Contributor Post Created with Sketch. How to Get the AI-powered Economy We Want

 

The American economy accelerated nicely in the middle of last year. A Two Percent Economy no more! Well, at least for a bit. Economic growth now seems to be reverting to the humdrum pace seen over most of the post-Financial Crisis recovery. (The Trump White House, it should be noted, sees things more optimistically.) The combo of slower labor force growth and productivity growth means the economy’s growth potential isn’t what it once was.

But maybe artificial intelligence can accelerate economic growth on a sustained basis by boosting productivity growth. In their 2018 paper, “AI and the Economy,” economists Jason Furman and Robert Seamans point out that many experts think “AI and other forms of advanced automation, including robots and sensors, can be thought of as a general purpose technology that enable lots of follow-on innovation that ultimately leads to productivity growth.”

How much more productivity growth? There are plenty of guesstimates. Maybe AI’s impact will be like that of robots, which one study found may have added 0.4 percentage points of annual GDP growth between 1993 and 2007 on average for 17 advanced economies. Or maybe AI will be far more consequential. A 2016 analysis by Accenture found AI could greatly benefit the US economy “increasing its annual growth rate from 2.6 percent to 4.6 percent by 2035, translating to an additional USD $8.3 trillion in gross value-added. Or maybe it will be somewhere in between. A 2014 paper by economists John Fernald of the San Francisco Federal Reserve and Charles Jones of Stanford’s business school noted that AI introduces “a fundamental uncertainty into the future of growth.”

But that “uncertainty” doesn’t mean policymakers have to sit on their hands. In their new working paper “The Wrong Kind of AI? Artificial Intelligence and the Future of Labor Demand,” economists Daron Acemoglu and Pascual Restrepo worry that recent technological change “has been biased towards automation, with insufficient focus on creating new tasks where labor can be productively employed.” Moreover, Acemoglu and Restrepo argue that there are “prima facie reasons for worrying about the wrong kind of AI from an economic point of view” and “rather than undergirding productivity growth, employment, and shared prosperity, rampant automation would contribute to anemic growth and inequality. “

So why the wrong kind of AI, the sort that merely replaces humans rather than enhancing them or giving them new things to do? The researchers consider a number of possibilities, including insufficient public research investment and the lack of “critical complementary inputs” such as the education and training needed to capitalize on the new tasks created by AI. On that latter point:

Another set of factors blocking the path of novel AI applications reinstating labor is that these new technologies might need critical complementary inputs that are not forthcoming. … Educational applications of AI would necessitate new, more flexible skills from teachers (beyond what is available and what is being invested in now), and they would need additional resources to hire more teachers to work with these new AI technologies (after all, that is the point of the new technology, to create new tasks and additional demand for teachers). In the case of healthcare, limited resources are not the problem (the share of national income devoted to health is continuing to grow), but the requisite complementary changes are likely to be organizational. In fact, highlighting other barriers to the use of new technologies to create new tasks, the way that hospitals, insurance companies and the whole medical profession, as represented by the American Medical Association, is organized is likely to be in the way. If empowering, and increasing the productivity of, nurses and technicians is perceived to reduce the demand for the services of doctors or challenge the current business model of hospitals, it will be strenuously resisted.

Along similar lines in the new paper “Digital Abundance and Scarce Genius: Implications for Wages, Interest Rates, and Growth,” Seth Benzell and Erik Brynjolfsson point to the scarcity of highly skilled “superstars” as one factor limiting economic growth from “dramatic advances in digital technologies.” One policy solution would be for government to “focus on increasing the number and productivity of top-percentile workers. This could be done by encouraging high-skill immigration, encouraging creative skills in education or widening access to top universities.”

There are 26 comments.

  1. DrewInWisconsin, Type Monkey Member

    How to Get the AI-powered Economy We Want

    But I don’t want an AI-powered economy.

    • #1
    • April 3, 2019, at 3:55 PM PST
    • 5 likes
  2. David Foster Member

    Not all productivity improvements are about AI, or about IT. One of the greatest productivity improvements of the last 75 years was the freight container. Another was the high-bypass jet engine.

    • #2
    • April 3, 2019, at 4:12 PM PST
    • Like
  3. EtCarter Listener

    I would encourage innovators and creators of foundational value producing tech to not give or sell-out what originally came out of your head and hard work. Several nations famous for stealing or buying the fundamental Intellectual Property have lost the ability to innovate foundational tech. Ironically, the best spy agencies in the last century got the impression they pragmatically saved money on R and D by stealing the tech.

