Monday, March 4, 2024

"What Do We Know About Economic Growth? Or, Why Don't we Know Very Much?" (2001)

What Do We Know About Economic Growth? Or, Why Don't we Know Very Much? by Charles Kenny and David Williams, 2001.

From the Conclusion:

There are, we think, a number of conclusions and implications which follow from the analysis we have presented here. First, a review of the available evidence suggests that the current state of understanding about the causes of economic growth is fairly poor... What we are arguing is that we are in a weak position to explain why some countries have experienced economic growth and others not.

If even the views of experts offer a fairly poor understanding of the causes of economic growth, then what would it hurt to consider the views of a hobbyist like me?

Sunday, March 3, 2024

"U.S. Economic Growth at the Industry Level" (1999)

"U.S. Economic Growth at the Industry Level" by Dale W. Jorgenson and Kevin J. Stiroh. 1999


From the opening:

The U.S. economy has expanded rapidly in recent years with total factor productivity – the source of growth most closely identified with technological gains – rising sharply since the mid-1990s. This strong aggregate performance and the well-documented explosion of investment in computers and other high-tech equipment have led many to believe that the U.S. has experienced a permanent, technology-led growth revival.

Technological innovation is not a sufficient condition for sustained vigorous growth.

Saturday, March 2, 2024

"Declining American economic growth despite ongoing innovation" (2018)

Declining American economic growth despite ongoing innovation by Robert J. Gordon. 2018


From the Introduction:

This paper starts from the proposition that GDP growth matters, not just productivity growth, because slower GDP growth provides fewer resources to address the nation’s problems...

Again, the importance of economic growth.

Friday, March 1, 2024

"Sustaining US Economic Growth" (2002)

Sustaining U.S. Economic Growth by J. Bradford DeLong, Claudia Goldin, and Lawrence F. Katz. July 2002


From the Introduction:

With rapid economic growth, social and economic problems become far less of a burden. A fast growing economy is a rich economy. A rich economy is one in which people have more options and better choices: the people can—through their individual private and collective public decisions—decide to consume more, lower tax rates, increase the scope of public education, take better care of the environment, strengthen national defense or accomplish any other goals they might choose. For an economist these are sufficient reasons to consider growth a good thing. A fast-growing economy is one in which people will have greater wealth, higher incomes, and more of the necessities, conveniences, and luxuries of life.

Moreover, in America at least, slow economic growth appears to heighten political gridlock, and thus reduce the quality of political decisions.

Consider that last part a prediction.

Tuesday, February 27, 2024

Checkable Deposits and Currency held by the Bottom 50%

Graph #1: Held by Bottom 50% as a Percent of Total Held by 100%

Pretty sure the last drop-off (after 2019) is due to an insanely massive increase in M1 money arising from a 2020 change in Regulation D: The Fed started counting savings as part of transaction money. Probably increased "checkable deposits". I say this because all of the shares they report

  • Bottom 50%
  • 50th to 90th
  • 90th to 99th
  • Top 1%
  • Top 0.1% (not used in the graph above)

show a big increase (in millions of dollars, not percent of total) since 2020. 

But obviously the bottom 50% got a smaller share of that increase, as the line goes down on Graph #1. In other words, they had little in savings before the regulation change.

So, ignoring the years after 2019, looks like the paupers' share fell from 13 or 14% in the 1990s, to 12% in the naughts, to 10% after the 2009 recession. And it looks like Biden is going to get the blame for this shit.

(I don't do politics. I do my best not to have a preference. But I would like to see the old coot try a little harder.)

PS: FRED offers an interesting table: Levels of Wealth by Wealth Percentile Groups (but only since 1989).

The table includes breakdowns by

  • Total Assets
  • Nonfinancial Assets
  • Real Estate
  • Consumer Durables
  • Financial Assets
  • Checkable Deposits and Currency
  • Time Deposits and Short-Term Investments
  • Money Market Fund Shares
  • Debt Securities
  • US Government Securities and Municipal Securities
  • Corporate and Foreign Bonds

and too many more for me to list.

