Results for “no great stagnation” 495 found
More Russ Roberts on TGS
Russ has written a reply to my response, read his whole piece, using his numbers I will put a few follow-up responses under the fold…
1. Male median wage data (down since 1969) suggest divorce is not the main issue; in any case divorce is an economic and psychological catastrophe for many people, and defending living standards by invoking the effects of divorce in the data strikes me as actually more pessimistic than my view. I suspect Russ’s own cultural values are in accord with this perspective. Russ’s postulated effect also does not explain 1998-2011 median wage stagnation very well.
3. The key question is the net bias of statistics, not the bias for consumer durables alone. Our real economic performance on a lot of services — a huge and growing part of the economy — is extremely weak. As durables get cheaper, the biases in measuring their quality become less important.
4. I don’t see that Russ has made an actual counter to my argument here.
6. In successful periods growth shows up in the major mainstream economic statistics, including the median. If it doesn’t, at the very least we should conclude that growth is considerably slower than usual.
9. There is no measured median income progress since 1997 and very little since 1973; that’s not just a cyclical phenomenon. The supposedly good years of the noughties now look like a bubble, not the reality.
On panel data, I read the Pew Report which Russ cites. Over a more than thirty year time period, only 63 percent of children had incomes exceeding those of their parents, and that comparison includes some pre-TGS, quite high-growth years. I don’t find that number impressive at all. In any case the key question is a comparative one, and while the study has not been done, it is highly likely one would find much stronger cross-generational measures of progress for earlier generations.
On reconciling the per capita gdp and median stories, the concept of rent-seeking — most of all through the service sectors and finance and government — will suffice. I know that Russ already agrees with the finance side of this story, maybe the government side too and who knows, perhaps education and medicine as well?
Assorted links
1. Origins of the term “Great Stagnation”; was it Lester Thurow?
2. Deposits in Irish banks rise for the first time in a year.
3. Is there too much default correlation for EFSF leverage to work?
4. Smith on Caplan on single mothers; “Baby lust is quite real, almost certainly genetically determined and probably explains a fair fraction of the differences in outcome among women.”
5. The Japanese electricity forecast from the culture of the Swiss in Japan.
Russ Roberts asks for a response on TGS, plus some all-purpose responses to queries
Read the whole post by Russ, but here is one excerpt:
So my challenge to Tyler is to tell me what he thinks the stagnation in median income signifies. Has there been a change in the returns to education or creativity? Or is it mostly a statistical artifact? Whichever answer he gives, I would like to see him reconcile it with the panel data–the surveys of economic information that follow the same people over time.
I will put the rest under the fold…Russ makes points about household size and immigration and there are brief mentions of CPI bias and rising benefits. A few responses:
1. I discuss household size in the footnotes to TGS. Adjusting for it doesn’t make a huge difference and furthermore the rapid-median-income-growth 1960s were a time when household size was falling quite rapidly. I blogged some of the details here.
2. Immigration doesn’t seem to shift the median enough to create an illusion of stagnation, I blogged the numbers and details here.
3. CPI bias has likely fallen over time, which will make the true median income growth differential over time even greater than the numbers indicate. Furthermore CPI measures are getting better over time and doing more to adjust for quality biases; that’s further bad news. Most of all, a lot of CPI bias is offset by ‘wasteful spending on health care, education, defense, and government yet all counted in gdp” bias.
4. Russ doesn’t mention the internet but it’s getting more monetized — and thus more counted in gdp — all the time. The consumer surplus of the unpriced parts, once you eliminate double-counting, probably isn’t much more than two percent of income. Not “two percent growth a year” but two percent period. I could see it being three or four percent, for sure, but that still won’t overturn the basic slowdown.
5. Rising household debt and abysmal job creation since 2000 suggest to me that the quantity data are in line with the incomes data. Around 1999-2000, stagnation suddenly becomes much worse. The only good years since then are the bubble years, whereas across 1973-1998 there are some truly good economic years (partially offset by some very bad ones).
6. 1995-1998 are a poster child for what a non-stagnating period should look like in terms of wages and median income. Lots and lots of years since 1973 don’t look anything like that period. When the growth is real, it shows up in all of the standard numbers and no mystery variables or invocations of biased measurements are needed. I find this comparison illuminating.