    And, surprise, at least 2 potential major world powers are full of citizens that either have no way (except to come to the US) to become educated enough to innovate and build on innovations that are foundational, and/or, do not know enough re: illegally acquired tech to do much more than use it for short term gain. Yknow,like how some people are great athletes, and have enough knowledge to teach it to others from scratch, and some…not so much. Much less create a university system that can train it’s citizens to create microsoft or apple from stuff they had zero hand in researching and developing from scratch. If the US is smart, it will capitalize on what no other nation does on a regular basis. 

    Reminds me of Bordens line to the kid in “The Prestige” film by Nolan: “Never tell them how ya do it. They will beg you, but the moment you do…your no good to them and your over.”

    • #3
    • April 3, 2019, at 6:03 PM PST
    • 1 like
  4. DonG (skeptic) Coolidge

    James Pethokoukis:

    combo of slower labor force growth and productivity growth means the economy’s growth potential isn’t what it once was.

    But maybe artificial intelligence can accelerate economic growth on a sustained basis by boosting productivity growth.

    First, growth by increasing population does not mean that prosperity is improved, because average or median income could be decreasing. We should focus on the right metric (medium income) rather than the historical metric (GNP/GDP).

    Second, AI has been the promise of the future for 40 years. It has not delivered and I doubt it will in our lifetimes. The majority of our economy is made of things are very resistant to automation because of regulation and bureaucracy. Military, government, healthcare, education are tough areas to crack, which means any breakthroughs are working on the small end of the economy. 

    Next, I think the most promising area is entertainment. AI should be able to make conversation companions (people like to talk), emersive video games, and even real-time movie creation (Alexa, make me movie about a princess and a dragon named “Tommy”…). We’ll spend a lot of time with such things, but there won’t be much increase in medium income. It might even go down as we work less/produce less and indulge more! But that is prosperity that goes unmeasured, isn’t it.

    • #4
    • April 3, 2019, at 6:58 PM PST
    • 1 like
  5. RushBabe49 Thatcher

    What makes you think we want an “AI-powered” economy?

    Just like we want electric cars, and self-driving cars. The Wall Street Journal likes to tout the “future of everything”, but nobody asked us if that future is what we want. Perhaps it is not.

    • #5
    • April 3, 2019, at 7:13 PM PST
    • 5 likes
  6. Hang On Member

    If AI is to advance rapidly, it will be because the military is spending vast sums of money on it and requiring the private sector to deliver. Until and unless that happens, it will be a pipedream.

    The value of AI will be that manufacturing will move back on shore for many technologically sophisticated items which has important national security benefits and economies of scale will no longer be of such importance.

    Daron Acemoglu is one of the few economists who gets things right and he is right about this. Until we as a country get serious about education – with high standards being required – everything will be for naught.

    • #6
    • April 4, 2019, at 6:26 AM PST
    • 1 like
  7. David Foster Member

    Hang On (View Comment):
    If AI is to advance rapidly, it will be because the military is spending vast sums of money on it and requiring the private sector to deliver.

    An example of a partly-military-funded robotics initiative which has vast private-sector implications can be found in the automated sewing system created by an Atlanta company.

    Some funding was obtained from DoD because of the requirement to have uniforms domestically produced.

    Would this have happened without the military funding? Almost certainly, IMO, though it might have taken a little longer.

     

     

     

     

    • #7
    • April 4, 2019, at 6:53 AM PST
    • Like
  8. Old Bathos Member

    I know a lot of people who have worked hard to bring technology into the courts and the practice of law. The barriers to efficiency and productivity increases are features not bugs in the legal system. Paper, seals, legalese boilerplate, the physical space of the courtroom and the other sacred ornamentals that preserve our mystical umbilical link to the forests of Wessex from whence our legal culture sprang still hold sway but their magical authority is waning.

    My old boss was a named partner in the firm who refused to have a PC in his office because (a) keyboards are for secretaries and clerks–lawyers use a Mont Blanc pen and a yellow pad or do dictation; (b) the plastic and wires and lighting from the monitor display clashed with the (almost never used) casebook and treatise arrays on shelves and with the understated yet rich wood and leather tones in a proper law office; (c) computers were an unnecessary intrusion on the practice of law. He died in the 1990s without ever having typed anything,

    Technology has probably increased net income for the profession. The advent of high speed copiers, cheaper mass storage and database technology allows lawyers to make discovery demands for document volumes that would once have been unthinkable, resulting in vastly more billable hours for review.

