EUCOM Economic Analysis - Part I

[Firn]

I noticed his monopoly power point, but it's a subset of power asymmetries, and not the same I meant. He doesn't appear to mean the labour market with his remark.

I felt he did. In any case the important point is the supposed trend and what might cause it. As usually I'm rather guarded and like it when there seems to be a strong effort to look at the scientific 'problem' from different angles without jumping too quickly to a conclusion. One can too easily fool oneself.

[Surferbeetle]

Is US economic growth over? Faltering innovation confronts the six headwinds, CEPR Insight # 63, Robert J Gordon, Northwestern University and CEPR, http://www.cepr.org/pubs/PolicyInsig...yInsight63.pdf

The prospects for future long-run US economic growth were already dismal in 2007 but were little noticed in the continuing euphoria over the invention of the internet and the related 1. developments in information technology and communications (ICT). This Policy Paper pulls back from the past five years of financial crisis to pose a question with implications that will persist for decades even if the current international economic disorder is eventually resolved.

Robert J. Gordon, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Robert_J._Gordon

In an economy not so far, far away, By Izabella Kaminska, December 27, 2012 8:00 pm, Financial Times, www.ft.com

Imagine a time when all undesirable work is done by automated systems or robots. What would it mean? Would there be a financial crisis? What would happen to labour and capital?

These are some of the deeper questions economists are asking when not preoccupied by short-term worries about the fiscal cliff, a Chinese slowdown or the eurozone.

Innovation Crisis or Financial Crisis? Kenneth Rogoff, Project Syndicate, http://www.project-syndicate.org/com...kenneth-rogoff

Is Growth Over? Paul Krugman, NYT Blog, http://krugman.blogs.nytimes.com/201...s-growth-over/

Gordon argues, rightly in my view, that we’ve really had three industrial revolutions so far, each based on a different cluster of technologies:

The analysis in my paper links periods of slow and rapid growth to the timing of the three industrial revolutions:

IR #1 (steam, railroads) from 1750 to 1830;
IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and
IR #3 (computers, the web, mobile phones) from 1960 to present.

Gordon then argues that IR#2 was by far the most dramatic, which again seems right. Think of the America shown in Lincoln, which is a society shaped by industrial revolution 1 but not yet transformed by IR #2. It was a society in which you could travel much further and faster than ever before — but when you got to your destination, it was still a horse-drawn society in which most people still lived on farms and cities were cruder and dirtier than we can easily imagine. By the 1920s, however, urban America was already recognizably a modern society.

What Gordon then does is suggest that IR #3 has already mostly run its course, that all our mobile devices and all that are new and fun but not that fundamental. It’s good to have someone questioning the tech euphoria; but I’ve been looking into technology issues a lot lately, and I’m pretty sure he’s wrong, that the IT revolution has only begun to have its impact.

A decisive year for ‘deglobalisation’, Howard Davies, December 23, 2012, Financial Times, www.ft.com

The quarter-century leading up to the financial crisis saw a remarkable leap in globalisation. In particular, cross-border financial flows grew rapidly. Western investors piled into China and the other Brics. The new phenomenon of south-north flows emerged, as sovereign wealth funds from Asia and the Middle East acquired developed economy assets on a massive scale. But the fastest growth was in cross-border bank lending, much of it intermediated in London. Citibank’s ambition was to be seen on street corners from Manhattan to Manama; HSBC proudly told us, every time we got off a plane, that it was “the world’s local bank”.

Since the crisis that last trend has gone into reverse: cross-border lending has fallen sharply and the ambitions of major American and European banks have been scaled back. HSBC has withdrawn from a number of countries; Citibank and Barclay’s have other preoccupations. The continental European banks are struggling to strengthen their capital bases, and emerging market assets have been realised to bolster the parents’ balance sheets.

So are we entering a new age of financial deglobalisation? If so, should we care?

Globalization, From Wikipedia, the free encyclopedia,http://en.wikipedia.org/wiki/Globalization

In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions, capital and investment movements, migration and movement of people and the dissemination of knowledge.[7]

[Fuchs]

I’ve been looking into technology issues a lot lately, and I’m pretty sure he’s wrong, that the IT revolution has only begun to have its impact.

Sometimes he doesn't sound like a macroeconomist.

There's a model about how inflation-corrected growth happens.
The four ingredients on the macro (aggregate) level are
(1) labour
(2) capital
(3) natural resources (exploitation thereof)
(4) technology

whereas "technology" (technological progress) is the "leftover" that explains away all the growth (or shrinking) that happens after the other factors were appraised.

