For the past year I’ve been having periodic discussions with a friend who has a nice amount of money which he invests (he’s a single male cresting up to his peak earning years after receiving an advanced science degree from an elite institution). He is pessimistic about the long term prospects for the American economy, and believes that the current run of stock market gains are simply a bear market rally. Even when he made his assertion last year I pointed out that if it was a bear market rally it was unprecedented in its magnitude. Of course I wasn’t too confident about appealing to historical precedents after what’s happened in the past few years. Look at the comments I elicited after mooting fears of a recession in May 2007. I know some of the commenters are regular readers to this day, so I hope everyone enjoys watching the frankly moronic confidence. I use the term not as an aspersion but as an accurate description of the hubris and complacency on display. I myself told a friend that the credit crisis was overblown in the summer of 2008, relying on moronic conventional wisdom from overeducated morons that the Great Moderation was in effect. I was wrong, and I don’t have a word to capture the contempt which I have for the likes of me, a fool who relied naively on the foolish. I am reckoned a young man by some, so that’s the excuse I’ll give.
With all that stated then as to my profound uncertainty I have to say I’m a bit perplexed by green shoots of economic optimism which seem to be sprouting here and there. Ultimately I would dismiss this, but the stock market performance is mystifying to me. We know from historical precedent that market run ups presage economic growth in the future. This is presumably because investors are pricing information which they receive before the rest of us, and the NBER, and so give us a more accurate crowd-sourced preview of the future. But like my friend I have a hard time understanding where the fundamentals are which could give rise to a robust cycle of growth. We are, thankfully in my mind, being weaned off of consumer credit. So we can’t fake the growth through debt fueled consumption, we have to produce. But what new technologies are causing structural changes in the economy? I don’t see it.
But it is important to remember that most people didn’t see the internet being of economic relevance in 1994. Deep into 1995 Microsoft was “all in” on the next big technological breakthrough…interactive television! And while the .com bubble was blowing up no one had any idea of the awesome investing potential represented by the revolutionary economics of 21st century homebuilding…oh, oops! But let’s just assume that the stock market is telling us something real, that growth which is not fueled by consumers or the state taking on more debt is in the offing. Where does that growth come from?
I have no idea, so I’ll offer a speculative theory: in the next few years we’ll see the rise of magic, which will revolutionize modern economies with supernatural green forms of transport. Screw the Segway, imagine how efficient magic carpets will be as personal vehicles! Not only do they run on supernatural fuel which has no carbon footprint (all the waste is emitted in magicland, which is parallel to the real world), but they take up very little space, and are multipurpose as well as aesthetically customizable. The main downside is you’re exposed to the elements, and velocity has to be modest so you don’t fall off the carpet.
You might think this is a silly prediction to offer. So what’s your theory? Peter Thiel has billions, invested in PayPal and Facebook, and claimed that the markets are not so retarded that they’ll invest irrationally in a new bubble for a generation after being burned twice in the past 10 years. Is Thiel wrong? Are the markets not-so-efficient. Or are we going to have to get ready for some magic?
I seek a true guide to the perplexed, not platitudes from latter day kleptocrapts.
Razib Khan’s degrees are in biochemistry and biology. He has blogged about genetics since 2002, previously worked in software development, is an Unz Foundation Junior Fellow and lives in the western US. He loves habaneros.
April 11th, 2010 at 4:15 am
Here in Australia, the financial crisis meant that credit was impossible to get, even for economically sound projects, for 18 months. Those projects are just as sound as ever, and the steady growth of export markets like India and China means that demand is high.
The flip side of the mass unemployment in the US is that costs are way down- I know of companies who furloughed everyone in fear of business drying up who are now well off because their income dropped by less than their costs.
In many cases, I suspect that companies staring into the abyss in late 2008 overcut and downsized too far, so some of this ‘growth’ is a rebound from excessive irrational pessimism.
Think of it as a market correction with an opposite sense to the normal drop.
A cruel perspective is that the recession and related unemployment chiefly hurt those with limited education and maxxed out credit. While those people now have no more buying power, everyone else is fine, so the portion of the economy which caters to them can continue with business as usual. So the economy is growing again, from a base of 10 million fewer workers, but with productivity gains made by eliminating 20th century style jobs.
April 11th, 2010 at 4:31 am
i understand about pent up demand from consumers and businesses in regards to goods, services and labor. and yes, productivity goes up during recessions for a variety of reasons. and yes, the less skilled/educated were screwed. that still doesn’t get me to the point where i can understand a roaring bounce back. or the high valuations of the stock market.