    Online law libraries mean that there is no longer an advantage in being a large firm with an in-house law library. But the advent of the virtual law firm is held at bay. Prestige and hierarchy still matter.

    LegalZoom and other providers now provide forms and generic information that used to require a lawyer which hurts the bottom rungs of the profession but probably generate additional litigation down the line.

    I can envision significant changes in productivity and structure in the legal profession but because it is largely designed to prevent them from taking place in a hurry, there will be significant delays.

    I suspect that analogous barriers exist in other business and professional contexts which is why there is almost always a lag time for the effects of new technology to emerge fully. 

     

    • #8
    • April 4, 2019, at 7:03 AM PST
    • 2 likes
  9. James Gawron Thatcher

    James Pethokoukis: So why the wrong kind of AI, the sort that merely replaces humans rather than enhancing them or giving them new things to do? The researchers consider a number of possibilities, including insufficient public research investment and the lack of “critical complementary inputs” such as the education and training needed to capitalize on the new tasks created by AI. On that latter point:

    JimP,

    I think this isn’t a matter of right and wrong kinds of AI but a matter of having a much more realistic attitude to AI. The assumption that AI is all powerful and can replace humans with ease is completely false. Two current examples come to mind. First, Musk was pushing for his production quota on the model 3. He had invested massively in AI and expected to reap big rewards. Instead, he couldn’t get his super-automated system to work reliably and was forced to hire humans, a lot of them. Second, the 737 Max was a remake of an older design. Realizing that a new instability was now inherent in the aircraft, Boeing chose to go with AI to overcome the instability. Obviously, the system, even after extensive testing had a flaw.

    What if in both cases instead of gambling the whole farm on pure AI (no humans) a lesser AI approach which enhanced the humans had been implemented. What if in the 737 Max, Boeing had not closed the loop on a totally automated system and provided just an advanced warning system. Then they had linked that to a special additional training regime for 737 Max pilots. What if Musk had from the start assumed that semi-automating the assembly line was a safer way to go. By training his people to interface with the semi-automated line he would have got a much more reliable product and a motivated workforce to boot.

    If you are going to do something by pure AI, you had better damn well be perfect about it. Perfection is a quality that is talked about constantly but rarely achieved.

    Regards,

    Jim

    • #9
    • April 4, 2019, at 8:34 AM PST
    • 3 likes
  10. Mark Camp Member

    Journalist Discovers Economic System That is Even Stupider than Socialism

    Socialism is a system in which central planners decide the ends and means of production.[]

    It is a stupid idea. Economists have long known (for 100 years, next year) it can’t work, even with excellent execution by central planners.

    But at least the idea, each time it is tried (people never stop believing it can) starts with planners who will be in place and working the whole time the system exists, to make the decisions, disastrous as they will be!

    Mr. Pethokoukis has hit on a proposal that makes communism sound like economic genius.

    Why not have a pundit figure out in advance what allocations should be made? He wouldn’t have to be specific. He could just pick a vaguely-defined “technology” (steam power, computers, robots, artificial intelligence, e.g.) and declare that “we” need lots of it. Pick one that is popular and sounds awesome.

    The problem is in the details. These questions are unanswered by proponents of the “new” scheme

    • What exactly is included in this category of miracle capital goods, meaning that “we” must be nudged or forced to produce “more” of than we thought profitable? NPR and US Today magazine have stories and articles using the buzzword, but they don’t provide specs, especially not detailed enough for every producer of goods in the economy, each one of which will need highly tailored instructions.
    • Who are “we”? Will the pundit stick around to tell us, or will we have to set up a planning and enforcement bureaucracy?
    • What exactly is not included, meaning that we need to produce less of it?
      • Obviously, if producers are forced to produce more high-order capital goods (artificial intelligence, say) in a period than there was demand for, then they will have to produce less final consumption goods (less first-order goods). But which ones? 
        • If avocado production is reduced, hipsters will be mad.
        • If avocado production is allowed to meet consumer demand, and American cheese is cut back, then single moms on the dole will be mad.
        • If antibiotics are cut back to keep consumption of cancer treatment goods up, then the people with infectious diseases will be mad.
    • More than what? Once “we”, rather than markets, are determining the right production schedule for the bottles of mystery oil, how can we know what to compare it to, since there won’t be market supply numbers to beat any more?
    • How much should production of the anointed category increase, and according to what time schedule should the increases occur?
    • How much reduction should be nudged (or, ultimately, coerced) in each given period in the category “everything else” (food, medicine, clothing, housing, entertainment) according to what schedule?
    • Who will decide all of these things?
    • #10
    • April 4, 2019, at 8:58 AM PST
    • 2 likes
  11. James Gawron Thatcher