Technological progress is a pointless model variable for very detailed or short-term analysis, but it makes a lot of sense when you talk about decades.

I wonder why he didn't prefer to stick to technological progress instead of diving into micro here. This macro variable tells a story of a declining rate of growth, for technological progress shrinks by 0.1 to 0.2 percent points per decade. At this pace, we would run out of technological progress in about three to six generations.

[Surferbeetle]

Sometimes he doesn't sound like a macroeconomist.

To my eyes, he is a Nobelist and public intellectual who has been able to use technology to engage and educate civil society in a long overdue discussion regarding economic policy (which of course impacts us all). Now if only our elected officials would follow his lead - do their job, take the time to try and understand what is going on and actually formulate & operationalize functional policy that meets the needs of the majority of their democratic constituency.

I am going to dig into this a bit, for my own edification mainly as I am assuming much of what follows is familiar to you.

In his macroeconomic work, as I understand it, he is characterized as new-keynesian...part of a school that attempts to bridge the gap between macroeconomics and microeconomics by also examining imperfect competition (to include monopolies and oligopolies traditionally examined by microeconomists) and wage & price stickiness (using advanced models such as DSGEs - Smet-Wouters in the case of the ECB) in addition to the traditional macroeconomic concerns of national income, output, consumption, unemployment, inflation, savings, investment, international trade, international finance, etc.

• Home / Nobel Prizes / Prize in Economic Sciences / Paul Krugman - Prize Lecture: The Increasing Returns Revolution in Trade and Geography, http://www.nobelprize.org/nobel_priz...n-lecture.html
  
• The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008, Paul Krugman, “for his analysis of trade patterns and location of economic activity”, http://www.nobelprize.org/nobel_priz...lguide_eco.pdf
  
• The Conscience of a Liberal, http://krugman.blogs.nytimes.com
  
• Paul Krugman, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Paul_Krugman
  
• Macroeconomics, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Macroeconomics
  
• Microeconomics, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Microeconomics
  
• New Keynesian economics, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/New_Keynesian_economics
  
• Microfoundations, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Microfoundations
  
• Dynamic stochastic general equilibrium, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Dynamic...al_equilibrium
  
• ECB, Smets-Wouters (2003) Model, http://www.ecb.int/home/html/researcher_swm.en.html
  
• General equilibrium theory, From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/General_equilibrium
  
  

There's a model about how inflation-corrected growth happens.
The four ingredients on the macro (aggregate) level are
(1) labour
(2) capital
(3) natural resources (exploitation thereof)
(4) technology

I am assuming that you are referring to the Nobelist Dr. Robert Solow and his Solow–Swan growth model (intellectual progeny of the Harrod–Domar model)?

whereas "technology" (technological progress) is the "leftover" that explains away all the growth (or shrinking) that happens after the other factors were appraised.

Technological progress is a pointless model variable for very detailed or short-term analysis, but it makes a lot of sense when you talk about decades.

I wonder why he didn't prefer to stick to technological progress instead of diving into micro here. This macro variable tells a story of a declining rate of growth, for technological progress shrinks by 0.1 to 0.2 percent points per decade. At this pace, we would run out of technological progress in about three to six generations.

The links to Dr. Krugman, and others, which I provided upthread and in this post are part of a discussion regarding factors impacting growth sparked by Dr. Gordon's recent paper. Dr. Gordon, broadly, seems to be reprising Rev Thomas Robert Malthus' argument regarding limits to growth. Dr. Krugman, Dr. Rogoff, and others find his argument interesting, but, dispute his conclusions.

By definition exogenous inputs, such as 'technology' (industrial revolutions as opposed to x-inefficiency or technical efficiency - output produced with given inputs), are difficult to predict.

My read is that Dr. Krugman is referring to technology in the sense of an unpredictable exogenous input as opposed to the more narrow macroeconomic definition examined by Dr. Solow.

So...do you see a pull back in globalization as part of the explanation of the current global malaise? Overreach by the oligarchy?

The Quiet Coup, By Dr Simon Johnson (Former IMF Chief Economist), May 2009, The Atlantic, http://www.theatlantic.com/magazine/...t-coup/307364/

[Fuchs]

You seem to have misunderstood something.
The technological progress I mentioned is vastly more general, not more narrowly defined than 'better machines'.

The introduction of timestamps to reduce absentee rates would contribute to it, for example. Also legislative changes affecting productivity. Nice weather in a given year. Even higher world market prices for crops contribute to it (minus their effect on domestic inflation).