7. I discuss benefits in the book, for the time being I’ll note a) cradle-to-grave private sector jobs, with union-based pension benefits are rarer than they used to be, b) fewer people get health care through their jobs than used to be the case, c) most of the benefits are health insurance but don’t fixate on the size of the expenditure, rather consider that health progress has been slowing down, and d) last year health insurance costs rose by nine percent and no way should that be interpreted as equivalent to an increase in real income, rather it is a sign of system failure. That all said, the text of TGS still leaves room open for a world where virtually all of the benefits of economic growth accrue to the elderly. Such a world still will have a lot of TGS properties.
8. Consumption data often selectively focus on the commodities which have become much cheaper (e.g., flat-screen TVs) and ignore the growth in debt, which now must be paid back.
9. The 2000-2011 case for stagnation is stronger and clearer than the 1973-2011 and there also has been more growth along the latter and longer period of time, plus numbers are easier to interpret across shorter time stretches. I will ask Russ if he at least can buy into TGS for the last eleven to twelve years.
I don’t see panel data as offering a significantly different story from the above but if Russ tosses me a specific citation I will consider it.
On the Conover critique of income stagnation, Karl Smith is devastating. On all the general issues, Arnold Kling comments.
Going back to the Russ excerpt above, I don’t think we should reify median income statistics or give them a final ontological meaning; they are tools. The slow growth in the measured median, or zero growth since that late 90s, strongly suggests that something is seriously wrong with the real economy. That slowdown seems robust to the standard attempts to explain it away.
I don’t dismiss Arnold Kling’s factor price equalization hypothesis, but still the question remains why we haven’t kept leapfrogging ahead of our competitors, as we had done in earlier decades. We’ve become much more of a sitting duck and that will make Samuelson-Stolper effects stronger if you are the world leader on the technological frontier.
On Russ’s other query, there has been an ongoing change in the returns to education. Note the recent study that over the last decade only Ph.ds, MBAs, JDs, and MDs have seen real income gains; even individuals with a Masters degree are getting whacked. One way of reading those numbers is that the workers with lower educational credentials are getting less “manna from heaven” in the form of new innovations cascading into their laps. On top of that, there is more rent-seeking in the economy and many jobs require stronger cognitive skills than in the past.
About what am I optimistic and pessimistic?
Rahul asks:
Reading Tyler’s views on the great stagnation, American deficit, American politics, the Euro, Greece, Medicare, Social Security, climate issues etc. I hardly see a sliver of optimism anywhere.
What things is Tyler really optimistic about?
Beware the fallacy of mood affiliation! (Choosing a view to correspond to an overall desired or appropriate mood.) And don’t overrate the importance of the public sector. A few points:
1. I am a utility optimist and a revenue pessimist; better that than the other way around.
2. Many readers of TGS neglect the last section of the book which notes that a) the great stagnation is going to end, and b) we’ve already made the critical breakthrough, namely internet/computers/smart machines, we just haven’t seen most of the gains yet and they may take longer than most people expect. I’ll be writing more on this.
3. I am a pessimist about the euro but not Europe. The continent will do fine once it gets past this mess, albeit with some suffering along the way.
4. I am optimistic about most social issues, such as the increasing felicity of marriage.
5. I am optimistic about how well immigration will go.
6. I am optimistic about human cognition and the Flynn effect.
7. I am optimistic about the future progress of medical care, albeit with some lags.
8. I am increasingly optimistic about the WMD terrorism issue, though I am not sure if I am in absolute terms an optimist on this issue. The terror groups don’t seem very robust or well-organized, and that may be for reasons which are intrinsic to their operations and ideology.
9. I am optimistic about most developing countries and this is a significant issue.
10. I am a pessimist about climate change and biodiversity, though most other environmental issues seem fine or at least manageable and possibly improving.
11. I am a pessimist about how we treat animals.
12. I am an optimist about restaurants in northern Virginia.
The rise of the generalist
I don’t know if I’ve heard anyone say this and I am not quite sure what I think about it myself, but one way to view the economy in the Information Age is that the returns to specialization are falling.
So, those who like such things can go all the way back to Adam Smiths pin factory and think about all the tasks involved in making pins and how each person could become more suited to that task and learn the ins and outs of it.
However, in the information age I can in many cases write a program to repeatedly perform each of these tasks and record ever single step that it makes for later review by me. The individualized skill and knowledge is not so important because it can all be dumped into a database.
What really matters is someone who gets pins. Not the various steps involved in making pins but the concept of the whole pin. What makes a good pin a good pin. How do pins fit into the entire global market. What the next big thing in pins.