    James Pethokoukis: The American economy accelerated nicely in the middle of last year. A Two Percent Economy no more! Well, at least for a bit. Economic growth now seems to be reverting to the humdrum pace seen over most of the post-Financial Crisis recovery. (The Trump White House, it should be noted, sees things more optimistically.) The combo of slower labor force growth and productivity growth means the economy’s growth potential isn’t what it once was.

    JimP,

    BTW, I think tying this discussion of AI to growth predictions for the economy as a whole is a mistake. The economy under Trump has taken off at 3% not because of some sudden increase in productivity. It has taken off because of a tax cut and a massive change in the regulatory environment. Hyper-regulation and a punishing tax code crush the economy as a whole and are thus huge factors in overall growth projections or should be.

    They said it would be under 2% last year and it came in over 3%. We are going to see the same thing this year. That’s my personal projection. BTW, if it hadn’t been for obstructionist Democrats and a few limp Republicans we would have gone over 4%. That’s also my personal recap.

    Regards,

    Jim

    • #11
    • April 4, 2019, at 10:21 AM PST
    • 2 likes
  12. Joshua Bissey Coolidge

    Naturally, I’m waiting for Common to weigh in on this.

    • #12
    • April 4, 2019, at 12:18 PM PST
    • 1 like
  13. David Foster Member

    James Gawron (View Comment):
    Boeing chose to go with AI to overcome the instability

    I wouldn’t call MCAS ‘AI’…it is a pretty simple algorithm, which although implemented in software could easily have been implemented in hardware instead:

    If flaps-are-up And angle-of-attack exceeds threshold Then

    run trim motor for a defined time to pitch nose Down

    delay several seconds

    repeat the above until AOA is below threshold

    “Stick pushers” have been used for decades on certain aircraft types to take control when stall is imminent: I believe these do use multiple sensors for triggering and ALSO the action is so forceful that the pilot will have little doubt as to what is happening.

    Could an improved warning system have been used on the 737 instead of MCAS? Possibly–maybe consider rate of change in AOS as well as absolute value. But there was a regulatory issue: the FAA does not like stick or yoke forces to *decrease* as the airplane nears stall, whereas it was apparently doing exactly that on the 737 Max prior to MCAS. So a warning-system-only solution would probably have had difficulty in getting certificated.

     

    • #13
    • April 4, 2019, at 1:09 PM PST
    • Like
  14. James Gawron Thatcher

    David Foster (View Comment):

    If flaps-are-up And angle-of-attack exceeds threshold Then

    run trim motor for a defined time to pitch nose Down

    delay several seconds

    repeat the above until AOA is below threshold

    David,

    This is really what I’m talking about. This is assuming that there are very few variables, that nothing can go wrong, that it’s foolproof. Think of weather conditions and different terrain. Major changes in the size and placement of the engines could make the plane much less manageable than a normal design from scratch. Your “repeat the above until AOA is below threshold” loop appears to have driven the plane into a sharp dive that the pilots couldn’t prevent although they were desperately trying.

    This is why I like humans in command.

    Regards,

    Jim

     

    • #14
    • April 4, 2019, at 1:37 PM PST
    • Like
  15. David Foster Member

    I also like humans in command; there have been too many accidents due to humans not being in the loop, or not fully clued in or empowered while in the loop. And it’s not only an aviation issue; see my post Blood on the Tracks for the sad story of Metrorail Train T-111.

    But in the 737 case, I’m not convinced that the automatic-stability-augementation solution was necessarily wrong, IF it had been implemented and documented properly. Earlier 737 models already had “mach trim”, which compensates automatically for the ‘nose tuck’ tendency at high speeds. There are also Yaw Dampers, to compensate for the natural unpleasant fishtailing and Dutch Roll characteristics of swept-wing aircraft.

