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Yet another group of intriguing PowerPoint slides from tech analyst Mary Meeker of Kleiner Perkins Caufield & Byers. It shows that while Washington continues to battle over Obamacare, the private-sector accepts it as reality and continues to innovate around it and through it. This suggests one path for tweaks/reform is making sure the ACA is as pro-innovation as possible.
You can be an optimist about the long-term direction of technological innovation and still have legit concerns about workers. Once the province of neo-Luddites, the idea of technological unemployment and a potential sharp divergence between the tech savvy and everyone else has gone mainstream among economists, as seen in such books as “Average is Over” and “The Second Machine Age.”
This new from Deutsche Bank:
Technological unemployment. We learned this week that a venture capital firm has appointed an algorithm to its board of directors. So the spread of jobs under threat from technology is widening beyond drones delivering pizza and driverless taxis. Indeed an Oxford University study last year concluded that half of all American jobs have a more than 70 percent chance of being computerised. Occupations that are more than 90 per cent at risk averaged $34,000 in median wages compared with $68,000 for those with less than 10 per cent risk. Of the 700 jobs examined telemarketers and insurance underwriters are most susceptible to automation while recreational therapists and audiologists (who knew?) are among the most secure. Surprisingly clergy was only the forty-second safest calling, but at least it fared better than chief executives who ranked seventieth! No wonder boardrooms are under attack.
And this last year from McKinsey Global:
The biggest challenges for policy makers could involve the effects of technologies that have potentially large effects on employment. By 2025, technologies that raise productivity by automating jobs that are not practical to automate today could be on their way to widespread adoption. Historically, when labor-saving technologies were introduced, new and higher value-adding jobs were created. This usually happens over the long term. However, productivity without the innovation that leads to the creation of higher value-added jobs results in unemployment and economic problems, and some new technologies such as the automation of knowledge work could significantly raise the bar on the skills that workers will need to bring to bear in order to be competitive.
Given the large numbers of jobs that could be affected by technologies such as advanced robotics and automated knowledge work, policy makers should consider the potential consequences of increasing divergence between the fates of highly skilled workers and those with fewer skills. The existing problem of creating a labor force that fits the demands of a high-tech economy will only grow with time.
Politicians, unfortunately, have been slower to consider these scenarios and their implications for economic policy.
It used to be common for the US economy to post a quarter of 4% or faster real GDP growth. In the 1980s (1981-1990), there were 18 such quarters. In the 1990s (1991-2000), another 18 quarters. But in the 53 quarters since then, the US economy has generated only six three-month periods of 4% real GDP growth or faster, including just two during the Not-So-Great Recovery.
To help find out what’s gone wrong and continues to go wrong with the sputtering American Growth Machine, this episode of the Ricochet “Money & Politics Podcast” features a chat with Brink Lindsey, vice president for research at the Cato Institute. At Cato, Lindsey has has written on a wide range of topics including trade policy, globalization, American social and cultural history, and the nature of human capital. His current research focuses on economic growth and the policy barriers that impede it.
There’s a great old Merle Haggard song and it has the lyrics: “Is the best of the free life behind us now, are the good times really over for good?” That song came out in 1982 and there was a lot of pessimism back then, a lot of fear of the US being in permanent decline. Yet over the next 25 years, the US GDP actually grew at 3.4%, which was a little bit slower than the previous 25 years, but it was pretty close. If you would’ve talked to a group of economists back in 1982, I think most of them would not have guessed the US would do as well over the next generation as it did. Now, again, we have a lot of pessimism and, understandably so, we’ve had a really weak recovery from the Great Recession and financial crisis. Do you think the pessimism today is warranted in a way it wasn’t 25 years ago?
I do, but there are a couple of caveats. First, the general one is that predictions are hard and, in particular, predictions about the growth rate hinge on predictions about productivity growth, which is notoriously unpredictable. Secondly, there has been a tendency during prolonged economic slumps to say that this reduced rate of growth is going to be with us for the foreseeable future. During the Great Depression and the 1930s, a group of Keynesians called the secular stagnationists came along and said that with the slow-down in population growth and maturation of the industrial economy, there was just no way that private investment was going to keep growth chugging along at traditional rates and that only massive public investment could cover the shortfall. Then came the post-war boom and no one talked about secular stagnationism anymore.