Might be useful.

Tuesday, February 20, 2024

Another day older and deeper in debt

For me the story is a simple one: Economic growth has been slowing for half a century because the inflation is cost-push. Demand-pull grows the economy; cost-push slows it. The cost pressure arises not from the examples that are unfailingly used on the internet (wages and oil) but from excessive use of credit. In this, I guess you could say I agree with those who hold the "debt supercycle" accountable, with those who say we have "too much finance", and with those who speak ill of financialization.

By the way, our vast government debt is part of the problem, but it is the least worrisome part. It is private-sector debt service that consumes private-sector income and slows private-sector growth. Since Keynes, government debt has been a rescue system for the private sector economy, and the first thing to realize is that the incredible size of the federal debt, as we apparently need that much rescuing, is evidence of how bad things have become in the private sector.

The second thing to realize is that the solution we have applied to the problem for the past fifty years has not worked, and this failure is evidence that we misunderstand the problem.

The cause of the excessive growth of finance is economic policy: human nature, and economic policy. The policy part of the problem is that for far too long we thought using credit was good for growth, and that the resulting accumulation of debt was not a problem. The human nature part is that we are too willing to borrow. 

When we borrow, we get money to spend. That's the use of credit, and it is indeed good for the economy. It boosts spending. It boosts the economy. But when we borrow money we take on debt. And debt must be repaid. Repayment takes money out of the economy, reduces spending, and slows economic growth. There is no free lunch: The boost we get by borrowing money comes with a drag on the economy that takes effect when we repay the debt. 

The debt supercycle is good in the early stages when debt is low. It is harmful in the late stages when debt is high. This is why our economy was great for a generation after World War Two, then pretty good for a generation, and bad in the years since. 

These days are late in the debt supercycle. We didn't know. We let the problem fester until we had the 2008 financial crisis. Our economy was slow for a decade after that. In recent years things seem to be improving -- but that is only because our use of credit has been increasing again. It's human nature: We are too willing to borrow money. But of course you can't change human nature. We need policy to protect us from ourselves -- but no! We need policy to protect the economy from human nature, to reduce our debt and keep it low so that our economy can improve. We need the opposite of the policy we have.

Our economy is bad because debt costs money and we have a lot of debt. Because the economy is bad, repayment of debt has become more difficult. We have... no! Policy has put us in a hole that is almost impossible to get out of. And since we can't get out of that hole, our economy cannot recover. Policy must stop encouraging us to be in debt. Policy must start encouraging us to get out of debt. And, as the problem is still so very bad, policy should begin by helping us get out of debt. Then, as the economy recovers, policy can prune back that help. But it must forever keep the policies that encourage us out of debt.

What we should shoot for, really, is the optimum level of debt, the level that best promotes economic growth. If you never thought about that, I have two blog posts you might want to read. First, some preliminary thoughts on the topic, in Two Thought Experiments. Second, some tentative targets for policy, in Establishing Parameters for Debt.

Saturday, February 17, 2024

The free community and the totalitarian state

I'm looking at How to Pay for the War, the 1940 book by J. M. Keynes.

I'm posting this not because of war concerns, but for Keynes's observation of one difference between the free community and the totalitarian state. It seems somehow relevant.

First this, for context:

Is it better that the War Office should have a large reserve of uniforms in stock or that the cloth should be exported to increase the Treasury's reserve of foreign currency? Is it better to employ our shipyards to build war ships or merchant-men? Is it better that a 20-year-old agricultural worker should be left on the farm or taken into the army? How great an expansion of the Army should we contemplate? What reduction in working hours and efficiency is justified in the interests of A.R.P.? One could ask a hundred thousand such questions, and the answer to each would have a significant bearing on the amount left over for civilian consumption.

Now the political observation, from page 7:

In a totalitarian state the problem of the distribution of sacrifice does not exist. That is one of its initial advantages for war. It is only in a free community that the task of government is complicated by the claims of social justice.