The long and winding road of John McCain

The long and winding road of John McCain

https://www.c-span.org/video/?c4746356/long-winding-road-john-mccain

U.S. Historical Economic Performance after World War II GDP 1947 to 2017

U.S. Historical Economic Performance
after World War II
GDP 1947 to 2017

Economics Without The B.S.**: 

[**  Double entendre intended.]

United States Historical Economic Performance (GDP) 1790 to 2018

U.S. Historical Economic Performance
GDP 1790 to 2018

Economics Without The B.S.**: 

[**  Double entendre intended.]

Inequality and Economic Performance

Inequality and Economic Performance

Economics Without The B.S.**: 

[**  Double entendre intended.]

The Gini Ratio is one measure of inequality -- the lower the ratio the less inequality. Notice the 1960s, especially the mid-'60s, it is the best rate of economic growth in U.S. history; it also had a wide dispersion of wealth in that society, by income.

https://fred.stlouisfed.org/graph/?g=khTM  [Interactive chart]

Do Trade Deficits Matter for the United States?

Do Trade Deficits Matter
for the United States?

Economics Without The B.S.**: 

[**  Double entendre intended.]

The manner in which a country conducts foreign trade is a reflection of its economy, its macro economy.  While the United States has run very high trade imbalances, about $500 billion each year or 3% of its real GDP, these deficits were primarily due to the trade of goods, a $700 billion deficit, not the trade of services which has consistently through the decades been in surplus, currently at approximately $200 billion. 

Our trade deficit position took a change after the Asian Financial Crisis of 1997 and the entry of China getting international trading status from the WTO (World Trade Organization) in 2001.  Since that time Asian countries, and in particular China, have adopted an industrial policy of being net trade exporting countries.  And the United States has willingly become the receptor of this international trade imbalance in goods by being the deficit nation; and, allowing itself to expand its consumption of goods beyond its productive capacity, which in the U.S. case is financed by the huge inflows of foreign investment in our productive assets at home as well as huge investments in our financial assets –  U.S. treasuries, currency, agency bonds and Wall Street created financial instruments (like CDOs, Collateralized Debt Obligations) and their derivative products.  In addition to trade deficits that need to be financed, the United States runs up huge Federal Government deficits of $400 to $600 billion each year which also need to be financed.

This situation is a reflection of the productive capacity – I would say a declining rate of productivity – of the United States.  The 1960s was the highest performing economy for a peacetime period in the entire U.S. history – as measured by real GDP per capita, averaging approximately 3.5% per year; over 5% per year on a real GDP basis.  Since that time we have been in a declining trendline in the rate of productivity each succeeding decade – the 1980s and 1970s are worse than the 1960s, the 1990s are worse than the 1980s, and the last 17 years are worse than the 1990s and approximately one-third of the growth rate of the 1960s.  While GDP is an imperfect measure of our productivity, it is still the main measure we use.  And while GDP is not a measure of our standard of living, it is closely associated with it – the more you can produce, the more you can consume.

We have had declining productivity growth since the 1960s (the best period for peacetime productivity growth in the 220+ years of history of the U.S. as measured by real GDP per capita) and trade has been a drag on our productive growth because we now have sectors within our economy which are less productive than what we had back in the 1960s – a larger consumer/retail/wholesale sector, more service industries; while having a smaller but highly productive industrial/commercial/agricultural sectors and a small sector of highly productive business/info tech service industries.  With fewer high growth opportunities to invest in the real economy, foreigners invest in financial assets.  Trade is not the only thing dragging down the GDP rate of growth, nor is it the most important; but, it is systematic of our productive base today.

When investment from foreigners come back into the U.S. to finance our twin deficits of trade and budget, it does make a difference how that investment is spent.  Just as a business evaluates capital spending to determine what the best investment return will be, so must the same be true for dollars coming back into the U.S.  Even when they come back into U.S. treasuries they are financing our government debt; so, that makes a difference if it is financing welfare or consumption spending or defense spending on military technology or some other capital improvement the government is making.  The foreigners investing in our government treasuries may be doing it because they seek safety rather than the risk associated with capital investments – that’s all well and good for them, but it is not the best outcome for us even though it is a positive outcome for us.  The better the return on the investment, the better off we are; and, usually that will mean an investment in highly productive resources rather than consumption spending.

In a world of limited resources, how those resources are allocated (over time) matters.  What individual actions acquire in a transaction and how they use that acquisition affects others in that society and determines the outcome for that society.  Our American predecessors took on an obligation, to themselves and their society, to strive for the best and be in the vanguard of leadership in accepting challenges.  Each generation of Americans that come along get to decide what path toward progress they will take.  The collective will of a people is not just decided by independent individual choices but by the interaction with others and the leadership (government, business, civic) in that society.

Will Artificial Intelligence take over for Humans?

Will Artificial Intelligence take over for Humans?

Economics Without The B.S.**: 

[**  Double entendre intended.]

