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.

Sunday, February 4, 2024

Blustering our way to World War Three

I oppose World War Three.

Somebody has to be first to NOT react to the other guy's aggression. Somebody has to go first. Is the US not big enough to go first?

Our reaction leads to their reaction. Their reaction leads to our reaction. Each time, the reaction is a little bigger, a little bolder. Each morning the news is a little worse. The only way this can end is badly -- unless we choose to stop it.

Friday, February 2, 2024

Inequality, financialization, and economic decline

"Inequality, financialization, and economic decline"
PDF, 24 pages
by Pasquale Tridico and Riccardo Pariboni, 2017

From the Abstract:

The objective of this article is to argue that the labor productivity slowdown experienced in recent years by several advanced countries can be explained, following a Kaldorian-Classical approach, by a weak gross domestic product (GDP) performance and by a decline in the wage share. Moreover, drawing inspiration from recent post Keynesian literature, the authors identify the ongoing worsening in income equality and the increase in the degree of financialization as other major explanatory factors of sluggish productivity.

Should your nation, empire, or civilization survive all other calamities, financialization is sure to bring it down. Financialization makes transactions increasingly expensive. It increases the factor cost of money, reducing both nonfinancial profit and the wage share. 

The fall in profit leads to the "weak gross domestic product (GDP) performance" noted in the Abstract. And the decline of the wage share makes it so that "labor cannot support life", as Simkhovitch said in "Rome's Fall Reconsidered".

Also, financialization (in the form of growing debt) is a significant source of income inequality.

Thursday, February 1, 2024

The Economic Decline of Empires

A Google Book: The Economic Decline of Empires
Edited by Carlo M. Cipolla

I show here the first 2½ paragraphs of the Editor's Intro:

If I didn't think it important, I wouldn't post it.

If you want to prevent the decline of the US as a nation, or as an empire, or as a civilization -- whichever way you see it -- you need to act before it is too late. You, too, should start a blog that no one reads.

Tuesday, January 30, 2024

One measure of inequality

From USA Today of 24 Jan 2024:

The average American household has $62,410 in savings, per the Federal Reserve.

However, the median American household has just $8,000.

Note: The Fed link shows "transaction accounts" by default, not savings. But it looks like that site would be useful, if I could figure it out. For now, I'm just going with the quote from USA Today.

Sunday, January 28, 2024

What President Hoover said

According to one account, Herbert Hoover, when queried a short time after he left office if there was anything he should have done while President that he had not done, replied: "Repudiate all debts."
From Franklin D. Roosevelt and the New Deal, 1932-1940 by William E. Leuchtenburg

Friday, January 12, 2024

The Arthurian Plan

I have to begin by saying that demand-pull inflation encourages economic growth, and cost-push inflation causes growth to slow. But by the time I get the thought out, half the internet is hollering THERE'S NO SUCH THING AS COST-PUSH INFLATION and the other half didn't hear me, doesn't believe me, or just doesn't care. For or against, then, they all go back to preparing for the next insurrection.

If we could just fix the damn economy we wouldn't need insurrections. But no one stops to think about that.

Let me say it again: cost-push slows the economy. It means we get less income per dollar's worth of effort.

Now, maybe it is true there is no such thing as cost-push inflation, because we only get inflation if they print too much money. But here's the thing: It isn't the inflation that slows the economy, it's the cost-push. It's cost pressure that slows the economy. If policy prevents the inflation but fails to relieve the cost pressure, the economy slows anyway.

If policy prevents inflation but doesn't relieve the cost pressure, the economy slows anyway.

Maybe the cost pressure first arose with financialization in the 1980s and 1990s. Maybe it first arose during the Great Inflation of the 1960s and 70s. Maybe it first arose in the 1950s, or even before. The point is that the cost pressure has been a problem for a long time, and economic growth has been slowing all the while.

Economic growth has been slowing all the while.

Paul Volcker quashed inflation in the early 1980s, and we thought he had solved the problem. But the cost pressure problem was not solved. Then, in 2012, the Federal Reserve adopted something called the two-percent target. Now that sounds innocent enough, until you realize it means their goal is to have two percent inflation every year. 

The standard story is that Volcker quashed inflation. The fact is that the Federal Reserve tried for 30 years, and then gave up on quashing inflation.

Hey, two percent inflation isn't bad, I'll give you that. But two percent isn't zero. Two percent inflation is not stable prices. It is rising prices. It is inflation. Economists call it "stable inflation." I call it hypocrisy. 

They gave up on quashing inflation. At the end of 1982 the CPI was 97.7. At the end of 2012 it was 231.2. At the end of 2023 it was 308.9. Prices have more than tripled since Volcker quashed inflation. And because of cost pressure, the economy has been slowing all the while.

If it is cost-push inflation -- or even if it is just cost pressure, without inflation -- it slows the economy. It slows job creation. It slows the production of output. And it slows the growth of income. That's the killer, slow growth of income. That is the root cause of our present dissatisfaction, I think, and the root cause of insurrection and of the longing for insurrection.

As for myself, I would prefer to fix the economy. All we have to do is solve the cost-pressure problem. To me, that's an easy thing to do. The problematic cost is the cost of finance. We have to reduce the cost of finance. We have to reduce the bills.

Let me say it a different way: We need faster income growth, faster GDP growth, faster job growth, and better jobs. But none of that will solve the problem unless we reduce the growth of financial cost.

That's the whole plan, in a nutshell.


Let's say we make it economic policy to cut the growth of household debt in half. It has to be policy or the plan won't work, because under existing policy the increase in household debt gets bigger almost every year. It has to be policy, and the new policy has to reduce the growth of household debt.

The easiest way to do this is to make it policy to increase employee compensation by a comparable amount. For every extra dollar of income we get, policy encourages us to borrow a dollar less. So our spending can stay about the same, our debt increases more slowly, and we have smaller finance charges to pay. And that is how the plan works.

As you may notice, the new policy I propose is just the opposite of existing policy. Existing policy provides funds by expanding credit and fights inflation by restricting the quantity of money. The proposed new policy accepts the view that the quantity of money should grow along with output, that borrowing money should be minimized to reduce financial cost in our economy, and that the proper way to fight inflation is by restricting the growth of credit rather than the growth of money.

Our existing policy has been around for a long time. In the early days after World War Two it worked well. Back then it worked because we didn't have a lot of debt and our financial costs were low. The old policy worked so well that economists and policymakers stuck with it, forever encouraging us to use more credit. That was the mistake.

The existing policy didn't treat debt as a problem, because in the early days we had little debt and it wasn't a problem. Things are different now. These days, we can't afford to live. It is time for policy to stop encouraging credit-use at every turn. It is time for policymakers to admit that we now need less reliance on credit and more reliance on the dollar -- more reliance on income.

There was a time when encouraging the use of credit was good policy. This is no longer that time. This is the time to discourage the use of credit and to encourage the growth of income.


If you step back and look at this picture of the economy you will notice that if we adopt the new policy and it works, and we stick with it, then a day will come when we have too much money and not enough use of credit. We will eventually be tempted to abandon the policy that here is called "new" and to go back to the policy that here is called "existing". That is not the best solution.

The best solution is to seek the point of optimum balance between money and the use of credit. The point of optimum balance gives the best economic growth. It is tricky, because continually increasing the reliance of credit will cause our economy to grow until we are far beyond the point of optimum balance. That is what gets us into trouble, as it did in 2008. What we need is to find the point of optimum balance between money and credit, and stay there, so that our economy can perform well over the long haul.

It can be done. We just need the right plan.