Friday, February 17, 2017

Augmented Capital

What if capital owned the labor instead of the other way around?15-12-05; Dilbert; Capital Owning Labor

In growth theory, it’s called augmented labor, when we invent technology that allows a worker to control/use more capital at the same time. The robot above is capital, and it needs augmenting.

In this comic strip, that might be something like a way for a bunch of humans to nap with a minimal number of robots watching over them. Gee … sort of like a more benevolent vision of The Matrix.

This also illustrates growth and level effects, of technology. If the robots invented a technology that allowed them to control more humans, that would be a level effect that’s good for the robots. But having to deal with all those extra humans needing their nap would be the negative growth effect.

From the December 5, 2015 issue of Dilbert.

Thursday, February 16, 2017

Hans Rosling, R.I.P.

Hans Rosling died last week. He was a Swedish statistician known for his TED talks. I usually include at least one of them in this course, but usually later in the semester.

His stock-in-trade was debunking gloomy stereotypes about poor countries and economic development. There were five surprising facts, for instance, that he loved to hammer home: population growth is slowing rapidly; the divide between the global rich and poor is blurring; humans are living much longer than 50 years ago; many more girls are getting an education; and the number of people in extreme poverty fell by a billion between 1980 and 2013.

That’s from the obituary The Economist. Everyone should know those facts by heart (here’s a more detailed version, with a short video on the first point). It is deeply disturbing the extent to which otherwise normal people think life on this planet is getting worse. The broadest sustained improvement in the human condition has occurred during your lifetime. Denying that is a twisted pasttime that is all too popular. Fight it.

(I’ve been putting together a video answer to Pascal’s question for the class Quodlibet. It uses Lego bricks. I swear I was working on it before I saw this video from the obituary in The Guardian):

(In all honesty, lots of people use Lego bricks to make points about statistics, including my son in a 1st grade science project back in 2006).†

From the obituary in The New York Times, here’s Rosling on the magic that is all around us:

“My mother explained the magic with this machine the very, very first day,” he recalled. “She said: ‘Now Hans, we have loaded the laundry. The machine will make the work. And now we can go to the library.’ Because this is the magic: You load the laundry, and what do you get out of the machine? You get books out of the machines, children’s books. And Mother got time to read to me.”

“Thank you, industrialization,” Dr. Rosling said. “Thank you, steel mill. And thank you, chemical processing industry that gave us time to read books.”

This is Rosling’s most famous video (and also the one I usually require students to watch at home in April) about improved well-being around the world:

There’s also a shorter version of this one that I show in class.

Here’s a similar one, that’s a bit more about improving technology:

Here is a longer one about why we should not worry about overpopulation entitled “Don’t Panic — The Facts About Population”; you do have to view this one through the website of the enterprise he founded, Gapminder.

P.S. Rosling tweeted in 2010 that he’d noticed how average he was statistically back in 1972. Some of you are probably still idealistic, and certain you will turn out nothing like your parents. You probably would not even move the meter on that one when compared to me at your age. But how do things turn out? I have a 14 year old who thinks I’m sooooo old and out-of-touch because I’m 52. And yet in 1978 I was 14, my dad was 52, and I was certain he was sooooo old and out-of-touch. Turning out like your parents in a world with washing machines or Uber is actually pretty sweet.

† I would not differ from Rosling on what’s going to happen to the number of little black disks representing carbon dioxide, but I would question his implicit assumption that they matter much. I’m not an anthropogenic global warming denier; but I will point out that global temperature is really, really, inelastic with respect to carbon dioxide emissions, which in turn are really, really, inelatic with respect to people’s quality of life. That’s a recipe for worrying a lot more about the quality of life of poor people, and for worrying a lot less about temperature. Rosling is on the record agreeing with that conclusion.

Monday, February 13, 2017

Record Tax Revenue

Federal tax revenue over the first 4 months of the 2017 fiscal year† (October through January) set a record.

Big deal.

There are two things to consider here.

First, if tax rates are more or less constant, and income goes up, tax revenue will go up too. So we should not be surprised if tax revenue sets records when GDP is setting records. It’s just not that hard for a growing series.

Second, this is actually a good thing. No one like paying taxes. But if tax revenue is going down, and your policy hasn’t changed, something’s really wrong.

† Do note that this is a politically conservative site. It’s biased. But they’re just reporting numbers that are public information.

Wednesday, February 8, 2017

Unemployment Rate for January 2017

The unemployment rate went up a tad, from 4.7% to 4.8% in January.

This isn’t an official result, but my feeling has always been that no one can feel a change in the unemployment rate sharper than about 0.5%. So I view this uptick as … nothing at all, really.

Here’s the table of rates from the last 10 years:

17-02-08 Unemployment Rate Table Capture

You can see that we’ve been bobbing, mostly downward, through a 0.5% range for over a year.

