Tag: Economic Growth

Allison Schrager joins Brian Anderson to discuss how risk propels economic growth and why government efforts that go too far to mitigate risk undermine America’s economic vitality.

“Risk, for better and worse,” writes Schrager for City Journal, “is at the heart of economic growth, and successfully apportioning it—not avoiding it—is the key to prosperity.” While government has a role to play in managing risk, the U.S. economy has thrived by trusting markets to allocate it efficiently. Overly intrusive efforts to reduce risk in the economy—such as California’s new law regulating freelance or “gig” work—may prove counterproductive to workers of all incomes.

Contributor Post Created with Sketch. Searching for Infinite Economic Growth


It’s tempting to think some favored policy tweak will produce massively positive economic effects. But that usually isn’t the case. Even big policy changes often produce somewhat muted economic responses. When Congress passed big tax cuts back in 2017, President Trump said he saw “no reason” why economic growth couldn’t accelerate to as high as 6%. Yet growth in the ten quarters since the tax cut has averaged 2.6%, not much better than the 2.3% growth experienced over the previous ten quarters or the 2.5% averaged since 1990.

And that’s OK, writes scientist and policy analyst Vaclav Smil in The Financial Times. The whole economy can’t act like Moore’s Law, such that rapid and constants gains in computing power can be replicated “in other economic sectors and drive decarbonisation of energy, huge food production gains and a fourth industrial revolution.” He notes that “modern economies depend on an enormous range of inputs whose yields, performances and capabilities have been constantly improving; but only at rates an order of magnitude lower than the 30% growth dictated by Moore’s law.”

Contributor Post Created with Sketch. Who Stole Our 3% Economy?


Given Wall Street whispers of a very European 1-handle for second-quarter GDP growth, the Trump White House might well have been pleased with the (preliminary) 2.1% number. Although the economy slowed from Q1’s 3.1% pace, it was “a better-than-anticipated outcome,” according to JPMorgan. Thanks, American consumer! And thanks to American taxpayer, too, since solid government spending also helped.

But no thanks to American business, whose capital spending contracted by 0.6%. Another sign, perhaps, that the Trump trade war is offsetting the Trump tax cuts. (At least that’s JPMorgan’s theory.) While it’s good that the record-long economic expansion continues to roll in year ten, one led by consumer/government spending rather than business investment is not the boom you’re looking for.

Contributor Post Created with Sketch. US Economy Might Be Growing Faster Than We Think


The economics team at Goldman Sachs has made another run at trying to determine whether official statistics are undermeasuring America’s rapidly evolving digital economy. The bank now believes even more strongly that “technological change is not fully reflected in the real output statistics.”

From a bottom-up perspective, there’s all that missing growth from free digital goods. From a top-down perspective, Goldman economists note that the “growth of domestically generated profits and incomes (GDI) is outpacing that of GDP, a departure from earlier decades” and that “US profits generated in tax havens totaled over $300bn in 2018, some of which represents unmeasured domestic production.”

Contributor Post Created with Sketch. Even as the US Economy Produces More Jobs and Higher Wages, Somehow Capitalism Stays Broken. Weird.


Today’s populists overindulge in unwarranted economic nostalgia. For them, the immediate postwar decades were when America was really great. But maybe it’s a more recent period that they should be pining for. If you’re trying to make the case that “capitalism is broken,” then the Great Recession of 2007-2009 was your big moment. Capitalism seemed shattered, not just broken. It looked like this sucker was going down, to paraphrase President George W. Bush.

But then the economy started to recover, slowly but steadily. Indeed, the US expansion hit the 10-year mark this month and is on the verge of its longest-run on record if things stay on track through July. An economy that’s producing gobs of jobs every month — a total of 20 million since 2010 — as it grows year after year is a dodgy example of broken capitalism.

Contributor Post Created with Sketch. The Insatiable Appetite for Dour Data About a Decent Economy


If you look at the national unemployment rate of 3.6% — the lowest in more than 50 years — American capitalism doesn’t appear to be terribly broken. And as the economy has rebounded from the Great Recession and Financial Crisis, real wages continue to rise, especially so for lower-income Americans. Another seeming sign of non-brokenness.

Or to approach things a different way: A recent Federal Reserve survey finds 75% of U.S. adults say they are either “doing okay or living comfortably,” 56% say they are better off than their parents were at the same age (vs. 25% saying “about the same” and 19% “worse off”), and 64% rate their local economic conditions as “good” or “excellent.”

Contributor Post Created with Sketch. Algorithm Finds No “Trump Effect” on the US Economy, at Least Not Yet


So imagine an alternate reality where Hillary Clinton campaigned a bit more vigorously in supposedly safe Big Ten blue states and eked out a narrow Electoral College victory. So, no President Donald Trump. And also no tax cuts, no deregulation, no trade war. How would the US economy — which Trump describes as “stronger than ever before!” —  be performing right now? Or to put it another way: Is there an economic Trump Effect?