April 11th, 2010 at 4:32 am
and the steady growth of export markets like India and China means that demand is high.
sure. no offense, but you’re a small country in population. and your exports are biased toward natural resources in relation to china, right? that seems like a decent medium term proposition for oz. but the united states is a different cookie.
(of course, the U-shaped recession-recovery could come about, in which case wtf is going on with the stock market)
April 11th, 2010 at 4:35 am
“But what new technologies are causing structural changes in the economy?” According to Wolfram, supernatural powers are 100% nonsense. If Wolfram’s “A New Kind of Science”, Chapter 9 is correct, then we might live in a Fredkin-Wolfram information process that computes M-theory. Fredkin believes that hidden determinism and an “alternate-universe engine” control our reality. In a TED talk, Ray Kurzweil said:
(1) The spatial and temporal resolution of brain scanning is doubling every year.
(2) We will succeed in reverse-engineering the human brain in the 2020s.
(3) If you go to the year 2029 you will have the full maturity of these trends.
(4) Progress in technology is exponential — not linear.
Controlling robots over the Internet, harvesting solar energy by using micro space ships, and human colonization of the ocean using submerged cities (down to 40 meters) might be 3 trends realized before 2029.
April 11th, 2010 at 4:44 am
let’s stipulate that the magic has to show its hand before 2015. 20 years is a LONG time, and i’m moderately techno-optimist. my big point is that the stock market run up makes no sense without anticipation of robust economic growth which extends beyond a temporary bounce induced by pent up demand. for that growth, considering how individuals and gov. overleveraged themselves in the recent past, i assume there has to be some innovative spur which adds genuine value. like the internet. or canals. or the railroad. plastics. assembly line.
April 11th, 2010 at 5:38 am
I was wondering about this myself, though I have since pushed all my money into foreign funds, the best explanation (or I should say the one that made the most sense to me) was inflation. If you price the value of the S&P 500 in gold, it has only risen 35% or so, and hasn’t risen at all in the past 5 months (may not be exactly accurate now). So what you are seeing is the value of the dollar drop, not an increase in stock prices.
April 11th, 2010 at 7:52 am
Is there any advantage whatsoever to submerged cities 40 meters down? One thing we’ll never be short of is flat places to build on. The oceans are vast, but most of its life forms locate themselves in very restricted parts of it, and there are enormous sterile areas. Mining the sea floor has been discussed, but marine cities wouldn’t help much with that. At most you might have an permanent underground mining camp, but with robotics you wouldn’t need that either.
April 11th, 2010 at 8:12 am
The high value of the dollar is the result of collusion between the US and China. China builds up its industry by selling to the US, but the high dollar means that the US can’t sell to China. American consumers get cheap products, American producers get laid off. The Chinese government accumulates America bonds, the Chinese consumer gains nothing. It’s really the equivalent of a tariff. The system is maintained by the Chinese buying American currency to keep the price high.
Why the US government lets this happen I don’t know, but fear of inflation is part of it. Some globalizers strategized an American economy with little manufacturing — the offshoring of steel, the auto industry, textiles, and many consumer products was planned. What they thought the US would live on I never figured out. “Services” is the answer, but what does that mean? America is still probably the leading agricultural nation, and it leads in hi-tech of all kinds and in entertainment, but to me it doesn’t add up.
A strong dollar sounds like a purely good thing, but it has its cost. It really should be more neutrally called a high dollar.
If the American dollar were properly valued, American producers would benefit and American consumers would be hurt. Some would break even. But the balance of trade deficit would disappear.
I’ve thought that eventually China would be able to use its American bonds to exert political leverage on the US, but people tell me that they can’t afford to do that either. Certainly, though, we’ve lost a lot of our leverage.
April 11th, 2010 at 9:52 am
Magic has been doing very nicely right through the boom, bust and recovery. Bloomsbury Publishing and Scholastic Inc realised the dream of all publishers, which (according to Terry Pratchett) is to have so much money in their pockets that they have to employ someone to hold their trousers up. The Harry Potter phenomenon also waved its magic wand over Warner Bros. and the UK film industry, and is set fair to make a bomb for Universal Orlando.
I’m not sure how this translates into investment advice though.
