Results for “no great stagnation”
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A Very Depressing Paper on the Great Stagnation

Are Ideas Getting Harder to Find? Yes, say Bloom, Jones, Van Reenen, and Webb. A well known fact about US economic growth is that it has been relatively constant over a hundred years or more. Yet we also know that the number of researchers has increased greatly over the same time period. More researchers and the same growth rate suggest a declining productivity of ideas. Jones made this point in a much earlier paper that has long nagged at me. With just one country and rising world growth rates, however, I wondered if the US had somehow had offsetting factors. Bloom, Jones, Van Reenen and Webb, however, now return to the same issue with a more detailed investigation of specific industries and the picture isn’t pretty.

Moore’s law (increasing transistors per CPU) is often trotted out as the stock example of an amazing increase in productivity and it is when measured on the output side. But when you look at Moore’s law from the perspective of inputs what we see is a tremendous decline in idea productivity.

The striking fact, shown in Figure 4, is that research effort has risen by a factor of 25 since 1970. This massive increase occurs while the growth rate of chip density is more or less stable: the constant exponential growth implied by Moore’s Law has been achieved only by a staggering increase in the amount of resources devoted to pushing the frontier forward.

unmoored

In some ways Moore’s law is the least disturbing trend because massive increases in researchers has at least kept growth constant. In other areas, growth is slowing despite many more researchers.

Agricultural yields, for example, are increasing but the rate is constant or declining despite big increases in the number of researchers.

agyield

Since 1950 life expectancy at birth has been growing at a remarkably steady rate of about 1.8 years per decade but that growth has only been bought by ever increasing number of researchers. Here, for example, is cancer mortality as function of the number of publications or clinical trials. Each clinical trial used to be associated with ~8 lives saved per 100,000 people but today a new clinical trial is associated with only ~1 life saved per 100,000. lifeexpectancy

And how is this for a depressing summary sentence:

…the economy has to double its research efforts every 13 years just to maintain the same overall rate of economic growth.

In my TED talk and in Launching I pointed to increased market size and increased wealth in developing countries as two factors which increase the number of researchers and therefore increase the global flow of ideas. That remains true. Indeed, if Bloom et al. are correct then even more than before we can’t afford to waste minds. To maximize growth we need to draw on all the world’s brain power and that means we need a world of peace, trade and the free flow of ideas.

Nevertheless the Bloom et al findings cut optimism. The idea of the Singularity, for example, comes from projecting constant or increasing growth rates into the future but if it takes ever more researchers just to keep growth rates from falling then growth must slow as we run out of researchers. As China and India become wealthy the number of researchers will increase but better institutions can only push lower growth rates into the future temporarily. Most frighteningly, can we sustain a world of peace, trade and the free flow of ideas with lower growth rates?

Just because idea production has become more difficult in the past, however, doesn’t make it necessarily so forever. We could be in a slump. Breakthroughs in ideas for improving idea production could raise growth rates. Genetic engineering to increase IQ could radically increase growth. Artificial intelligence or brain emulations could greatly increase ideas and growth, especially as we can create AIs or EMs faster at far lower cost than we can create more natural intelligences. That sounds great but if computers and the Internet haven’t already had such an effect one wonders how long we will have to wait to break the slump.

I told you the paper was depressing.

Which macroeconomic theories will rise and fall in status because of Donald Trump?

It seems likely that Trump and a Republican Congress can agree on some big mix of tax cuts and spending.  Furthermore, there are plenty of rumors that Trump may push on the independence of the Fed and the ten-year yield leaped upon his election.  So odds are it will be a stimulus with some degree of monetary accommodation, and in that case even tax cuts for the wealthy can serve as an effective form of QE into the assets the wealthy invest in.

And yet 80% of economists are Democrats, many top economists signed a petition opposing Trump, and I can’t think of a single top economist who has endorsed Trump.  So clearly something has to give, and here are some theories that may rise or fall in status:

1. “The multiplier is high.”  That seems ready to decline in status.

2. “Even wasteful expenditures can boost demand and help pull us out of secular stagnation.”  Ditto.  “We need to do stimulus right” will make a comeback.  And I see “the distributional effects of stimulus really matter” lurking around the corner.

3. “Tax cuts aren’t as good as government spending.”  That actually may rise in status, especially if Congress gets the bargain they want — lots of tax cuts — rather than what Trump wants.