This individual will be able to outline a pin vision that she or just a few programmers can easily implement. One could say this is the story of Facebook or Twitter. Really good ideas and just a few people needed to implement them.
However, as IT progress and machines can do more things it could be the story of the economy generally.
In contrast to The Great Stagnation, I would call this The Rise of Generalist or perhaps to be consistent The Great Generalization.
Even if you stop and think for a minute about all of the things that your computer or now even your phone can do, are you now wielding the most generalized tool ever conceived?
I would add in turn that the Generalist boosts the reach of the Specialist, as the Generalist relies on many specialists to supply inputs for his or her outputs. It may be the “tweeners” in the middle who lose income and influence, and that the extreme generalists and specialists will prosper, intellectually and otherwise.
Assorted links
1. Advice for a budding neuroscientist.
3. Korean markets in everything, and umbrella markets in everything.
4. Will the U.S. again become the world energy capital?
5. Der Theoretiker des Stillstands, Handelsblatt profile of me. And how a German politician apologizes for an affair with a 16-year-old (in German), no hope for the eurozone, hat tip Yana. In English, Kenneth Silber reviews TGS.
The ECB bond-buying plan
“The ECB is once again intervening as the last line of defense,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland in London. “The intervention will put a halt to the bond market crash that some member states faced. However, the ECB is now in for the long haul and will potentially have to buy up to half of the Italian and Spanish traded debt, the biggest risk-pulling effort ever engineered in Europe.”
Here is the article. This analysis by Paul Krugman probably won’t be beaten, and more here.
Arguably it’s now a question of who stares down whom. If you do not doubt German resolve, bet on the ECB and lend money to Italy fairly cheaply. If you fear that Italy suffers from its own version of the great stagnation, and doesn’t have good enough political institutions to make decent reforms (and now the hammer of the private capital markets is partially removed), maybe the ECB will cry uncle at some point and give up. Knowing that, confidence will not return and the speculators will continue to pounce. We’ll see soon enough what the markets think.
As I am posting this, Dow futures are off about 250 points, although that bad news could be traced to numerous causes.
Speculative attack games can be hard to predict for the marginal cases (personally I am skeptical), but the general uncertainty resulting from the U.S. debt fight, and the resultant “flight to safety” isn’t helping matters. It’s another way in which our fiscal nonsense brings some very real costs, and quickly. Have you seen that France might suffer a downgrade from AAA? In the abstract, that makes sense. Why should they be safer than the US? Again, our stupidity makes the European mess harder to resolve by shifting the focal equilibrium from a good outcome to a bad, scary outcome.
Assorted links
The value of the internet and double counting
Continuing the exchange over the value of the internet, David Henderson writes (and do read the whole thing):
So I can imagine doubling Goolsbee’s and Klenow’s 2% to 4% to reflect the broader version of CS [consumer surplus] that users get directly and then adding another 4% to reflect the lower cost of getting goods and services delivered to us even if we never use the Internet directly. That get’s it to 8%. To me that’s “huge.”
This is useful for helping sort out where David and I disagree. As I see it, the latter factor — the lower prices for goods and services — is already reflected in measured real wage gains, or smaller real wage losses than would otherwise hold, as the case may be. We’re back down to four percent.
In the post, David mentions both the “lower price” gains (which he stresses in the TGS review) from the “lower time cost of shopping” gains. The two are not quite the same. What about the latter? The lower time cost of shopping is already counted in WTP measures of the value of the internet — you’ll pay more for the internet if it saves you more time — and to some extent in gdp statistics and other real income measures. How does the gdp effect work? Let’s say it used to take half an hour to buy a book, now it takes ten seconds. People will buy more books and that gain is already measured. The rest of the saved half hour goes into other methods of production and shopping, which also show up in national income. Some of the saved half hour shows up as “pure leisure” (i.e., sitting on one’s bum, doing nothing) and that one part of the saved time doesn’t show up in gdp statistics though it still does show up in WTP estimates (which again clock in below four percent).
Time use studies also count these “time saved shopping” gains, but in a different way. Goolsbee and Klenow measure the income elasticity of leisure uses of the internet and find it is negative. That means high value of time users find the internet a time sink, on net, rather than a time saver. In any case the magnitude of this value already lies behind their estimate.
Goolsbee and Klenow estimate two percent for consumer surplus, not “2% to 4%,” and they worry they are overestimating the gains because of assumptions they make about substitutability. The other studies I cited are below four percent, unless it’s for computer use more generally. I’m the one who kicks it up to four percent, largely because of Facebook, which de facto postdates some of the papers (though not the FCC study which still gives modest sums), and also because of unmeasured workplace consumption usage. But that’s probably as high as we should go, once we adjust for what is already counted elsewhere.