April 11th, 2010 at 11:03 am
One explanation is that lots of people whose houses are worth less than their mortgage loans have just stopped paying their mortgages and are now living rent-free in their houses. So they now have surplus income which they are spending on gee-gaws.
April 11th, 2010 at 12:10 pm
“America is still probably the leading agricultural nation, and it leads in hi-tech of all kinds and in entertainment, but to me it doesn’t add up.”
Corn ‘n porn, basically.
America leads the world in producing agri products like corn and its derivatives (HFCS, corn starch, Cheetos, etc.) and porn and its derivatives (i.e. pop “culture”).
April 11th, 2010 at 12:57 pm
Stock Markets are not unbiased estimates of future economic growth; but rather one (rather forward leaning) estimate of the future path of corporate profits. Those could go up for three reasons:
1) A sizable portion of corporate profits now come from overseas markets, which are doing rather well
2) It’s possible to have high productivity and growth in corporate earnings even as labor markets do poorly–an expanded version of this last decade. Corporations have been working hard to squeeze every last drop of productivity from existing workers, and many now benefit from various government subsidies (car makers, finance, the stimulus, ACA…).
3) Low interest rates -> low bond premiums -> more likely to invest in the stock market -> Higher stock prices
Correlation between stock market returns and GDP is fairly weak. There’s a lot of stuff going on. Double digit unemployment, crony capitalism, and no new technologies are enough to boost stock prices.
April 11th, 2010 at 1:29 pm
@John Emerson:
“Some globalizers strategized an American economy with little manufacturing — the offshoring of steel, the auto industry, textiles, and many consumer products was planned.”
This is simply not accurate. The decline in American manufacturing employment is largely unrelated to globalization and offshoring; it is the consequence of increased productivity allowing fewer workers to produce more things.
If by “strategizing globalizers” you mean “popular economics writers,” the thing to know is that those people are almost invariably full of it. What I’m saying is not terribly controversial — even a cursory glance at economic statistics shows that what I’m saying must be at least mostly true — but it is just widely ignored by commentators on the center, left, and right alike.
Paul Krugman wrote a book almost 15 years ago called “Pop Internationalism” which demonstrated this, but cf. Hercules vs the Hydra.
Anyway, yeah, magic carpets.
April 11th, 2010 at 3:30 pm
Evan,
I think you are quite right. I don’t have the link, but I recall that Razib (and others) have pointed out the fact that the USA still produces a large amount of manufactured goods, especially ‘durable goods’ (long-lasting manufactured goods, as opposed to the relatively more-disposable goods that constitute a lot of China’s exports). Durable goods include things like refrigerators and washing machines.
Even steel, which is a raw manufacture rather than a final consumer product, is still produced in great volume by the US. What has declined steeply is the amount of *employment* pertaining to steel production. As this post by Cosma Shazili shows, steel is still produced roughly in ‘same as it ever was’ quantities by the US. But productivity per employee has increased a lot, and the number of employees has declined accordingly. So: a similar amount of concrete, physical goods. A much greater productivity per employee. And therefore less employment in this sector. Which is exactly as you said. I’m merely amplifying your post, not adding anything fundamental to it.
April 11th, 2010 at 3:41 pm
re: manufacturing, yes:
http://yglesias.thinkprogress.org/archives/2010/01/american-manufacturing-is-very-productive.php
the labor force has been de-industrialized much more than the economy. just as the labor force has been de-agriculturalized more than the economy.
April 11th, 2010 at 3:42 pm
more optimism:
http://www.slate.com/id/2250374/
April 11th, 2010 at 4:19 pm
The economy is primarily comprised of people (and land and capital and ideas). Go with the coming demographics, and its intersection with wealth. That leads you to health care and housing for the elderly, particularly in America and other aging countries, especially China.
April 11th, 2010 at 4:49 pm
The American auto industry and steel industry didn’t decline? The U.S. is now a net steel importer. I probably should have said “heavy industry”. Globalization was in the works starting in the early 70s, though the term wasn’t widespread until 20 years later.
The problem with Shalizi’s thing on steel is that if you’re still in the same place after fifty years, you’ve lost ground.
Both Brad DeLong and Paul Krugman have been reconsidering their opinions of globalization. Contrary to what you might think, liberals with memories are very suspicious of the guy. He himself has said that he was living in a theoretical dream world when Bush came into office, and if the Times had known how he’d turn out, they wouldn’t have hired him.