4. The notion of how a credibly irresponsible leader can improve macro performance won’t get cited as much.

5. Austrian-like theories of how there can be a boom in the short run, yet with great long-run dangers, will return to prominence, albeit with modifications to the original Austrian story.

6. Criticizing countries with trade surpluses will decline in status.

7. The efficient markets hypothesis will decline in status.  It imposes too much discipline on our judgments of leaders and their policies.  The more certain we are of our own judgments, the more that evidence contradicting those judgments should be downgraded.  Right?

Don’t get me wrong, I think most (not all) of these moves will be “economists coming to their senses,” and thus good news.  But let’s be clear about what is going on.  While I don’t expect many instances of people making claims they do not believe, in terms of what gets emphasized, stressed, and repeated, macroeconomic discourse is about to change.

The panel data great stagnation and also student debt edition, courtesy Justin Weidner

Yes it supports what many of us have been saying for what is now quite a few years:

Using panel data on individual labor income from 1957 to 2013, we document two empirical facts about the distribution of lifetime income in the United States. First, we show that from the cohort that entered the labor market in 1968 to the one entered in 1983, three-quarters of U.S. workers did not experience any increase in lifetime income. Further, during the same period, median lifetime income actually declined by 10-20% for men but increased by 20-30% for women, yet the latter increase was not enough to offset the decline for males because of the very low lifetime income of the earlier cohorts of females. Accounting for rising employer provided health and retirement benefits partly mitigates these findings, but does not overturn them. Much of these changes across cohorts that we document come from the large changes in starting income levels (i.e., at age 25) across cohorts. Based on partial life-cycle income observed for cohorts that are currently in the labor market, the stagnation of lifetime incomes is unlikely to reverse. Second, turning to inequality in lifetime incomes, we find that it has increased significantly within each gender group, but the closing lifetime gender gap has kept overall lifetime inequality virtually flat.

That is from forthcoming work by Justin Weidner, Fatih Guvenen, Greg Kaplan, and Jae Song.  Right now I am looking at Weidner’s site, his job market paper (pdf) is also quite interesting:

I demonstrate that rise in debt since 1990 has contributed to income stagnation, lowering affected graduates’ income by 1.9\% on average. Because it does not distort occupational choices, an income contingent repayment scheme would increase income for constrained graduates by 3.5% on average.

I look forward to following his work in years to come.

There is no grape stagnation

Setting the world record for using your mouth to catch a grape dropped from the greatest height: It was a dream years in the making, and all it took was a hot air balloon, walnut-sized fruits shipped specially from Georgia and a crew of Ph.D.-level engineers who gathered at a tiny Vermont airport before the sun rose on Monday morning.

The man with the plan was Brent Fraser, 35, who said he “just had a natural knack” for catching things in his mouth ever since his high school days in Barre, Vt., where buddies would chuck food toward him in the school parking lot.

The piece has some good sentences, such as:

Indeed, once things did get going, most of the few dozen attempts ended with a goggle-clad Fraser getting smacked in the face and chest by the large grapes — selected because they were easiest to see — that were traveling about 56 mph.

And:

“How much did they hurt?” one of the engineers, Tristan Ramey, asked at one point.

“So bad,” Fraser told her. “I felt like I was being punched in the face.”

He ended up catching one from 101 feet.  And finally:

Fraser, most of his face stained in purple grape juice, had to get to work to interview a prospective employee by 9 a.m.

Here is the full article, with video, via the excellent Mark Thorson.

Innovation is less concentrated than it used to be

Might growing deconcentration possibly be either a partial cause or symptom of the Great Stagnation? Yasin Ozcan and Shane Greenstein report:

Using patents as indicators of inventive activity, this article characterizes the concentration of origins of invention from 1976 to 2010, and how these changed over time. The analysis finds pervasive deconcentration in virtually every area related to ICT, but it can explain only a small part of this trend. Deconcentration happens despite the role of lateral entry by existing firms. New firm entry drives part of the deconcentration, but this alone cannot explain the change. A single supply factor in the market for ideas, such as the breakup of AT&T, also cannot explain the trend. Finally, eleven percent of patents change hands through mergers and acquisitions activity, but this does not make up for the declines in concentration in the origins of invention.

Worth a ponder…

Xenophon paragraphs to ponder

Australia’s government needs to scrap its “free trade Taliban mentality”, buy more local products and properly scrutinise foreign investment, says Nick Xenophon, the leader of one of the minor parties that holds considerable sway following last month’s election.

Most of all, it hurts that he is called Xenophon; some of you will know that Xenophon from ancient Greece was the first (surviving) author to point out the phenomenon of division of labor.