It's so general that so many factors are placed in this leftover aggregate that it's useless in the short term.

Nevertheless, it's great for long-term analysis.
It makes sense to calculate the rate of this technological progress of the 60's, 70's, 80's, 90's and 00's. This is the terrain of Kondratieff's long waves and seems to be exactly the same terrain as the stuff I replied to.


To use the technological progress variable I referred to may appear to be an excessive aggregation, but the topic is about technological progress caused over decades and in more than even only the entire Western world. You need a huge aggregation to match this. You cannot investigate the productivity effects of individual tools or technologies in many years and in many countries in parallel. There aren't enough man-years available for such an approach.
Look at the technological progress variable (relatively easy to get) for the G7 countries instead.

[Surferbeetle]

You seem to have misunderstood something.

Ok

Let's look

The technological progress I mentioned is vastly more general, not more narrowly defined than 'better machines'.

I suggest that we have a continuum of definition here ranging from industrial revolutions/exogenous inputs to better machines/technological progress. I think that we might be at different places along that continuum with our respective definitions.

The introduction of timestamps to reduce absentee rates would contribute to it, for example.

I see this example as a 'better machine', i.e. management controls

Also legislative changes affecting productivity.

'Better machine', i.e. policy controls.

Nice weather in a given year.

Unpredictable exogenous input - 'act of god'

Even higher world market prices for crops contribute to it (minus their effect on domestic inflation).

Mixture....'act of god' plus 'better machine' - farming techniques

It's so general that so many factors are placed in this leftover aggregate that it's useless in the short term.

Going to my point that exogenous inputs are unpredictable and thus difficult to model.

Nevertheless, it's great for long-term analysis.
It makes sense to calculate the rate of this technological progress of the 60's, 70's, 80's, 90's and 00's. This is the terrain of Kondratieff's long waves and seems to be exactly the same terrain as the stuff I replied to.

I would classify this as being able to be modeled, and, thus defined as 'better machine'

To use the technological progress variable I referred to may appear to be an excessive aggregation, but the topic is about technological progress caused over decades and in more than even only the entire Western world. You need a huge aggregation to match this. You cannot investigate the productivity effects of individual tools or technologies in many years and in many countries in parallel. There aren't enough man-years available for such an approach.

Look at the technological progress variable (relatively easy to get) for the G7 countries instead.

Although I am not currently aware of any papers, I wonder how long until 'big data'/cheap computing power/huge databases will sufficiently expand modeling frontiers in order to help tighten the definitions used when discussing this topic...components of economic growth...exogenous inputs vs technological progress.

I would offer Thomas Savery's work (invention of the steam engine) as an exogenous input/industrial revolution and James Watt's work as an example of a technological progress/better machine. Similarly for electricity Ben Franklin (arguable considering the recent rediscovery of the Baghdad Battery) for the exogenous input and Nikola Tesla and Thomas Edison for technological progress. Finally Alan Turing's work for the exogenous input and Steve Jobs for the technological progress description with respect to computing.

When thinking about this topic I contrast the often qualitative answers provided by economics with the quantitative answers provided by science & engineering. Although exogenous inputs are an example of a nonlinear stochastic process, IMO economics still has a ways to travel yet before it can provide satisfactory answers to the questions we pose.

[Surferbeetle]

Are there significant western governance failures in designing, gaining acceptance, and implementing changes to the social contract? Would this lead to measurable (peer reviewed) social instability? A global estimate of 60 year olds has risen from 200 million in 1950, to 760 million in 2009, and is projected to hit 2 billion people by 2050. Youth unemployment & underemployment - if nothing else - detracts from the ability to care for the 60+ demographic by reducing the amount of time to gain & hone skills and fund, via taxation, a portion of the costs the 60+ cohort has not saved for (or subjected to pension shortfalls). It would seem to follow that taxation rates would need to at least meet a transparent cost breakout of items of social value that a democratic society has agreed to fund (rule of law, education, infrastructure, vulnerable demographic cohorts, security, etc). Are there examples of western governance directly engaging the population at large in a substantive discussion regarding these topics? Switzerland perhaps?

WEF Global Risks Report, 2012, http://www3.weforum.org/docs/WEF_Glo...eport_2012.pdf

Restoring Fiscal Equilibrium in the United States, by William R. Cline, Peterson Institute for International Economics, June 2012, http://www.petersoninstitute.org/pub...esearchID=2144

How the [US] Tax Burden Has Changed [1980-2010], NYT Graphic, 29 Nov 2012, http://www.nytimes.com/interactive/2...ax-burden.html