Well, not so much, according to “Stable genius: Estimating the ‘Trump effect’ on the US economy” by researchers Benjamin Born, Gernot Müller, Moritz Schularick, and Petr Sedlácek. Their conclusion: “The impact of President Trump on the macroeconomic performance of the US economy has been negligible so far. We measure neither an acceleration of growth nor increased job creation in the US economy relative to an appropriate benchmark.”

Contributor Post Created with Sketch. Maybe the Innovation Boom Is Here, It’s Just Not Evenly Distributed


Check out these two charts from a great Wall Street Journal piece, “The Problem With Innovation: The Biggest Companies Are Hogging All the Gains,” on global productivity growth:

Contributor Post Created with Sketch. Things Are Getting Boomy: The Economy Is Jumping, and Worker Wages Might Soon Follow


I wrote yesterday about the upturn in Wall Street forecasts for second quarter GDP growth. Maybe the first 4% quarter since 2014 (5.2% in Q3). JPMorgan, for example, now estimates “real GDP is expanding at a 4.0% annual rate in Q2, up from our prior estimate of 2.75% and almost twice the 2.2% growth rate experienced in Q1.”

Sounds like welcome news to me.

Contributor Post Created with Sketch. For First Time Ever, US Has More Job Openings Than Unemployed Workers


While the DC press corps worries whether Trump was booed at a White House event and curates elaborate conspiracy theories about Melania, a slightly more important story isn’t getting enough pixels. The economy is doing so well that, for the first time ever, there are now more job openings in the US than unemployed Americans:

With employers struggling to fill openings, the number of available jobs in April rose 1 percent to 6.7 million from 6.6 million in March, the Labor Department said Tuesday. That’s the most since records began in December 2000.

Contributor Post Created with Sketch. The US Remains the World’s Most Competitive Big Economy, By Far


Nearly nine years into an economic expansion, most Americans continue to believe their country is headed in the wrong direction. Now that attitude probably reflects more than just economic perceptions. And even feelings about the economy’s vigor seem influenced by political leanings.

That said, there’s some evidence that economic pessimism is unfounded. There is, of course, the continued expansion. And the American jobs machine keeps generating gobs of jobs, resulting in the lowest unemployment rate since 2000.

Contributor Post Created with Sketch. Jobs Are Booming, and Democrats Are Puzzled


Is it overstating things to say the US economy is, well, booming? After all, the May jobs report was pretty impressive, including a) 223,000 new jobs, b) an uptick in average hourly earnings growth to 2.7% from a year ago, c) a downtick in the jobless rate to 3.8% — at 3.755% unrounded, the lowest since 1969 — and d) a two-tenths decline in the U6 underemployment to 7.6% — its lowest level since 2001. JPMorgan economist Michael Feroli titled his Jobs Friday report this way (while alluding to President Trump’s controversial pre-report tweet): “The secret’s out: job growth is booming.” And some economists think a jobless rate with a two-handle is hardly out of the question.

True, overall economic growth is still stuck in Two Percentland. That’s the other, less-encouraging two-handle. But maybe not for much longer. GDP estimates for the second quarter are rising across Wall Street, and this report may boost that momentum. “Nearly all aspects of this report were positive and consistent with solid growth of wage-and-salary income in the second quarter,” notes the IHS Markit econ team. “The details in this report added one-tenth to our forecast of Q2 GDP growth, which now stands at 4.1%.”

Contributor Post Created with Sketch. A Rescue Plan for America’s Heartland That’s About Work, Not Cutting Checks

Via: The New York Times.

What does America look like to an economist? In the new working paper “Jobs for the Heartland: Place-Based Policies in 21st Century America,” Benjamin Austin, Edward Glaeser, and Lawrence Summers neatly outline the problem of “left behind” places in the US economy (bold by me):

We divide the U.S. into three regions: the prosperous coasts, the western heartland and the eastern heartland, divided based on year of statehood. The coasts have high incomes, but the western heartland also benefits from natural resources and high levels of historical education. America’s social problems, including non-employment, disability, opioid-related deaths and rising mortality, are concentrated in America’s eastern heartland, states from Mississippi to Michigan, generally east of the Mississippi and not on the Atlantic coast. The income and employment gaps between the three regions are not converging, but instead seem to be hardening into semi-permanent examples of economic hysteresis.

Contributor Post Created with Sketch. Another Way Driverless Cars Might Boost Economic Growth


One person can only know so much. And one person can only create relatively simple products on their own. Complex products require networks of people, sometimes called companies, and even networks of networks, such as supply chains. And one way of evaluating an economy is by its ability to create complex products.