Addendum: The Billion Price Index matches the CPI pretty closely, so there is not much gain from invoking the “CPI doesn’t measure internet bargains” argument, though there may still be a small effect there. And Matt Yglesias offers interesting comment.
Consumer surplus from the internet, revisited
David Henderson raised this question again, as has Bryan Caplan in the past. Both seem to suggest that the consumer surplus from the internet is quite high or perhaps even “huge,” although I am not sure what number they have in mind. I am disappointed that they are not engaging with the academic literature on this topic.
1. An 86-page 2010 FCC study concludes that “a representative household would be willing to pay about $59 per month for a less reliable Internet service with fast speed (“Basic”), about $85 for a reliable Internet service with fast speed and the priority feature (“Premium”), and about $98 for a reliable Internet service with fast speed plus all other activities (“Premium Plus”). An improvement to very fast speed adds about $3 per month to these estimates.”
2. A study from Japan found that: “The estimated WTP for availability of e-mail and web browsing delivered over personal computers are 2,709 Yen and 2,914 Yen, on a monthly basis, respectively, while average broadband access service costs approximately 4,000 Yen in Japan.” By the way, right now the exchange rate is about 80 Yen to a dollar.
3. The Austan Goolsbee paper, based on 2005 data, does a time study to find that the consumer surplus of the internet is about two percent of income.
4. This paper finds a four percent consumer surplus from the personal computer more generally, not just the internet.
5. Robin Hanson serves up an excellent debunking of some exaggerated consumer surplus claims.
6. Many of the benefits of internet cruising are captured in gdp figures, such as using it to find a job or the money you spend on smart phones. By the way, here is a good paper on consumer surplus in the book market, though it offers no overall CS estimate from the internet.
You can take issue with these papers for ignoring personal internet use at work, the inframarginal benefits to infovores, or other issues, such as whether the existence of the internet increases workloads in what are supposedly leisure hours. But there is the place to start and the numbers are not outrageously high, not close to it.
Or put all that aside and think through the problem intuitively, in terms of time use decisions. Your marginal hour of non-internet leisure time is worth more than spending another hour of time on the internet. In other words, at the margin your consumer surplus from the internet is about the same as your consumer surplus from going to the movies or taking a walk. That’s nice, but suddenly the consumer surplus from the internet doesn’t seem like such a big deal any more. It’s probably not going to add up to millions. If the internet were as awesome for consumer fun as some people claim, it would have pushed out more of our other uses of leisure time.
What about the inframarginal units of internet use? Might the consumer surplus there be huge? If you think of books, movies, newspapers, and CDs as some of the relatively close substitutes for some uses of the internet, we know from cultural economics that the demand curves for those enjoyments are usually smooth, normal, and continuous, more or less. They don’t have enormous, hidden inframarginal benefits.
Penicillin probably does have such an enormous inframarginal benefit; the initial doses can be of great value but past some margin the value falls to zero or negative. The internet doesn’t seem to be like penicillin.
You can even make an argument that the inframarginal valuations of internet use are especially low, relative to the marginal values. Have you ever heard that the internet is “addictive”? That doing some makes you want to do more? That the internet has a virtually unending supply of interesting content? Personally I find that I could read more working papers, without much decline in their interestingness, except that the exigencies of my daily life interfere (at some margin). Those are all signs that the marginal valuation of the internet does not fall off so drastically as one moves down the demand curve. If you’re not using the internet more, it’s not because the internet is getting much worse with additional use units, it’s because it is digging into increasingly important parts of your non-internet life. That brings us back to the inframarginal unit having a value not so far away from the marginal units.
It is likely that the consumer surplus of the internet is in the range of two to four percent of gdp. On one hand, that’s “a lot” but on the other hand it’s not enough to close the “stagnation gap” in wages since 1973. It’s not close. It also may be quite small compared to the consumer surplus from the major innovations from earlier in the 20th century, such as antibiotics, without which I probably would be dead.
Assorted links
1. David Glasner is now blogging monetary economics.
2. Seattle Times review of TGS.
3. Good account of dramatically falling migration from Mexico, and rising living standards in Mexico. It’s gone from about 500,000 illegal Mexican migrants a year to 100,000 a year.
