 5 min to ponder if 13K GDP PPP per capita is rich.

It seems a stretch to call China relatively rich. Relative to what? China in the 1970's? But that was more about failed socialism than anything else.

Use proper labels. In the 70's China was extremely hard line communist. They might be socialist today.

http://www.economist.com/node/18928526

"Use proper labels. In the 70’s China was extremely hard line communist. They might be socialist today."

Comments like this make me think you are clueless about a lot of things you post on.

"communism
a theory or system of social organization in which all property is owned by the community and each person contributes and receives according to their ability and needs.
synonyms: collectivism, state ownership, socialism, radical socialism; Sovietism, Bolshevism,"

Considering what qualifies as "socialist" in the USA today, surely you can grant that there is some diversity of usage of the term. If you want to call 1970s China "socialist", then surely the term is highly inappropriate for Sanders, and any notion of "Marxist Obama" would be just is laughable as most people always knew it was.

I used the term correctly. And then you attempted to correct me.

Specifically you said, Use proper labels. So I cited a dictionary.

Now instead of admitting I was right you are attempting to call me foolish. Go ahead keep digging, I don't mind.

I didn't think the real JWatts was this nuts. Sock puppet?

Most people understand the sliding scale from free market capitalism (with no state ownership, no redistribution) through socialism (some state ownership, some redistribution) through to full communism (all state ownership, a command economy). In the 1970's China had fully communism, with a command and control economy. There were farmers with private plots, there were certainly no entrepreneurs taking leases on government land. Now in a huge change, the state had released control and become much less command and control. It's interesting aspect is how much of that remains, and how much of free seeming entrepreneurship really is.

Now the real right wing nut jobs, and I didn't think you were one, blank on all that. When they say "socialist Obama is destroying America" they mean that he is absolutely the same in politics and philosophy as Chairman Mao.

Are you that nuts?

A few typos, the important one: " In the 1970’s China had full communism, with a command and control economy. There were NO farmers with private plots"

"Now the real right wing nut jobs, and I didn’t think you were one, blank on all that. When they say “socialist Obama is destroying America” they mean that he is absolutely the same in politics and philosophy as Chairman Mao.

Are you that nuts?"

I haven't mentioned Obama in this thread nor have I referred to him as a socialist. I correctly described the Communist Chinese as socialists. I don't have any idea why that's hard to grasp.

"Are you that nuts?”

Well yes probably, but aren't we all to some degree.

The problem with a broad definition of socialism is that it puts the United States, Denmark, and 1970s China into the same bucket.

All have some State ownership of production and all redistribute some wealth. The lack of discernment does not really contribute to comparative analysis.

While JWatts tends to be wrong about most things here, but anon, I think you get this wrong. "Socialism" is the close cousin of "Communism." By this we would mean that Venezuela (socialist) is relatively closer to North Korean (communist) than to the capitalist world. "Capitalism" on the other end of the spectrum, reflected by the major western liberal democracies, where truly France and US are close cousins. "Socialism" is certainly not the middle ground between Capitalism an Communism as it is so often presented.

Of course, the mistake you and most right-wing fanatics make is the assumption that capitalism cannot be an integral part of social democracy, or that redistribution and public goods have no place in pure capitalism. The opposite is true, at least per the Smithian tradition. Adam Smith advocated FOR public education, and advocated for the state to play a role in security amongst other things. Surely if healthcare had been a topic of concern at the time, he would have considered the role of the state in that matter as well.

But the idea of capitalism as basically Somalia is a gross misrepresentation. Most major economies, with their large free markets and their large active governments, from Sweden to Ireland to the US, are quite close to what Adam Smith would have imagined if he were to design a capitalist society.

Considering China was around $2000 per capita ppp in 1990, $13,000 is pretty good.

I was just in China. Average wages way back when I first visited were RMB800/month.

The location I was in, a 3rd tier city at best, was RMB4,000 a month now.

Impressive increases. But, what surprised me was how low their prices still were, and how much labor they relied on.

Eventually the labor increases should translate into product prices that allow America and others to compete on some level. Nope - right now they still has stupid low prices. Ridiculous low. Quality was better than a long time ago, but still shaky. I was hoping they'd have "graduated" a bit.