With all the chatter about Artificial Intelligence taking over with neural networks and deep learning, will machines ever duplicate the complexities of humans for melding mind with heart for abstract creations?  From Jacob Bronowski's TV show of the 1970s, 'The Asceent of Man', at the Watts Towers in Los Angeles --

The GDP/Productivity Paradox -- Real?... or Off the Mark?

The GDP Paradox -- 
Real?... Or Off The Mark?

Economics Without The B.S.**: 

[**  Double entendre intended.]

Our rate of productivity growth, as measured by GDP, has been on a declining trendline since the 1960s, our best peacetime economic growth in our 200+ years of history.  And it has gotten worse since 2000, during our information technology age.  Some of our "experts" say we do not have a productivity growth problem but a measurement problem by relying on GDP, an indiciator left over from our industrial economy age when we are now in a new information technology age.

I disagree that the GDP paradox is a measurement problem.  I am not denying that there is a measurement issue, just that it is a side issue to the overall problem of lackluster productivity gains.  I would normally make an argument that in addition to the GDP rate of increase showing a negatively sloping trendline over the past several decades, you also have downward sloping trendlines for expansion of industrial capacity, investment in plant & equipment, R&D, education, labor productivity, multifactor productivity, all in declining trendlines for a number of years, even before the Great Recession.  I thought Hal Varian had good explanations for why these trends exist, and not denying that they were trends, and added interesting comments about capital formation for the newer technologies versus more traditional enterprises.  So let me skip those issues.

I also thought Hal Varian had a good discussion of the diffusion problem – with the diffusion of the technology advantage only slowly rippling its way through our economy, although Varian sees this improving as we go further.  An excellent point was made about optimizing the use of the newer technologies, “we have to figure out a way to get the BEST use of it”; with a mention about Gordon's thinking we have reached a point where we will no longer get a productivity bump out of the information technology.  Varian’s reply that we are not there yet and what we have is “failure of imagination” I thought was right on the mark.  This diffusion problem shows up not just in a sector analysis of our economy, but you can also see it geographically played out with only a few metro areas (usually around 25 out of almost 400 metro areas nationally) that have high GDP productivity (about half of the nation’s GDP) while much of the rest of the nation suffers from below average GDP performance.  And my point regarding diffusion would be here is a technology, information technology, that lends itself to being geographically distributed (especially since much of it is centered in the service sector), in contrast with the manufacturing environment (with hubs and long logistic supply chains) and yet we see info tech centers of excellence highly concentrated in just a few geographic areas around the country.  And we are a nation with educational resources spread out around the countryside, to include rural areas, so you just must wonder if we are taking full advantage of the resources we have to dedicate to the issue and get everyone up to speed.

But let’s take on the GDP measurement problem more indirectly.  Let’s use measurements not affected by all this other nonsense of what gets measured and what doesn’t.  If we are doing so good today with productivity because of the free resources that liberate prior cost restraints and result in newborn efficiencies from the phantom productivity, WHERE ARE THE JOBS?  The 10 years of the 1960s with annual rates of real GDP growth that are almost 3x greater than the past 17 years and a workforce that was less than half what ours is, produced (had a net gain: jobs added minus jobs lost) over 17 million jobs – the 17 years of Bush/Obama/and 11 months of Trump have a net gain of less than 15 million; even if you add the 6 million job openings that only gets you to a little over 20 million, still not a good comparison with the ‘60s with half the workforce.  Take 1965 with a workforce of approximately 75 million, it produced more jobs than 2016 with a workforce of almost 160 million (2.9 million vs 2.2 million); and it is likely that 2016 will be better than 2017.  And I use 1965 because that is before the Vietnam buildup influences the economy.

This is the creative/destruction argument of the impact of technological innovation in a nutshell.  The 1960s were just as dynamic as what we have been going through in the last 25 years.  In the 1960s we had the destruction, but we also had the creation; and, a long sustained booming economy with the productivity gains widely shared in society.  In the last 25 years we have had the destruction, but only a tepid creative recovery; and, the productivity gains have resulted in a maldistribution of wealth with increased inequality in comparison to the ‘60s.  The job creation has been a lot weaker and as Varian has said we need the job creation and productivity boost to overcome the looming demographic shift.   If we are losing the dynamism in our society that makes for that creative/destructive energy that propels economic growth, is there an opportunity for public policy remediation?  Perhaps we can get back to using fiscal policy more aggressively like we did in the 1960s.

Getting the nation’s productivity picture is important for maintaining and improving our standard of living as we go on – human progress is linked with economic development and democratic societies function best when that progress is broadly shared.  So, by raising the GDP measurement issue for keeping track of our progress is either a distraction or a key indicator for consideration.  Once again, I think while it is an issue, it is a side issue to the overall problem of lackluster productivity gains and the long trendline of contractionary economic policies that have resulted in the United States emphasizing consumption over savings and investment that have affected our international trade imbalances as well as our continuous grand fiscal deficits.