In the 1970s, during stagflation and the oil shocks, we had all kinds of speculation about limits to growth. And that turned out to be wrong. So, here we are in another slump and we’ve got people saying things like this is the new normal. Most famously, we had Tyler Cowen’s influential book, “The Great Stagnation,” and Bob Gordon, an economist at Northwestern, has written a couple of papers arguing quite aggressively that the era of economic growth that has characterized our lives for the past couple centuries is winding down.
In the current situation, most of the concern about a possible long-term fall-off in growth rates has centered on pessimism about innovation and productivity growth. I don’t share that long-term techno-pessimism. I think the future holds the possibility of enormous and transformative technological advances that could boost our living standard as impressively as any technology that has come before.
However, I think some very basic demographic facts give solid grounds for pessimism about the medium-term growth prospects of the US economy. In particular, there are two one-off changes that occurred in the 20th century, whose momentum is all but spent, both of which constituted real tailwinds for economic growth in the twentieth century. (more…)
I know there are a lot of folks eager to have the Fed start raising rates to, I don’t know, prevent the long-awaited, much-anticipated inflation surge, I guess. Gold! But here is a mystery: even with stocks up and inflation expectations stable, real rates have been falling:
MKM’s Mike Darda thinks the aftermath of the Great Recession might be the culprit:
Low rates tend to be a sign that the demand for risk free liquid assets/money remains high, and consequently, that the Wicksellian equilibrium real rate remains low. … Thus, the Fed should be very careful as it approaches policy firming (rate hikes and/or asset sales). …
In their epic A Monetary History of the United States, Friedman and Schwartz go through several reasons bond yields were very low and money growth was very slow in the immediate aftermath of WWII. Although the Fed was pegging bond yields during and immediately after WWII, F&S note (pages 574-588) that the Fed did not have to increase its securities holdings to keep yields at the targeted levels; indeed, market rates were somewhat below the agreed upon rate pegs after the war, suggesting market forces were holding yields at very low levels and that the Fed could have (but didn’t) sold securities and still have been adhering to the agreed upon pegs.
F&S offer several potential reasons for this peculiarity. First, the soaring deficits of WWII were replaced by budget surpluses (thus, the demand for loanable funds compressed sharply). Second, “a continued fear of a major contraction and a continued belief that prices were destined to fall” on the part of the public, keeping the demand for risk free liquid assets/money from easing more meaningfully. Thus, it didn’t take much actual Fred tightening to trigger the recessions of 1948, 1953, 1957 and 1960 (every downturn in the last century save 1945 was associated with some magnitude of Fed tightening). How does this situation relate to today? … In any case, with so many portfolios/401Ks devastated by the Great Recession and jobless scars still showing, the public’s demand for risk free assets and money may remain elevated for some time to come. We believe investors should keep this in mind as the onset of Fed policy tightening approaches, presumably sometime next year.
View related content: Pethokoukis
“Is Piketty’s “Second Law of Capitalism” Fundamental?” by Per Krusell and Tony Smith (via Tyler Cowen):
In conclusion, Piketty’s “second fundamental law of capitalism” and the central theme of his book—that when growth goes to zero, the capital-income share increases dramatically—appear very diﬃcult to justify, at least in light of our view of how savings decisions are made. These views are based, ﬁrst, on the fact that we ﬁnd a 100% gross saving rate—the implication of Piketty’s model when growth approaches zero—implausible; and, second, on the large empirical literature studying individual consumption behavior.
We also take a ﬁrst look at U.S. postwar data and ﬁnd, roughly speaking, that the optimal-saving model—that is, the model used in the applied microeconomics literature and by Cass and Koopmans in a growth context—seems to ﬁt the data the best, somewhat better than the textbook Solow model. Piketty’s model, on the other hand, does not appear consistent with this data. Equipped with the models we thus deem better capable of describing actual saving behavior, we then revisit Piketty’s main concern: the evolution of inequality in the 21st century.
Using these models as a basis for prediction, we robustly ﬁnd very modest eﬀects of a declining growth rate on the capital-output ratio, and hence on inequality. Thus, we ﬁnd Piketty’s second law quite misleading, and certainly not fundamental; we in fact think that the fundamental causes of wealth inequality are to be found elsewhere.
And by “elsewhere,” they mean factors such as education, technological change, and globalization.
Morris Kleiner, a professor of public affairs at the University of Minnesota, in The New York Times:
In the 1970s, about 10 percent of individuals who worked had to have licenses, but by 2008, almost 30 percent of the work force needed them.
With this explosion of licensing laws has come a national patchwork of stealth regulation that has, among other things, restricted labor markets, innovation and worker mobility. There is a role for government in protecting the public from incompetent or unscrupulous service providers, but there is little reason for math teachers to be relicensed every time they move from one state to another. These requirements put additional burdens on teachers that reduce the ability of good teachers to find work and schools to find good teachers.