America’s economy looks better if you think of actual flesh and blood Americans as not part of it, but just as a factor of production to economize on, and libertarians and many economists do this. There are problems with writing off big chunks of the population, and DeLong and Krugman have begun to realize this.
One of America’s competitive advantages was in financial services, which is a rather peculiar commodity and seems threatened at the moment.
April 11th, 2010 at 4:58 pm
i don’t think anyone said america’s auto industry hasn’t declined in relative terms.
There are problems with writing off big chunks of the population, and DeLong and Krugman have begun to realize this.
they don’t do this, they just assume that those chunks are going to be absorbed by other sectors which emerge. that’s based on historical precedent. not something i’m totally confident of, but i think you’re mischaracterizing how economists view the end result of labor force de-industrialization (there’s enough silly economical thinking that that doesn’t seem necessary).
April 11th, 2010 at 5:37 pm
Gross’s Slate piece has very little substance. “The current pessimism is part of a historical economic-inferiority complex” is just a slogan.
People like Krugman and DeLong have been talking about “jobless recoveries” for years. Again, it all comes down to whether “the American economy” includes Americans or not. Libertarians are perfectly willing to throw out 10% or 20% of the work force as outliers or as a rounding error, but when you do that you’re talking non-nationally and, to the extent you’re talking politically, it’s class war. There’s no necessary reason why the population should not be regarded as part of the economy, but treating them as external (a kind of resource or raw material to be economized) enables extractive treatment.
As it stands, this is the deepest decline since the Great Depression, it’s the longest decline except for one or two, it may or may not have turned the corner, it may or may not be single-dip, ANDit’s the third crash in 25 years (People forget 1987). The Great Moderation has been exactly the opposite of what it said it was. Those guys had a model they thought might work, it seemed to work and they started bragging and bullying their opponents, Greenspan bet the US economy on the model, and then BOOM! Back to zero.
What I just said is the pessimistic case. It’s more grounded on facts than Gross’s whistling in the dark. Yes, pessimism can be self-fulfilling. That’s one of the instabilities of our poorly understood, unmoderated economy. (But it was very peculiar when the scientists of the Great Moderation started talking about irrational pessimism bringing our supposedly invulnerable economy down.) It’s also true that, in certain specific circumstances, optimism can be self-fulfilling. But you can’t rely on optimism over and over again as your standard methodology. That’s what got us our bubble (which, incidentally, I’m convinced was feuled by amphetamines and anti-depressants — sometimes you bad feelings are trying to tell you something.)
On top of that, the political system seems to be going insane. Obama is an orthodox Greenspanian, and the Republican Party has been taken over by ignorant, hsyterical morons.
Other than that, things are peachy. Have a nice day.
April 11th, 2010 at 5:41 pm
so what are you buying john, guns or gold?
April 11th, 2010 at 5:43 pm
> Both Brad DeLong and Paul Krugman have been reconsidering their opinions of globalization. Contrary to what you might think, liberals with memories are very suspicious of the guy. He himself has said that he was living in a theoretical dream world when Bush came into office, and if the Times had known how he’d turn out, they wouldn’t have hired him.
‘The guy’ = ‘he’ = whom? And what ideas are liberals skeptical of?
April 11th, 2010 at 5:46 pm
krugman i’m pretty sure. before bush liberals didn’t like him too much as his popular domain bread & butter was tearing down lefty pundits like robert reich or lester thurow.
April 11th, 2010 at 5:48 pm
DeLong and Krugman are both reconsidering. That’s what the “jobless recovery” phrase is all about. DeLong has been puzzling about it for at least five years. The problem started before the present downturn.
This isn’t really a partisan problem; Obama seems indifferent to unemployment. (Yes, he says things, but his policy choices are what you look at. Watch their hands).
But DeLong and Krugman are at left end of orthodox economics. There are plenty of economists who only look at the aggregate economy, without looking at the population. They often have ways of proving that involuntary improvement is impossible — economists even today are saying that present employment is a choice to take more leisure time. But these proofs are not tested, just assumed.
In a sticky economy with a power structure, multiple equilibria, fat tails, etc., a lot of the orthodox reassurances don’t work.
April 11th, 2010 at 5:52 pm
In a sticky economy with a power structure, multiple equilibria, fat tails, etc., a lot of the orthodox reassurances don’t work.
didn’t
April 11th, 2010 at 5:53 pm
Krugman was the he, but it’s more or less true of both. They both pushed very aggressively for globalization and viciously insulted its opponents. They were assuming that “a rising tide would raise all boats”, but that didn’t happen. Their assurance was based on a smooth theoretical model which has been called into question by recent events, and both have rather weakly acknowledged this.