Apparently there is a “Great Xenophon stagnation” or even retrogression.  This passage notwithstanding, the Taliban, by the way, did not favor free trade.

Here is the full FT piece by Jamie Smythe.

Monopoly markets in everything, negative interest rate edition

That’s Monopoly the board game.  Here is the latest:

We may be used to paying for goods at the touch of a card or phone in shops, but now quick and easy electronic payments are making their way to the Monopoly board too.

The Monopoly Ultimate Edition replaces fake notes with an ATM and every part of the game is ‘swipe-able or scan-able’, to bring the board game into the 21st century.

The battery-operated system is designed to speed up the process of making payments to other ruthless players, as well as cut down on cheating.

By the way, there is no great stagnation:

It is not the first time Hasbro has launched an electronic edition of the iconic board game, with two previous versions on sale.

But reviews criticised the firm for slowing the game down, in part due to players having to manually enter sums of money on a fiddly ATM keypad.

The Ultimate Banking Edition will cost $25 (£29.99) when it goes on sale in the autumn.

The full story is here, via the excellent Mark Thorson.

The great biomedical stagnation?

Bowen and Casadevall have a new PNAS paper on this question:

The general public funds the vast majority of biomedical research and is also the major intended beneficiary of biomedical breakthroughs. We show that increasing research investments, resulting in an increasing knowledge base, have not yielded comparative gains in certain health outcomes over the last five decades. We demonstrate that monitoring scientific inputs, outputs, and outcomes can be used to estimate the productivity of the biomedical research enterprise and may be useful in assessing future reforms and policy changes. A wide variety of negative pressures on the scientific enterprise may be contributing to a relative slowing of biomedical therapeutic innovation. Slowed biomedical research outcomes have the potential to undermine confidence in science, with widespread implications for research funding and public health.

Carolyn Johnson summarizes the results of the paper:

Casadevall and graduate student Anthony Bowen used a pretty straightforward technique to try and answer the question. They compared the NIH budget, adjusted for inflation, with the number of new drugs approved by the Food and Drug Administration and the increases in life expectancy in the U.S. population over the same time period.

Those crude health measures didn’t keep pace with the research investment. Funding increased four-fold since 1965, but the number of drugs only doubled. Life expectancy increased steadily, by two months per year.

Johnson also covers some useful responses from the critics.  The result also may say more about the NIH than about progress per se.  And here is a more optimistic take from Allison Schraeger.

Is there a great teen sex stagnation?

The share of teen girls who reported they’ve had sex at least once dropped from 51 percent in 1988 to 44 percent in 2013, they found. Abstinence was more pronounced among the guys: 60 percent of teen boys in 1988 said they’d had sex, compared to 47 percent in 2013.

That is from Paquette and Cai, the underlying CDC study is here.  One major hypothesis is that teen sex has declined because smart phone usage is up.  Teens are both better informed about the risks of sex and…they have something else to do.

Stephen Curry and the duration of the great stagnation

Stephen Curry set a record In May of this year:

It took Reggie Miller 22 games to set an NBA playoff record of 58 three-pointers for the Indiana Pacers in the 2000 playoffs. Now, Stephen Curry has broken that mark in just 13 games.

He is now up in the 80s I believe.  Curry, by the way, is NBA MVP and his team is probably on the verge of winning the Finals.  The three-point strategy seems to be working: for Curry, for the Golden State Warriors, and also for last year’s champions, the San Antonio Spurs.

Yet the three-point shot has been in the NBA since 1979 (!), and for most of those years it was not a dominant weapon.

What took so long?  At first the shot was thought to be a cheesy gimmick.  Players had to master the longer shot, preferably from their earliest training.  Coaches had to figure out three-point strategies, which include rethinking the fast break and different methods of floor spacing and passing; players had to learn those techniques too.  The NBA had to change its rules to encourage more three-pointers (e.g., allowing zone defenses, discouraging isolation plays).  General managers had to realize that Rick Pitino, though perhaps a bad NBA coach, was not a total fool, and that the Phoenix Suns were not a fluke.  People had to ponder the expected value concept a little more carefully.  Line-ups had to be smaller.  And so on.  Most of all, coaches and general managers needed the vision to see how all these pieces could fit together — Arnold Kling’s patterns of sustainable trade and specialization.