4. Where does the revenue from the iPod go? Full paper here.
5. When giant wombats walked the earth, and Angus doesn’t want the deal.
Assorted links
1. Vote winners for best conservative books.
2. Suicide bomber markets in everything.
3. Prince Twins Seven-Seven passes away.
4. People’s reasons for not having children.
5. Anthony Painter reviews TGS.
6. The largest holders of Greek debt.
7. Read the “Tree of Life” dialogue or better yet watch the Leo Kottke video. Here is my favorite Malick review so far; oddly I find New World to be his masterpiece.
My favorite things Hungary
The Austro-Hungarian empire does not count per se, so I will use the Hungarian language for demarcation. As you might expect, there is lots:
1. Author: Peter Nadas, A Book of Memories, is a classic novel of ideas which is under-read in the United States. Nadas has a new book coming out this fall. Imre Kertesz doesn’t do much for me.
2. Movies: Bela Tarr, Satantango. It’s over seven hours long, but don’t be put off. It has some of the best shots of grazing cows and angry peasants committed to reel, and I wanted it to be longer. It’s mesmerizing in a way that makes it one of the film classics of the new century. I find Werckmeister Harmonies too corny but it has some fine scenes. Less traditionally thought of as Hungarian is the great Emeric Pressburger, who collaborated with Michael Powell on numerous fine films. Alexander Korda did The Thief of Baghdad.
3. Actor, Peter Lorre is the obvious choice, plus Bela Lugosi made the best Frankenstein ever, forget about Dracula.
4. Conductor: You have George Szell, Antal Dorati, Georg Solti, and Eugene Ormandy. Szell was so often perfect, Dorati cut some of the best sounding records of all time, Solti’s whiplash style was either offputting or splendid, and Ormandy was deeper than he was given credit for. Ivan Fischer is a more recent contender, for instance his Mahler’s 4th reflects a scrupulous concern with rehearsals. Péter Eötvös is an excellent conductor of contemporary music.
5. Pianist: Gyorgy Cziffra and Ervin Nyiregyhazi are two memorable eccentrics. Solti and Szell were underrated as pianists and Zoltan Kocsis is very good. Don’t forget Franz Liszt, even though no recording has survived.
6. Scientist: There is Szilard, Teller, and von Neumann and many many others but can they come close to this top tier? The options for Hungarian mathematicians defy belief. Hungarian inventors were critical to the “great non-stagnation” of 1870-1940, including for the all-important electrical transformer; few if any of those names have survived much into general Western history which I suppose says something.
7. Artist: Victor Vasarely is the obvious choice, but I don’t like him so much. This area seems oddly weak. Am I forgetting something? Mihaly Munkacsy anyone?
8. Economist: Janos Kornai comes to mind, and Melchior Palyi remains underrated. I believe Milton Friedman’s parents were from Hungary.
The bottom line: You can’t gush enough about music and math and physics and science and invention. The achievements from a small country are staggering and unprecedented. Yet literature and painting are relatively weak. Hungarian composers will get a post of their own, but there is a strong line-up of Liszt, Bartok, and Ligeti. What else am I forgetting? I can’t think of major films set in Hungary and I don’t count the Hollywoodesque The Shop Around the Corner even though nominally it is Budapest.
Assorted Links
1. Richard Florida adds interesting data on skills to the great male stagnation debate.
2. Freedom in the 50 States; New Hampshire is first. Appropriate.
3. Excellent pictures of the Bolivian salt flats.
4. Attorney-General Eric Holder wants a new season of The Wire. David Simon names his conditions.
5. The Corporatist Threat to the Arab Spring, good op-ed by Edmund Phelps. Recall, The Pharaoh and the Commanding Heights.
6. Soviet Dolphin Paratroopers.
7. Rinderpest is no more. Only the second time in history—smallpox was the first—that an infectious disease has been eradicated from the planet.
The new preface from TGS
It is added to the print version and is available on-line from Reuters, to coincide with the publication of the physical book, which is now in stores. Excerpt:
The original publication of The Great Stagnation was in eBook form only, and I meant for that to reflect an argument of the book itself: The contemporary world has plenty of innovations, but most of them do not benefit the average household. After all, the average household does not own an eReader. It’s not even clear whether the average household buys and reads books. So I viewed the exclusive electronic publication, somewhat impishly, as an act of self-reference to the underlying problem itself. It was therefore a bit amusing when some critics suggested that the new medium of the eBook itself refuted the book’s stagnation theory—quite the contrary.