    Proper implementation, IMO, should have *definitely* included an “AOA Sensor Disagree” annunciation and a dual-sensor requirement for ACAS triggering. The feature should have been documented to pilot’s, along with the aerodynamic characteristics that made it necessary. Also, there should probably be a separate switch to disable ACAS while keeping power available for the normal electric trim…it is unclear to me at this point whether the manual electric trim switch overrides the ACAS, but even if it does, it should be possible to turn the ACAS off and keep it off without losing normal electric trim capability. With these provisions, it seems to be that ACAS would have been / would be safe.

    I’ve seen a lot of commentary (not here) that seemed to imply that autopilot was flying the aircraft in these accidents; this is not correct, in fact, ACAS does not operate when the autopilot is in use.

     

     

    • #15
    • April 4, 2019, at 1:59 PM PST
    • 1 like
  16. James Gawron Thatcher

    David Foster (View Comment):
    But in the 737 case, I’m not convinced that the automatic-stability-augementation solution was necessarily wrong, IF it had been implemented and documented properly. Earlier 737 models already had “mach trim”, which compensates automatically for the ‘nose tuck’ tendency at high speeds. There are also Yaw Dampers, to compensate for the natural unpleasant fishtailing and Dutch Roll characteristics of swept-wing aircraft.

    David,

    I don’t think the solution is categorically wrong either. However, we must have respect for every application individually. Just intoning the magic word AI doesn’t solve anything. Every possibility must be considered even unlikely ones. If we lose a chess game because we missed something subtle then we must accept the ding to our ego and set the pieces back up for another game. If we miss something that’s critical in a control algorithm that might only happen so rarely that the test runs don’t expose it, something very bad might happen when we go into full service.

    That isn’t a reason to curl up into the fetal position and quit. It’s just a word to the wise.

    Regards,

    Jim

    • #16
    • April 4, 2019, at 2:24 PM PST
    • 1 like
  17. James Gawron Thatcher

    David and all,

    Here is the story from the point of view of the pilots. Listen to this all the way through as important information is at the very end.

    Regards,

    Jim

    • #17
    • April 4, 2019, at 5:39 PM PST
    • Like
  18. Fake John/Jane Galt Coolidge

    James Gawron (View Comment):

    James Pethokoukis: The American economy accelerated nicely in the middle of last year. A Two Percent Economy no more! Well, at least for a bit. Economic growth now seems to be reverting to the humdrum pace seen over most of the post-Financial Crisis recovery. (The Trump White House, it should be noted, sees things more optimistically.) The combo of slower labor force growth and productivity growth means the economy’s growth potential isn’t what it once was.

    JimP,

    BTW, I think tying this discussion of AI to growth predictions for the economy as a whole is a mistake. The economy under Trump has taken off at 3% not because of some sudden increase in productivity. It has taken off because of a tax cut and a massive change in the regulatory environment. Hyper-regulation and a punishing tax code crush the economy as a whole and are thus huge factors in overall growth projections or should be.

    They said it would be under 2% last year and it came in over 3%. We are going to see the same thing this year. That’s my personal projection. BTW, if it hadn’t been for obstructionist Democrats and a few limp Republicans we would have gone over 4%. That’s also my personal recap.

    Regards,

    Jim

    The economy took off because capital goes and flows to where it is loved. You can say many things about Trump but the one thing true is he loves capital, thus capital has come out to play with him and the economy races. Imagine how it would race if he could shed his Democrat concrete shoes.

    • #18
    • April 4, 2019, at 6:35 PM PST
    • 1 like
  19. James Gawron Thatcher

    Fake John/Jane Galt (View Comment):
    Imagine how it would race if he could shed his Democrat concrete shoes.

    FJ/JG,

    Oh, how I can imagine it.

    Regards,

    Jim

    • #19
    • April 4, 2019, at 6:43 PM PST
    • 1 like
  20. MACHO GRANDE' (aka - Chri… Coolidge

    DrewInWisconsin (View Comment):

    How to Get the AI-powered Economy We Want

    But I don’t want an AI-powered economy.

    You’ll get what someone else wants, and you’ll like it.

    Sincerely,

    The Government

     

    • #20
    • April 5, 2019, at 3:43 AM PST
    • Like
  21. Mark Camp Member

    James Pethokoukis: The American economy accelerated nicely in the middle of last year.

    This opening statement may contain a false implicit assumption:

    The rates of production of all the sequential production steps, for all the final consumption goods of the American economy, increase or decrease all at once.

    Then “nicely” simply means “faster”: faster for all steps, for all final consumption goods, at once. Or more precisely, they all accelerate at the rate required for the next sequential steps which need their output.