Krugman and DeLong are both Bush-haters, and God bless them for that, but as of 1994 or so they were not at all popular with liberal Democrats.
April 11th, 2010 at 6:02 pm
They were assuming that “a rising tide would raise all boats”, but that didn’t happen.
i thought both had kind of acknowledged that they were thinking more on international scales. so it is feasible that 2/3 of americans would lose out, but many more poor people who are non-american would gain (this seems plausible to me).
April 11th, 2010 at 6:34 pm
Yeah, that’s kamikaze, non-national politics. What was Clinton thinking? It’s something that could never have been said out loud, and it’s what the black helicopter people accuse the Democrats of.
Economists and business leaders will refer to general human welfare whenever convenient and will fake it when possible, but aggregate growth and busniness profits are always the bottom line. And everyone will always say “when we benefit, everyone benefits”, but why wouldn’t they? Slaveholders claimed to be helping the slaves.
April 11th, 2010 at 7:07 pm
the american elites, left & right, see adherence to the nation-state as a facultative matter at this point. this is also true among fashionable highly educated lefties who i tend to socialize with. since i think the nation-state is a pretty useful institution whose legitimacy needs to be guarded in a democratic system i obviously dissent.
April 11th, 2010 at 7:10 pm
> They were assuming that “a rising tide would raise all boats”, but that didn’t happen.
Yeah. I’m pessimistic about the idea that comparative advantage will assure that there is always employment for the least skilled and least intelligent. And as we all know, the latter are hardly the only ones whose boat hasn’t been lifted lately. However, once China is rich in 10-15 years, some light manufacturing may move back to the West. That’s one note of optimism. The global economy will be more balanced then. Especially if India plateaus (or “chills out” to a mature ~3% growth per annum) about the same time — perhaps at an income of about US$11,000 per capita (or higher if there are big technological advanced by then).
A big question is global warming (if it’s true). The West can solve its own carbon problem (at great cost) with, at worst, nuclear power and electric vehicles. But what if China and India just don’t care that much about it? The US might have to subsidize nuclearization for them, causing great economic pain. Or maybe we will just solve the temperature problem cheaply with geoengineering — and just permit the surface ocean waters to acidify. I’m not saying I want that, but it might happen.
April 11th, 2010 at 7:15 pm
One bright note is that serious, great-power wars will continue to not make any sense. I hope I won’t have to eat these words one day — we shouldn’t count on an absence of cataclysmic wars. But it’s pretty clear at least that they make no sense, even if the prize at stake were all the oil in the Mideast (our modern version of “all the tea in China”).
April 11th, 2010 at 7:36 pm
Alas, you said the wrong thing, Eric. I frequently think about the beginning of WWI, which made no sense and in my opinion led more or less inevitably to WWII and the Cold War. The popular and elite enthusiasm for the war, and the governmental leaders’ willingness to let it happen, were blood-curdling.
April 11th, 2010 at 7:46 pm
ww1 ended the last major era of globalization. remember that bretton woods after ww2 put a clamp on international capital flows which have loosened within the last generation.
April 11th, 2010 at 8:14 pm
I think WWI, or ” World War ‘Home by Christmas’ “, was pretty different from the future facing us. People seem to have expected it to be like one of the relatively tractable ‘Happy Age of War’ wars that came between Westphalia and 1914. And in her fear of a rising Russia, Germany had a rationale for touching off WWI — evil, yes, but still rational. Perhaps even not so terribly evil, if the forecast of a tractable war had been accurate — which of course it wasn’t.
At least, “home by Christmas” seems to be the received understanding of what people imagined in 1914. Maybe there are revisionist takes on that, I don’t know. My knowledge is still under construction.
Today, in contrast, I think it’s obvious how ultra-destructive a Sino-Western war would be. Wars between ICBM powers have thus far been limited proxy wars with really quite limited stakes in the very-grand scheme of things. I think people will be exceedingly eager not to go outside those bounds. If the oil supply runs short, it’s not inconceivable someone might try to conquer the Mideast. (Perhaps the US is already sort of doing that.) I don’t think this is just, but it’s pretty obvious that it might happen anyway. But I think that if it does, the equal powers (China, the West, and Russia sort of) will work out a plan to share the booty. Anything else would be blisteringly irrational. They can’t fight a MAD nuclear war. And they very probably can’t fight a non-proxy war where Americans and Chinese shoot at each other directly — because that risks a MAD nuclear war. I think everyone would much prefer even a terrible depression, such as might come about if there were a sudden need to convert all of civilization to nuclear energy.