Maybe it was just this city. first time there - 1.5 hours outside of Beijing. Not very advanced.

The coastal cities are around $25,000 to $30,000 GDP/capita ppp. That is pretty advanced.

Still Above Poverty Line.

Man, you're really faithful to your motto: "small steps toward a much better world".

But "better" in relationship to what?

More from Cowen about Denmark: "Open borders wouldn't attract Danes who want to live off welfare because the benefits are so generous at home. How's this for a simple rule: Open borders for the residents of any democratic country with more generous transfer payments than Uncle Sam's." https://www.bloomberg.com/view/articles/2016-08-16/denmark-s-nice-yes-but-danes-live-better-in-u-s

I think we get to discuss this one later, but to jump the gun as well, I think Tyler uses a different perspective (median income) than the Danes would use themselves (general welfare).

"In Denmark there is a strong regard for the common good. Freedom for the individual, equal opportunities, respect and tolerance are core values"

http://studyindenmark.dk/why-denmark/quality-of-life-1/a-safe-and-balanced-society

It appears to me that most of Latin America has been undergoing significant catch-up growth with respect to industrialized countries in the past 20 years:

http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD

In 1995, the ratio of per-capita GDP between the U.S. and Uruguay was 3.7:1 whereas now it's down to 2.6:1. For Chile, it's even more dramatic -- from a 5.1 ratio down to just 2.5. Peru went from 7 to 4.5. I don't know if those cases would count more as 'miracles' than 'slow and steady', but it's a lot of gap closing without requiring anything like the manufacturing export booms of the Asian tigers.

I'd also argue that GDP differences now overstate consumption/life-style differences more so than in the past. The reason is that the miracles of technology -- those things most responsible for making life feel modern -- are affordable almost everywhere. I've spent some time in Latin America. What you'll find if you go into people's homes is that they are watching Netflix on their flat-screen TVs (when they're not playing games on their PS4s) and checking Facebook on their smartphones.

Tyler is trolling a bit with the title. However, this situation may be analogous to "the existence of A does not make the existence of B improbable". Some regions grow slowly but constant but others explode when inefficiencies are removed from the system. One natural experiment is happening right now in Cuba. They have a lot to catch-up, workforce seems well prepared, what will happen?

Do you write your own blog headlines? Are you going for misleading? Trying to see who actually reads the articles?

Anyway, decent article. Kinda petered out at the end there.

Little by little. It was ever thus.

Observing that a high-trust society right next to Germany has not needed an economic miracle may not have that much relevance beyond the specific case.

". . . other than the Civil War . . ."

More stability, more instability?

I have long thought that a major reason for the success of Korea and Taiwan
was that they were Japanese colonies before WWII so the people who
were the workers during their economic surges were educated under the
Japanese system.

Of course that is just another factor making them unique.

Before I write off this idea, I'll ask. Did the Japanese add to general education in Korea or Taiwan, or did those Asian countries already have a centuries old dedication to scholarship?

Was the Japanese system implemented more in South Korea than North Korea?

Actually it seems like they weren't educated any better than say the Vietnamese by the French.

"The colonial government issued an education ordinance in August 1911 which stated that the purpose of
education in Korea was to produce "loyal and obedient" and useful subjects of the Japanese emperor. It adopt-
ed a system of four-year primary education, a four-year secondary school program for boys, and a three-year
secondary curriculum for girls. However, only a handful of schools were established during this time while a large
number of private schools were closed. The ordinance made the study of the Japanese language compulsory
at all approved schools and banned instruction in Korean history and geography. All textbooks which had been
previously used in Korean schools were confiscated and only those approved by the government were allowed. "

: Andrew Nahm, Korea: Tradition and Transformation, p. 250
http://www.koreasociety.org/index2.php?option=com_docman&task=doc_view&gid=147

And what did the population do during that time?

Maybe, it is comparatively easy to obtain high levels of growth when emulating other functioning economies that are at a more advanced stage of develpment, but not so easy to obtain high levels of growth when one is in essence on the bleeding edge of the developed world.

The full link doesnot work any more. Can you post it somewhere else?

Comments for this post are closed