Wrap Up for January 2020

When it comes to high tech giants, how much productivity has been underreported?

"Those who forsake a civil tone may find that later, when they wish to call on others for sober reflection or careful thought, they have done injury to this form of discourse."

Global value chains are likely to change considerably over the next decade.

"2010-20 could show the smallest decade of population growth in U.S. history."

Manufacturing has trended lower for five months.

The average age of startup founders isn't as young as it seems.

There's a big difference between the needs of daily versus occasional transportation.

James Pethokoukis discusses technology with Will Rinehart.

"there have been four waves of debt accumulation over the last fifty years."

Which states benefited most from migration in 2019?

"14% of the top 1% said they had serious problems with health care quality."

When hospitals go bankrupt, "The usual playbook for managing distress doesn't readily apply."

It's one thing to criticize the old free-trade consensus. But how would it be replaced?

The 2010s were a record decade for job creation.

An Independent Institute review of Floored! George Selgin's recent book.

Gregory Mankiw discusses the variance of economic ideas among left and right, with Bill Kristol.

"Eight centuries of global real interest rates" Paul Schmelzing
Quartz also offers some highlights of the paper.

Hero/villain framing is an unfortunate aspect of monetary policy.

"Global debt is rising"

Trade deals have become a lot more complicated.

Low wage automation is occurring at a "much higher rate" outside the largest cities. Plus, it is not being fully offset by gains in work requiring interpersonal tasks.

Five book recommendations on the rule of law.

How can we get an economy in the 2020s which increases the growth trajectory?

An argument for local involvement in environment design.

Regulatory barriers have consequences for housing affordability.

"Her formula would have accurately called every recession since 1970 within two to four months of when it started, with no false positives, which could trigger unnecessary and costly fiscal stimulus."

Inarticulation as a struggle and a challenge.

Why do we penalize jaywalking?

Tim Harford reflects on how economics has changed.

Why have so many of us essentially lost occasions when we could wear really grand clothes in public?

Wealth is all about what you don't spend.

Hopefully, public access to published laws can be restored.

At the very least, some contentious issues are not partisan. However, all is not well in this regard. Scott Sumner also reasons that "As parties become more tribal, they shy away from these non-partisan issues, in fear of alienating members of their own party."

"Anger, after all, is not a desire to fix something but a way of grasping that it is broken."

Miles Kimball highlights Michael Lind's latest book, The New Class War.

Are savers losing patience with negative interest rates?

From Ryan Avent's keynote remarks for a recent Brookings conference.

When some people are put at risk by the complexities of the U.S. healthcare system, the process may permanently alter how they feel about societal responsibility.

Joshua Gans remembers Clay Christensen. also Miles Kimball.

Diane Coyle's Markets, State and People is out this week.

A comparison of four Democratic candidate healthcare plans.

Central banks still have some ammunition to fight a recession. But how much?

Timothy Taylor highlights the inflation puzzle.

Russ Roberts and Daniel Klein discuss honest income.

Even though the frequency of crashes has dropped by 2 to 3 percent since 2015, the cost of crash repairs has risen during that interval by 5 to 6 percent.

How does government subsidized healthcare affect the measure of income?

Samuel Hammond (Niskanen): Three Motivations for "State Capacity Libertarianism" 

Thomas Philippon discusses his new book, How America Gave Up on Free Markets, with James Pethokoukis. Plus, some additional thoughts from Pethokoukis re losses in American competitiveness.

Sometimes, the robots can also master what is non routine.

Will healthcare premiums nearly double in the next 40 years?

"We don't trust them, and would never vote for one of them. Why should they trust or vote for one of us?"

If the Economy and Middle Class are OK, What's Wrong?

Understandably, people hesitate to take seriously the warnings of bearish observers, when the economy appears to be in good shape. What need is there to complain, given the relative ease of finding employment in many environs? That might help explain why a Reason interview with Russ Roberts was simply titled "Economist Russ Roberts Isn't Worried About The Middle Class."

Of course, reality is more nuanced - as is Russ Roberts, who carefully considers the issues presented in his podcasts. Still, who would deny the correlation between today's dynamic economy and the strength of the middle class? Hence for participants in a recent Gallup poll, non economic issues took precedence over those with more obvious economic implications. 25 percent of respondents were specifically concerned about government and poor leadership, while only 11 percent believed economic issues in general to be a higher priority.

Since the economy is strong, and the middle class appears to have little worry in this regard, why are policy makers paying such lip service to its economic problems? (Particularly if the public's real concern is policy makers?) Scott Sumner explains:

Politicians often complain that middle-class Americans are lagging behind because the system is rigged against them. They are right. But the politicians don't tell the entire story. Only a modest part of the rigging is done by big corporations like Facebook, Google, Goldman Sachs and JP Morgan. The biggest problem is various interest groups comprised of middle class people, who rip off the general public.