April 11th, 2010 at 8:26 pm
There’s one big upside to a massive project of conversion to nuclear energy. It would obviously cause a massive decline in consumption. But because there would be excellent investment opportunities, and a surfeit of economic action, perhaps we wouldn’t shift to a Great Depression like equilibirum of unused economic capacity. Orthodoxy seems to state that that’s what happened in the Great Depression: that regardless of whether FDR helped or hurt matters, there was a bad equilibrium where investors didn’t want to take any significant risks, because a single investor’s risk-taking won’t pay off in context of all the other investors avoiding serious activity. Bit of a collective action problem, I guess. According to my shallow knowledge, the main piece of evidence for this non-use of capacity is that consumption didn’t decline at all even when the US war economy was activated as we entered WWII. There was enough human capital and other capital sitting around that we could instantly take on the great war-project without impacting consumption. I vaguely recall, though, that there might have once been a scholar on EconTalk who challenged this notion of what happened.
April 11th, 2010 at 8:41 pm
Now, I would admit that while WWI may have looked rational in 1914 (from a certain perspective), Hitler’s little world-conquest project seems nutty. He took on a battle against a quite superior economic base – and the whole thing is even zanier when you realize that the dramatic early success of the blitzkrieg wasn’t even expected on the day when he launched the war!
But I think what happened there was very very contingent. Hitler was a probably a true wild man, a sort that comes to power not too regularly. I think there are grounds for hoping that events like this are really rare.
April 12th, 2010 at 1:00 am
Not only do they run on supernatural fuel which has no carbon footprint (all the waste is emitted in magicland, which is parallel to the real world),
It’s a trap!
I don’t think Krugman changed his mind about globalisation. He is very vocal against currency manipulation, though, simply because he acknowledges that the short-term effects of currency manipulation are extremely harmful in a downturn (the long-term effects of currency manipulation is to turn the Chinese into slaves and give Westerners free stuff, which would be great if it were sustainable).
Pretty much everybody still agrees about the long-term effect of globalisation (minus currency manipulation), namely, it has the same effects as technological improvements increasing productivity. Some stuff is cheaper, in the sense that we need to expend less resources (including “human resources”) to get the same quantity of that stuff. If you oppose globalisation, you must also oppose technological improvements, which as a previous commenter pointed out has destroyed more US jobs that China ever did. Or so the common wisdom goes.
Also, the Krugman I remember has always been extremely vocal about the need for a massive stimulus to fight unemployment.
April 12th, 2010 at 1:08 am
If you oppose globalisation, you must also oppose technological improvements, which as a previous commenter pointed out has destroyed more US jobs that China ever did. Or so the common wisdom goes.
that’s a slippery slope argument. there are a lot of equilibrium states one could imagine. the thing about the current era of globalization which makes it analogous to the previous era of globalization is the free flow of goods, capital and labor. but note that there have been periods when goods have flowed, but not labor, or goods and labor, but there have been capital constraints.
i also think that there is an analogy between globalization generating economies of scale and comparative advantage and technological innovation, but innovation has a much larger effect on the long term arc of growth. additionally, ideas can flow relatively freely even if tariffs and borders pretty goods and people from moving. globalization is like fishing more intelligently with the fishing pole you have. innovation allows you to create a new fishing pole which is light years better.
anyway, i support globalization, more or less. but i think the sort of slippery slope arguments you’re pointing to lead toward the reductio ad absurdum that nation-states should be abolished as they introduce frictions toward the perfect flow of labor, capital and goods. that’s just theoretical abstraction, as abolishing nation states would probably undercut the institutional support for the global order.
April 12th, 2010 at 6:17 am
DeLong and Krugman have not changed their minds about globalization, but they’ve been having second thoughts. The globalization they wished for didn’t have the currency manipulation and had a lot more support for labor (retraining, a full employment policy, etc.), but the globalization they worked for and actually got was what we see. They seem much less upset about this than they should be, but they seem to have noticed. For smart guys, they seem to say “Oh, gee. How could that have happened?” an awful lot.