    In fact, the rates of production of the various stages of production for the various final consumption goods are never are the same. For the American economy to be performing a nice rate requires all the steps to be producing at the rate where quantities of goods are produced by one step at the time they are needed by the next step: not too soon and not too late.

    If you are a manufacturing engineer, you understand the importance of this. You must not have one process, like welding, produce input for the next manufacturing area, e.g., painting, before that area is ready to accept more work. Or leave it waiting for work, which slows down the production downstream.

    We can determine whether Mr. Pethokoukis was committing this very common Keynesian fallacy by asking how he knows that

    • the rates of the steps individually all increased nicely, and
    • that all of these increased rates of supply matched the increased demand of the next sequential step.

    Economists use the term “intertemporal coordination” to describe how nicely an economy is doing with respect to the second parameter.

    If the economic data he is using is aggregates of the entire market–unemployment rate, capacity utilization, output– then we know that he has made this common blunder, inherited from Lord Keynes and Karl Marx, and persisting long after their theories, so identified, have been cast into the landfill of failed economic ideas.

    An economy that appears to be “growing” as a unit, simply because an aggregate, or one stage or sector, is doing “nicely”, is not doing nicely at all if that aggregate conceals temporally uncoordinated growth. In fact, it is a sick economy! It is headed for the crisis stage of a credit-generated business cycle. The crisis involves recognition of malinvestment by lenders and then by businesses. The next step is inevitably depression, which involves

    • the abandonment of projects of excessively high order (“order” means “amount of time or number of steps before delivery of final consumption goods”), given the new reduced credit supply and increased business loan interest rate, and
    • the resulting layoffs, bankruptcies, production slowdowns, and plant closures.
    • #21
    • April 5, 2019, at 5:57 AM PST
    • 1 like
  22. James Gawron Thatcher

    Mark Camp (View Comment):

    James Pethokoukis: The American economy accelerated nicely in the middle of last year.

    This opening statement may contain a false implicit assumption:

    The rates of production of all the sequential production steps, for all the final consumption goods of the American economy, increase or decrease all at once.

    Then “nicely” simply means “faster”: faster for all steps, for all final consumption goods, at once. Or more precisely, they all accelerate at the rate required for the next sequential steps which need their output.

    In fact, the rates of production of the various stages of production for the various final consumption goods are never are the same. For the American economy to be performing a nice rate requires all the steps to be producing at the rate where quantities of goods are produced by one step at the time they are needed by the next step: not too soon and not too late.

    If you are a manufacturing engineer, you understand the importance of this. You must not have one process, like welding, produce input for the next manufacturing area, e.g., painting, before that area is ready to accept more work. Or leave it waiting for work, which slows down the production downstream.

    We can determine whether Mr. Pethokoukis was committing this very common Keynesian fallacy by asking how he knows that

    • the rates of the steps individually all increased nicely, and
    • that all of these increased rates of supply matched the increased demand of the next sequential step.

    Economists use the term “intertemporal coordination” to describe how nicely an economy is doing with respect to the second parameter.

    If the economic data he is using is aggregates of the entire market–unemployment rate, capacity utilization, output– then we know that he has made this common blunder, inherited from Lord Keynes and Karl Marx, and persisting long after their theories, so identified, have been cast into the landfill of failed economic ideas.

    An economy that appears to be “growing” as a unit, simply because an aggregate, or one stage or sector, is doing “nicely”, is not doing nicely at all if that aggregate conceals temporally uncoordinated growth. In fact, it is a sick economy! It is headed for the crisis stage of a credit-generated business cycle. The crisis involves recognition of malinvestment by lenders and then by businesses. The next step is inevitably depression, which involves

    • the abandonment of projects of excessively high order (“order” means “amount of time or number of steps before delivery of final consumption goods”), given the new reduced credit supply and increased business loan interest rate, and
    • the resulting layoffs, bankruptcies, production slowdowns, and plant closures.

    Mark,

    Agreed. There can always be bottlenecks in the system. However, short of bribery, hyper-regulatory bottlenecks created by absurd irrational government regulation can’t be circumvented easily by a capital infusion. The kind of bottlenecks that you are talking about should be easy to attack on a purely supply and demand basis if people were conscious of the investment opportunity. There is definitely too much economic reporting on the latest iPhone and trendy etc. More reporting on the fundamental manufacturing of goods and fundamental employment would help. When this is kind of reporting is relentlessly subverted by a shallow new intellectual class that is incapable of critical thinking much less anything strategic, I agree we have a problem.