If we had free markets in health care, dentistry, optometry, fire protection, home building, car retailing, and many other industries, then we could shed enormous numbers of workers from useless activities. These workers could then produce useful output elsewhere, dramatically boosting real GDP and living standards. 

That's a lot of market restrictions! Sumner ruefully adds:

If a politician promised to crack down on doctors, dentists, teachers, firemen, and older homeowners (like me), they'd certainly get my vote. Unfortunately, that's pretty much the only vote they would get. 

He also acknowledges the extent of improved living standards since the seventies, in spite of all that has stood in the way of such gains. Indeed, for higher income levels, ongoing maintenance in existing physical infrastructure will continue to contribute to public health for the foreseeable future. One observes this especially in areas undergoing gentrification, where extensive municipal and related building costs are still feasible to uphold. On the other hand, lower income levels and communities left behind, may suffer more health setbacks in the decades ahead, if physical infrastructure does not benefit from extensive innovation in the years to come. Hopefully, production reform in these areas will eventually bring municipal costs into a more affordable range for millions of citizens and thousands of communities as well.

As things currently stand, aggregate costs for physical infrastructure and vital time based services are accumulating faster than aggregate government revenues. Alas, buried in these costs are the same public/private crony connections which enrich the lives of some middle class individuals, while making it increasingly difficult for other citizens to fully participate in a modern economy.

For me it is somewhat surprising that more people don't see long term economic burdens in a context similar to governmental issues. After all, it won't be long, before the lack of governmental resources in relation to existing obligations, begins to negatively impact pensions and overall governmental ability to tend to a full range of financial obligations. Once this occurs, taking to the streets in protest, may not be as useful a response as one might imagine.

How to think about our inevitable budgetary shortfalls? In many respects they no longer belong to some distant and unimaginable future. Yet there is still ample hope to turn things around if - instead of casting about for blame - citizens become familiar with the underlying economic structural realities which have brought us to this impasse. It would be better for all concerned, if citizens could explore more decentralized and less costly ways to accomplish important tasks at local levels. A structural approach to growing societal burdens, would mean less severe budgetary ramifications, once the days of reckoning become more obvious. Fortunately, we can build new options for sustainable organizational capacity, in both services generation and physical infrastructure. Why not take a no blame approach this time, in doing what needs to be done.

Needed: Flexible Investment for Impermanence

One reason why people in the U.S. don't save enough, is that investment in the form of personal housing tends to be an all or nothing affair. But is that really necessary? And what if better ownership options could take the actual impermanence of many building materials into account? Incremental investment would also mean flexible building components which owners easily combine or dissemble. Owners could keep using components still in good condition, should a single component fail.

Ideally, many components could be simple enough to be maintained by owners, especially since many frugal individuals balk at the cost of hiring specialists to do repair work for them. What would matter most for some mass produced components, is ensuring that plumbing and electrical circuitry are simple enough to no longer need professional attention once they leave the factory. When it comes to living arrangements, in this instance an inexpensive product which is easily disposed of, could prove to be quite a relief.

Nothing about our lives is truly permanent. The paradox however, is that our physical environments tend to be built with an illusion of permanence, even as cost cutting takes place in ways which ultimately require excessive maintenance and renovation. Plumbing and electrical wiring are still being run through buildings, as if there were little worry of pulling the whole mess apart for major repairs at some point. Since many building materials get connected in ways difficult to amend, doing so is not necessarily worthwhile, unless a property is sufficiently valuable to qualify for gentrification. Consequently, communities end up with many dilapidated buildings which have outlived their purpose, yet there is often little incentive to tear them down and start over.

Flexible building components would make it simpler not only to start anew as needed, but also for the simplest possible forms of instant remodels. Such options would make it much easier for aging individuals to retire without excessive home ownership burdens. In particular, flexible components built with plumbing and electrical circuitry as detachable units, could help even lower income levels to better manage financial responsibilities while aging in place.

Many building components could be mass produced in ways which are far more amenable to decentralized ownership options than is currently the case. Given our present lack of ownership flexibility, consider for example what can occur when "temporary" solutions end up as permanent outcomes. Johnny of the blog "Granola Shotgun", explains a style of Russian apartments, and how basic elements of their construction are now common elsewhere, for oddly similar reasons:

These ubiquitous buildings were mass produced from standardized parts by centralized authorities and were duplicated by millions across the Soviet sphere. This was in response to a housing crisis in the mid twentieth century. They were meant to be a temporary stop-gap solution that would last for twenty five years until permanent replacements were formed, but many are still occupied decades later. As is so often the case everywhere, there is nothing more permanent than a temporary solution.