In his book, “Why Information Grows,” Cesar Hidalgo writes about economies as “collective computers” whose computational capacity is either expanded or limited by the size of social networks. (I reviewed the book recently.) And the ability to create denser networks is helped or hindered by communication and transportation technology, among other things. All of which came to mind when reading the new working paper “The Role of Transportation Speed in Facilitating High Skilled Teamwork” by Xiaofang Dong, Siqi Zheng, and Matthew Kahn:

Contributor Post Created with Sketch. The Rise and Fall (and Rise?) of American Growth


Northwestern University economist Robert Gordon is one of the foremost tech/productivity/growth pessimists — he might prefer the term “realist” — with his views most fully expressed in his 2016 book “The Rise and Fall of American Growth.” It’s an excellent book. And if you read it and like it, then you might want to check out Gordon’s new NBER working paper, “Why Has Economic Growth Slowed When Innovation Appears to be Accelerating?”

It’s a compelling headline question given the apparent disconnect between economic statistics and what you read in the business media or hear from Silicon Valley. Now Gordon’s answer to that question is what you would expect if you’ve read his book or more generally followed his work. (Indeed, the paper provided a pretty good summary of his thinking.) His claim is that the “great inventions” of the Second Industrial Revolution — including electrification, the internal combustion engine, public sanitation, advances in chemicals and plastic — were really something, especially compared against subsequent waves of progress. These inventions, Gordon writes,

Contributor Post Created with Sketch. The Potential Downside and Upside in Washington’s New Stimulus Experiment


So are we really going to do this? Is the United States, the world’s most important economy, really going to thoughtlessly stumble into a novel experiment in fiscal policy? Massive fiscal stimulus at this point in the business cycle?

Contributor Post Created with Sketch. What’s Been the Economic Impact of Trump’s Deregulation Push?


“Pro-growth” economic policy is about more than just tax reform. Smart deregulation also has the potential to boost growth. Indeed, the Trump administration is counting on deregulation as a key lever for turning a 2% economy into a 3% (or higher) economy. In a report last October, the White House’s Council of Economic Advisers declared that “deregulation will stimulate US GDP growth” and favorably cites research finding that “excessive regulation” suppressed US growth by an average of 0.8% per year since 1980.

Amity Shlaes joins Seth Barron to discuss the competing goals of economic growth and income equality, and to take a look at how American presidents in the twentieth century have approached these issues.

Polls show that support for income redistribution is growing among younger generations of Americans, but such policies have a poor track record of achieving their goals. As Shlaes writes in her feature story in the Winter 2018 Issue of City Journal: “Prioritizing equality over markets and growth hurts markets and growth and, most important, the low earners for whom social-justice advocates claim to fight.”

Contributor Post Created with Sketch. The Healing US Job Market and How We All Forgot About the Great Recession


The January jobs report suggests the nearly nine-year-old economic expansion remains plenty capable of generating solid job growth: 200,000 last month and an average of 192,000 over the past three months. More interesting, it provided fresh evidence that a tightening labor market is also capable of accelerating wage growth. The 0.3% monthly rise in average hourly earnings, following an upwardly-revised 0.4% in December, pushed the 12-month rate up to 2.9%, the highest reading in nearly eight years.

All good enough for Capitol Economics to declare, “the acceleration in average hourly earnings isn’t an outlier.” And JPMorgan thinks it “now looks like the tightness in labor markets is showing through to a gradual acceleration in wage growth.” Indeed, it seems the Wall Street consensus is that before long, we’ll start seeing month-after-month of 3-handle jobless rates. And hopefully even stronger wage growth.

Contributor Post Created with Sketch. The Trump Growth Machine


I discovered my genuine confidence in the sustainability of the current economic growth cycle when I recommended to my 27-year-old Uber driver that he invest some portion of his wages in a diversified index fund. Although the stock market will surely ease off its current pace, it nevertheless should prove far more profitable than standard money market funds with their puny returns. The good news is that the current trend likely will not fizzle out anytime soon thanks to several key factors, including lower taxes and deregulation.

Igniting economic growth, as the Trump administration’s policies are doing, is not as straightforward as it sounds because it is easy to make spectacular mistakes in judgment if caught in the grip of Keynesian economic theory. A day after Barack Obama’s 2008 election, the Dow plunged by almost 500 points. On the day of Trump’s election, the economist Paul Krugman wrote with his legendary overconfidence: “If the question is when markets will recover, a first-pass answer is never.” The Federal Reserve, he added, could not cut rates again to forestall the anticipated recession—and the Trump administration would only make matters worse because it was “ignorant of economic policy.” But the Dow soared by 250 points.