In other words, this “technology” has been legal since 1979, yet only recently has it started to come into its own.  (Some teams still haven’t figured out how to use it properly.)  And what a simple technology it is: it involves only placing your feet on a different spot on the floor and then moving your arms and legs in a coordinated (one hopes) motion.  The incentives of money, fame, and sex to get this right have been high from the beginning, and there are plenty of different players and teams in the NBA, not to mention college or even high school ball, to figure it out.  There is plenty of objective data in basketball, most of all when it comes to scoring.

Dell Curry, Stephen’s father, was in his time also known as a three-point shooter in the NBA.  But he didn’t come close to his son’s later three-point performance.

So how long do ordinary scientific inventions need to serve up their fruits?  I am a big fan of Stephen Curry, but in fact his family tale is ultimately a sobering one.

Addendum: Tom Haberstroh fills in the history.

The Great Stagnation spreads

Chris Giles and Sam Fleming at the FT report:

Output per worker grew last year at its slowest rate since the millennium, with a slowdown evident in almost all regions, underscoring how the problem of lower productivity growth is now taking on global proportions.

The Conference Board, a think-tank, said that based on official data on output and employment from most countries, only India and sub-Saharan Africa enjoyed faster labour productivity growth last year.

Globally, the rate of growth decelerated to 2.1 per cent in 2014, compared with an annual average of 2.6 per cent between 1999 and 2006, it said.

…Bart van Ark, the Conference Board’s chief economist, said total factor productivity, which takes account of skill levels and investment as well as the number of workers, fell 0.2 per cent in 2014. “This is a global phenomenon and so we have to take it very seriously,” he said.

Economists are increasingly identifying the problem of low global productivity as one of the greatest threats to improved living standards, in rich and poor countries alike.

As you may know, I am on record as predicting that the great stagnation will end, but so far it doesn’t seem like it is happening.

There is still a great stagnation

Sam Fleming reports from the FT:

The economist Andrew Smithers singles out a longer-term decline in investment as a share of GDP as a critical drag, as well as a slowdown in education improvements in recent decades. A report by the Aspen Institute and MAPI Foundation on Wednesday warned of a “significant lag in capital investment” in the US and argued this was a major contributor to low productivity growth. Whereas real GDP was in 2014 some 8.7 per cent above its level at the end of 2007, gross private domestic investment was up just 3.9 per cent in the same period, it said.

Productivity in the US rose just 0.6 per cent from a year earlier, according to the figures on Wednesday. San Francisco researchers John Fernald and Bing Wang warned in a note in February that their “best guess” is the relatively slow pace will continue. The implications from such sluggish productivity data are numerous.

The full story is here, interesting throughout.  And here is a related post from Michael Mandel.  Of course you should not infer much from quarterly productivity numbers, but that last quarter did not help, as employment went up a good deal and output did not.

For the pointer I thank Jim Olds.

Ben Bernanke on the secular stagnation hypothesis

Here is his second real blog post.  Excerpt:

My greatest concern about Larry’s formulation, however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home. The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports. (For intuition about the link between foreign investment and exports, think of the simple case in which the foreign investment takes the form of exporting, piece by piece, a domestically produced factory for assembly abroad. In that simple case, the foreign investment and the exports are equal and simultaneous.) Increased exports would raise production and employment at home, helping the economy reach full employment. In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy. Of course, all else is not equal; financial capital does not flow as freely across borders as within countries, for example. But this line of thought opens up interesting alternatives to the secular stagnation hypothesis, as I’ll elaborate in my next post.

Keep ’em coming Ben, but you’re not a real blogger until you’ve covered the infield fly rule…

The stagnation of Los Angeles fact of the day

There are just 6 per cent more people working in greater Los Angeles than there were 25 years ago. By contrast, the Inland Empire has nearly doubled in size. In fact, the absolute number of jobs added in the Inland Empire since 1990 is nearly double the absolute number of jobs added in greater LA. To get a sense of how wild that is, the entire workforce of the Inland Empire was only 13 per cent the size of Los Angeles’s back in 1990. Even now, there are more than three workers in Los Angeles for every one in the Inland Empire.

It’s a little hard to see given the scale of the chart, but it’s also worth noting that LA experienced a Depression-level drop in employment in the early 1990s. Between January, 1990 and November, 1993, employment in the America’s second-biggest metro area fell by nearly 11 per cent. Employment didn’t return to its previous peak until July, 1999. Talk about a lost decade! (It may help explain this.)

That is from Matthew C. Klein, there is more here, about other American cities too, possibly FT-gated but interesting throughout.