I think we’re at full employment, or alternatively, near the natural rate of unemployment. That is not a solid number (it depends on demographics, and people’s self-definition of whether or not they’re looking for work or not). I usually assert that it’s like the mucky bottom of a muddy stream — not really very solid but firming up somewhere down there. For me, that’s about the 4-6% range.

You can see that in the two ends of this chart:

17-02-08 Unemployment Rate Chart Capture

Of course, some people might interpret any increase in the unemployment rate as a bad thing (It’s Trump’s fault! or It’s Obama’s fault!). Don’t take that seriously. If you look up in the table in late 2008 and early 2009 you can see that we were getting movements of 0.5% (the amount you can feel) every month or two. That was serious.

You can also see the asymmetry of the unemployment rate in the chart: it goes up faster than it comes down. This is normal. From the same site, here’s a chart of the unemployment rate over the last 70 years or so:

17-02-08 Unemployment Rate Chart 2 Capture

The asymmetry is fairly obvious across the entire period. There isn’t much we can do about that. But we do need to keep it in mind when we use the unemployment rate to evaluate policy: the rate not coming down fast enough in response to, say, Obama’s post-recession policies in 2009, or Bush’s in 2002, or Clinton’s in 1993, or Reagan’s in 1983 is normal and not their fault.

These charts do not mark NBER business cycle peaks and troughs. But, for reference, they were in December 2007 and July 2009 the last time around. Eyeballing the first chart and the table, the peak was still when we were in that soft 4-6% full employment range (although it had snuck up 0.6% since May of that year), and the economy’s trough was about 3 months before the unemployment rate topped out.

All of these tables and charts are from the Bureau of Labor Statistics (BLS) unemployment rate page. They’re site has a lot of slick tools for analyzing their data.

Friday, January 27, 2017

Real GDP Growth for 2016 IV

The advance (first draft) news release comes out the last Friday of the month following the end of the quarter, around 6:30 Eastern time: so, early this morning.

The growth rate for that quarter was 1.9%. Positive, but not good.

Considering the population growth rate in the U.S., I typically assert that we have to exceed 2% to feel good about the economy. So we missed that.

But, this is just a quarter, and we also can’t really feel these things until we string a couple of quarters together.

That’s exactly what we’ve been doing, and that’s why we feel that the economy is underperforming. We did not reach 2% for 2016 as a whole, and we’ve missed that mark a few times over the last decade.

It used to be that real GDP growth for the U.S. averaged about 3.3% per year. But we have not hit that rate since the middle of the second term of Bush II.

In other posts from past years I argued that about half of the shortfall appears to be demographic in nature. The baby boomers are starting to retire in big numbers, and you’ve got to account for subtracting those people out of the labor force. This is because overall real GDP growth comes from the sum of growth of labor, growth of capital, and growth of technology. If the first one is lower, the whole sum will be lower.

The other half is more troublesome though. We seem to not be getting the growth from capital and technology that we should be. Is that because we’re not doing enough with what we’ve got, or is it because there’s something wrong with the capital and technology we have? No one is quite sure.

Now, something like half the country thinks we should blame Obama for this. Fair enough. Everyone is entitled to their opinions, but if we’re being serious about macroeconomics we have to support those opinions. So, an acceptable theory for a macroeconomist that leads to the conclusion that “it’s Obama’s fault” has got to include one or more of the following:

  • We have enough capital but something is discouraging us from using it.
  • We have better technology but something is making us stick with the older and less productive technology.
  • We’re investing in capital, but it isn’t the right capital.
  • We’re creating new technology, but it isn’t that useful.

Justifying any of those positions is tougher.

Wednesday, January 25, 2017

One Opinion About Why Politics and Economics Seems All Goofed Up, Both In America, and In Other Developed Countries

I am mostly posting about this article for the graphs (that I’ve pasted below). The source article itself is not required, but it may interest some of you.†

This is a useful chart (although it’s not really saying too much):

https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.prod-us.s3.amazonaws.com%2F5095fbe2-d348-11e6-9341-7393bb2e1b51?source=next&fit=scale-down&width=600

In the U.S., where we think we’re the center of the world, we sense that the rest of the world is catching up to us … and because we think we’re the center of the world we tend to infer that means we’ve done something wrong or someone else has cheated. This chart shows that, if anything, the U.S. has maintained its share of the world economy over the last 35 years. It’s the EU and Japan that have faltered. Obviously, that’s not what Trump would say. But interestingly, it’s not what Obama would have said either (recall that he readily admitted that he wanted the U.S. to be more like Europe).