Having more flexible reciprocity between states for occupations like teachers would allow these professionals to move to jobs more easily. But even better would be to stop requiring licenses for jobs whose potential harm to the public is minimal, like tour guides, and instead allow for certification. This lesser form of regulation provides a distinction in the eyes of a consumer but does not forbid others from offering the service.
And from the below chart, note that nondefense, nonincome-support, discretionary spending is just 12% of total spending.
View related content: Pethokoukis
In a WSJ commentary, William Galston gives the reform conservative manifesto, “Room to Grow” a thoughtful, measured two-star review. While praising some policy proposals for challenging “conservative orthodoxy,” the work as a whole — a “cautious step,” according to the headline — apparently left him underwhelmed:
… “Room to Grow” represents an effort to reform the Republican Party without taking on the issues that present the largest obstacles to a conservative majority. Although it paints an attractive picture, it colors within the lines. If the economic problems of the middle class are structural, someone will have to think harder. And if immigration is to today’s Republicans as welfare was to the Democrats of the early 1990s, someone will have to go further.
As a contributor to the book, I am obviously biased. To me, a proposal that outlines (a) major reform to health care and education, (b) massive tax relief for middle-class families, (c) big changes to unemployment insurance, (d) revamping financial system regulation and the intellectual property regime, and (e) a grand theory to help explain America’s economic New Normal … well, not too shabby.
Granted, the Mother of All Domestic Policy proposals — apparently what Galston desires — would have also addressed tax and entitlement reform, in addition to immigration. Speaking for myself, such a plan would include a progressive consumption tax, premium-support Medicare reform, and Social Security reform of universal savings account and flat universal benefit. Clearly the book theoretically had room to grow, but it was never meant to be, as Reihan Salam writes, “a comprehensive diagnosis of the challenges facing low- and middle-income U.S. households or of the sources of our labor market challenges.”
And I am not so sure the immigration-welfare analogy is air-tight. I think the GOP’s problem can be summed up right here:
The exit pollsters asked which was the most important candidate quality – vision for the future (29%), shares my values (27%), cares about people like me (21%), and strong leader (18%).
Mitt Romney won three of the four qualities. Voters who selected vision opted for Romney 54%-45%. Those who picked values preferred Romney 55%-42%. Voters focused on strong leadership opted for Romney 61%-38%. Romney lost 18%-81% among voters who said “cares about people like me” to Barack Obama.
The GOP needs an agenda that directly addresses the concerns — health care, education, take-home pay — of the middle-class. Humane, pro-growth immigration is part of that. “Room to Grow” goes a long way to sketching a smart middle-class agenda that moves beyond the narrow “Cut to Grow” fiscal agenda of top income tax rate cuts and balanced budget amendments.
In a plan to be unveiled next week, according to The New York Times, “President Obama will use his executive authority to cut carbon emissions from the nation’s coal-fired power plants by up to 20 percent ….”
This rule, written by the EPA, will “set a national limit on carbon pollution from coal plants [and] allow each state to come up with its own plan to cut emissions based on a menu of options that include adding wind and solar power, energy-efficiency technology and creating or joining state cap-and-trade program.”
Right, there’s a menu of options but it is clear from the story that the easiest path for states likely is the cap-and-trade route where carbon emission permits would be auctioned:
Many states are already researching how to join or replicate the nation’s two existing state-level cap-and-trade plans, both of which bear the signatures of prominent Republicans: Mitt Romney, the 2012 presidential nominee and former Massachusetts governor, and Arnold Schwarzenegger, the former California governor. As governor of Massachusetts, Mr. Romney was a key architect of a cap-and-trade program in nine northeastern states, the Regional Greenhouse Gas Initiative.
So the 2010 battle that national Republicans thought they won looks now looks like an Obama victory at the state level, at least as presented by the newspaper. I would assume, though, that litigation will ensure. Would the rationing scheme raise energy costs in the short-term? That’s the point. The US Chamber of Commerce speculates that the EPA plan “will cost America’s economy over $50 billion a year between now and 2030.” Does it potentially provide ample opportunity for cronyist favoritism? The original Obama plan sure did. On the plus side, higher fossil fuel costs might make nuclear energy–the most viable clean energy source out there–more economically competitive.That was certainly the theory with the Obama plan back in 2009. And US leadership on the issue could cause other nations, particularly China, to follow.