    Regards,

    Jim

    • #22
    • April 5, 2019, at 7:11 AM PST
    • Like
  23. Mark Camp Member

    James Gawron (View Comment):

    Agreed. There can always be bottlenecks in the system.

    However, short of bribery, hyper-regulatory bottlenecks created by absurd irrational government regulation can’t be circumvented easily by a capital infusion.

    True. Two points:

    • Intertemporal imbalances have the same destabilizing effect whether the cause is bank credit expansion (the one I referred to) or absurd irrational government regulation (the one you did).
    • Not only can capital infusion not circumvent them easily, it can’t circumvent them at all. It can only make them worse than they would have been. Capital infusion in the sense that I think you are using it is the cause of, not a possible cure for, intertemporal mismatch.
      • The “capital infusion” you refer to, I think, involves the net creation of broad money by commercial banks, as the result of central bank action, and its injection into the productive sector at an arbitrary point, in effect unintentionally transferring money from every other sector into the chosen one. We may need to go into just what the unintended effects must be, but I will not do that right now.
      • The cure for malinvestment is always recession, to put it bluntly. Recession is “that which is seen“, as M. Bastiat might say. It is that which is seen by us voters, Mr. Pethokoukis, Mr. Trump, the Fed Board, Lord Keynes, and Herr Marx, because it finally shows up in their beloved aggregate statistics, rusting factories, and angry crowds, the things love to show they are “doing something about.” Doing something, as in “starting the next boom/bust cycle.”

    = = = = = = = =

    The kind of bottlenecks that you are talking about should be easy to attack on a purely supply and demand basis if people were conscious of the investment opportunity.

    Yes.

    • the end of the boom creates investment opportunities. People
      • disinvest in money-losing production of high order goods
      • invest in high profit lower-order goods
    • that starts the recession
    • the last part of the recession creates investment opportunities
      • invest in profitable production of high order goods
    • that ends the recession

    Or, once there is no market economy left, the recessions will end and we’ll have a stable economy, with the Fed turning in great aggregate stats: high saving rate, very low prices, no inflation, and no unemployment. As in the USSR before it collapsed.

    There is definitely too much economic reporting on the latest iPhone and trendy etc. More reporting on the fundamental manufacturing of goods and fundamental employment would help.

    The only reporting system that can collect, consolidate, and distribute the data, and do it almost instantly, almost at no cost, and almost exactly, is a market economy. The messages aren’t aggregate manufacturing and employment stats collected and processed and published by bureaucrats. They are market prices and interest rates.

     

    • #23
    • April 5, 2019, at 9:44 AM PST
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  24. James Gawron Thatcher

    Mark Camp (View Comment):
    The messages aren’t aggregate manufacturing and employment stats collected and processed and published by bureaucrats. They are market prices and interest rates.

    Mark,

    Yes, ultimately that is the only good data that decisions can be made upon. However, a corrupted media (created by a corrupted culture) can distort and create a false investment atmosphere. Overemphasizing the trivial and ignoring the significant.

    Regards,

    Jim

    • #24
    • April 5, 2019, at 10:25 AM PST
    • 1 like
  25. David Foster Member

    Again, it is simplistic to focus exclusively on AI and IT as sources of productivity improvement. I mentioned the importance of the freight container–another good example is Single Minute Exchange of Die, pioneered by Toyota:

    https://en.wikipedia.org/wiki/Single-minute_exchange_of_die

    No software or special hardware involved, just creative human thought.

    Also, from the post: “Seth Benzell and Erik Brynjolfsson point to the scarcity of highly skilled “superstars” as one factor limiting economic growth from “dramatic advances in digital technologies.” One policy solution would be for government to “focus on increasing the number and productivity of top-percentile workers. This could be done by encouraging high-skill immigration, encouraging creative skills in education or widening access to top universities.””

    That scarcity may be *one* factor, but it’s far from the only factor. Having alert, motivated, and intelligent employees in all roles is equally critical.

    Plenty of IT projects have not only failed to improve productivity, they have positively *harmed* it. For example, the case of Target Canada

    • #25
    • April 5, 2019, at 3:58 PM PST
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  26. David Foster Member

    Jim…thanks for the video link, I’ll take a look tonight

    • #26
    • April 5, 2019, at 3:59 PM PST
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