This chart is not that useful:

https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.prod-us.s3.amazonaws.com%2F53927fb4-d348-11e6-9341-7393bb2e1b51?source=next&fit=scale-down&width=600

This is an example of a bad chart because the scale is not logged. GDP per capita is one of those series that grows through compounding, so if it’s not logged … beware. The reader will have problems with any comparison made from this chart, but I’ll focus on the U.S. versus Japan. Towards the right, it looks like Japan is close to the U.S., but not that close. So then there’s a tendency to follow the lines to the left and think … oh … Japan is just as far behind as they ever were. But that’s not the case if you think of it terms of multiples: on the left the U.S. GDP per capita is perhaps 5 times Japan’s, but on the right it’s more like 1.3 times as big. That means Japan has improved a ton over the 65 years shown.

It’s worse if you’re focused on China. How accurate is your estimate of how much bigger America’s GDP per capita is than China’s on the left of the graph: that could be 10 to 1, or even 20 to 1. Who knows, right? That innaccuracy arises because this data isn’t logged.

It’s also very trendy to focus on income inequality. In the U.S., we think about this through the filter of Democrats and Republicans, and just having had 8 years of Obama, and a recession and financial crisis that has been largely blamed on “the rich”. Fair enough. But at this level, we need to go look at data, and here’s a chart of the primary measure of income inequality:

https://www.ft.com/__origami/service/image/v2/images/raw/http%3A%2F%2Fcom.ft.imagepublish.prod-us.s3.amazonaws.com%2F5496348c-d348-11e6-9341-7393bb2e1b51?source=next&fit=scale-down&width=600

The most striking feature of this is that inequality has gone up in every single one of the developed countries shown here. So any explanation of that must focus on something global rather than national. This means that this Democratic/Republican thing that we have going on in this country — that mean Republicans are taking all the money — just can’t be right. One might argue that this is due to increasing political conservatism around the globe. I’m not going to go into the details, but I’ll warn you not to go there: the data doesn’t support that either.

More broadly, in social sciences, we call explanations like that political one “just-so stories” after the Kipling children’s book. They’re too easy to explain, and not thoughtful enough. Macroeconomists have to deal with a lot of those.

So, for income inequality, we need a story that works in all the richer countries without referencing which party is in power at a particular time. Macroeconomists don’t have great answers for this question yet, but we’re looking at whether the sort of technological advances we’ve seen over the last few decades lead to uneven gains in income. For example, if having Facebook is a good thing, we might have to put up with Mark Zuckerberg getting rich from it.

Stretching further, another possibility that I’ll consider in more posts later in the semester, is that increasing inequality in richer countries is related to decreasing inequality across all countries. One of the weird things about these debates is that while we’re all concered about local inequality within our country, globally, the inequality between countries is much larger. But now we run into a moral issue: global inequality is a bigger problem but it’s improved drastically, yet we’re focused on local inequality (which has gotten worse) even though it’s a smaller problem. That’s twisted. An explanation that ties the economics together is that perhaps the trade that’s making the poor richer globally is more tightly linked to the rich rather than the poor in developed countries. There’s some evidence to support that; but this bugs people because it means that policies to beat up the rich in developed countries to help the local poor are hurting the more numerous and worse off global poor.

These are drawn from an article from Financial Times entitled “Martin Wolf: The long and painful journey to world disorder”. Martin Wolf writes a regular column about economics; his stuff is generally well-informed, so if you see his name outside of class consider paying more attention.

† The source article is from Financial Times, a British newspaper similar to The Wall Street Journal. Typically, Financial Times requires a registration to view articles. I recommend that you go ahead and do that. Of all the publications I read/view, the Financial Times is the one that seems to have never, ever, done something I don’t like with my personal information, or sent me spam.

OPTIONAL: Tyler Cowen Thinks We Should Wake Up to the Misdirection

Is Trump playing liberals for fools?
Maybe.
Trump specializes in lower-status lies … The lie needs to be understood as more than just the lie.
… Long-term credibility does not need to be maintained. Once we get past blaming Trump for various misdeeds, it’s worth taking a moment to admit we should be scared he might be right about that.
… The Trump administration trusts neither its own appointees nor its own supporters, and is creating a situation where that lack of trust is reciprocal. That is of all things a strategy for getting things done …
Yikes.
This is just Tyler’s opinion, but he thinks on way more levels than I do.

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OOPS! You do not have to read this post.

I use one software (OpenLiveWriter) to write blog posts for multiple blogs. Above the line is a post I wrote for, and did post to, my non-academic blog voluntaryXchange. But I also clicked the button to post it here too. Unfortunately, it's 2017, and with social media, once something gets posted, it's hard to undo, and easier to just apologize. So ... sorry about this.

You're welcome to go read that blog if you like, but it isn't required. If I really want you to read something it's here on the class blog.

Please note that this post is paired with the one that immediately precedes it on that blog. So, if you do read this, go read this other one too. I'm not pro-Trump, but I'm trying to figure out how this is all going to pan out. I'm warming to the viewpoint that if he's crazy, he's "crazy like a fox"