April 12th, 2010 at 7:29 am
The moguls of macroeconomics having proved themselves and their doctrines to be intellectually vacuous, there doesn’t seem to be much point in discussing their more recent ludicous lucubrations. You’d probably learn more by playing Monopoly or Snakes and Ladders.
April 12th, 2010 at 9:34 am
“Yeah. I’m pessimistic about the idea that comparative advantage will assure that there is always employment for the least skilled and least intelligent. ”
The best answer for these people is to import hordes of unskilled laborers from south of the border to compete for those jobs.
April 12th, 2010 at 10:44 am
A lot of mysteries will be cleared up if we just assume a consistently anti-labor policy in both parties, and as far as that goes, the libertarians too.
I’ve been grumbling about economics for a long time, but as a friend of mine said, “We’re going to have to have something like economics regardless.” Pure laissez faire with no government intervention would still be an application of economic theory, and it’s really not possible anyway.
My complaint about economics isn’t that it’s not scientific enough, but that it tried to hard to be scientific, faked it, and made excessive claims.
Greenspan (who was an ideologue but theoretically flexible — DeLong never could understand how he made his decisions — recently confessed that he’d been wrong, though he hardly seemed contrite. At one point he said that they’d favored growth over stability, which is what I’d thought all along. Instability favors people with capital, for a lot of reasons, and at the end of every downturn some people are better off, certainly relatively speaking and sometimes absolutely speaking — at least if the economy eventually recovers.
April 12th, 2010 at 12:19 pm
There’s a Heinlein novel where magic has been discovered. The narrator is a building contractor, a very level-headed fellow, who is always having to calculate whether it’s cheaper to hire a crane to lift I-beams to the upper floors or that warlock who levitates stuff but who charges even more than the crane operator.
April 12th, 2010 at 5:19 pm
@13. Evan Harper,
Re: “The decline in American manufacturing employment is largely unrelated to globalization and offshoring; it is the consequence of increased productivity allowing fewer workers to produce more things.”
Huh? What?
I’m sorry, but I cannot agree with this at all. Are you saying that the easy availability of low cost wage environments is unimportant? In a (by historical standards) low tariff world, with good freight capacity, low cost jurisdictions rule manufacturing.
You are disregarding the fact that, had 20th century norms prevailed, the US would have been the king of manufacturing worldwide. Instead that mantle has passed to China. Merely holding on to capacity (I’ll accept your assertion for the sake of argument) is not the standard that matters.
Any industrialist knows this. You must hold or increase your market share. This is the measure of market power. Not whether you produce the same number of tons of steel as you did a half century ago!
This is particularly the case since vast numbers of poor people are moving up into the middle class around the world. Therefore worldwide consumption levels are up and are likely to grow strongly for decades to come.
And where are those upwardly mobile people coming from? Mostly, from the same jurisdictions where manufacturing is migrating to. Much of that wealth is coming from those manufacturing jobs and all the related support and spinoff industries.
April 12th, 2010 at 6:56 pm
[...] I referenced a talk that Peter Thiel gave at the Singularity Summit 2009. In the Q & A I recall that Thiel was [...]
April 13th, 2010 at 4:20 am
” if we just assume a consistently anti-labor policy in both parties”
No kidding. The Republicans want the cheap labor and the Democrats want the votes.
April 13th, 2010 at 10:07 am
Brian, United States manufacturing production has continued to rise since 1980 (the US has the same share of global manufacturing in 2005 as 1980 – 21%). Conventional wisdom is quite wrong on this, there is little data to support the idea that the drop in American manufacturing jobs has anything to do with offshoring.
Courtesy of fivethirtyeight.com:
American production:
http://4.bp.blogspot.com/_4jIlyJ10uJU/S4PWmrc4o-I/AAAAAAAAGGg/A0CB7xzYApw/s1600-h/Industrial+Production.JPG
Employment – Durable:
http://1.bp.blogspot.com/_4jIlyJ10uJU/S4PYHgzVXNI/AAAAAAAAGGw/6jmZsYrR9Rs/s1600-h/Goods+Producing+Industries.JPG
Employment – Non-durable:
http://1.bp.blogspot.com/_4jIlyJ10uJU/S4PYHahWL-I/AAAAAAAAGGo/Maa7g0pQ2tk/s1600-h/Non+Goods+Manufacturing.JPG
Note that production continued to rise after 2000 while labor went off a cliff.
Original 538 post:
http://www.fivethirtyeight.com/2010/02/us-manufacturing-is-not-dead.html