In all this, Johnny notes that he is less bothered by the aesthetics of bulk housing, than by a dependence on either governments or corporations to maintain them over the long run. Indeed, excess regulations regarding how residents might keep these dwellings fully functional, only makes such dependence worse. He adds:

If an aging apartment is in a desirable location and is occupied by a small number of people who are reasonably prosperous, the situation can be quite livable...If too many budget conscious people are packed tight in an identical poorly maintained flat in a crappy part of the metroplex, life can be unbearable. In other words, it's like any place else in the world.

Importantly, public and private entities sometimes arrive at similar destinations, particularly when it comes to mass construction of today's inflexible housing units. The result?

...institutions driven by vertical integration, economies of scale, regulatory compliance, and the demands of physics and engineering. So hold off on touchy feely assumptions about the left or the right. We're observing convergent evolution and constrained maximization at work here.

Johnny's post is an apt reminder, how twentieth century housing can put anyone with limited resource capacity at a real disadvantage when it comes to managing one's life. Just as more flexibility is needed in housing regulation, flexible options are also needed for the physical components of housing and infrastructure in general. Incremental ownership patterns could make it simpler for millions of individuals to build better lives for themselves. Flexible building options could provide more opportunities for low income groups, and also reduce their long term investment risks.

However, there's much more at stake regarding mobility, given uncertainties such as climate change and the evolving nature of our workplaces. By way of example, a productive response to impermanence with flexible building components, could allow people to regain normal functioning much sooner after natural disasters.

Again, mass production isn't the problem. It's when mass production only creates investment in which personal risk assumes an all or nothing dimension. Why not create mass produced components which can be added, subtracted, or reconfigured without need of massive renovation costs? And why not amend them locally with 3D manufacture? Even better for local community dynamism, would be 3D manufacture which puts local plastics to good (additional) use.

Plus, incremental ownership would be a decentralized option which groups could set into motion as needed after natural disasters, instead of waiting for governments to come to their assistance. Fortunately, it is within our power to make peace with impermanence. Doing so would give societies a chance to use many resources more efficiently, as well.

What Potential Does Libertarianism Still Hold?

Has old-style libertarianism bit the dust? Tyler Cowen suspects that changing times have made previous interpretations of libertarianism less relevant, hence debates whether state capacity libertarianism might be its most logical replacement. How to think about this?

In a post titled "(Adjective) Libertarianism", John Cochrane responds. Granted, he agrees with Cowen that many State activities are necessary for obvious reasons. Citizens need states that are capable of performing crucial tasks "competently and effectively".  However,

Libertarianism consists of many different ideas, and is clearly in need of some adjectives.

Cochrane also asks why Cowen assigns most blame to Democrats instead of taking a more bipartisan approach. All too often, we observe how support for individual liberties evaporates among Republicans, should that support become inconvenient for any reason. Cochrane notes some other (minor) differences in perspective, then adds,

While I like the basic idea, I think "State Capacity" is a poor adjective because it isn't that self-explanatory. Libertarians have awful marketing skills, as evidenced by the fact that such demonstrably correct ideas have such little traction.

Still, no other explanatory choices are obvious as a descriptive update. While adjectives such as constitutional, conservative, rule-of-law, empirical, and globalist have their uses, "...adjectives like these just define a set of ideas as antithesis of their opposites."

After considering John Cochrane's reply, I wondered whether "pattern" as an adjective might be useful. For example, what kinds of overall economic patterns either promote or possibly deter economic freedom, depending on how resources are utilized within participating groups? Plus, it's the non tradable sector patterns of our modern economy which now cause so many problems for lower income groups. New non tradable sector patterns could give a more important role to time value in particular. By clarifying resource use patterns and making them more recognizable, citizens could better coordinate resources already at their disposal. Large governments often stumble in this regard, by assuming responsibility for activities which citizens lack the ability to support via resources they can personally manage.

Alas, I found Tyler Cowen's referenced Cato essay from 2007 (in his above linked post) a bit problematic, since he could not visualize libertarian roles for intellectual property. For me, that lack of imagination tends to translate into a lack of libertarian context for applied knowledge at the level of economic freedom. But why should the State bear such responsibility for intellectual property, when doing so creates budgetary discrepancies that only accumulate and leave citizens ever more indebted? What's more, this leave it to the experts approach only further reduces individual rights in what is essentially a knowledge based economy.

Why can't libertarianism help to restore production rights to individuals, instead of leaving the bulk of those privileges to states and experts? Why can't libertarianism take part, in what would ultimately be a reduction of political struggle over excessive subsidies re skilled services? What if libertarians could just be getting started on a brighter future, instead of calling it a day when it comes to individual liberties? If libertarians appear to have somehow gotten cold feet, or are otherwise being disregarded, perhaps it is because some of them have not yet taken seriously, the dramatic transitions of a services dominant economy. Yet libertarians could still meet this challenge, by reducing the dependent market status of time based services, in a quest to make them more direct sources of wealth. Libertarians could take applied economic solution sets more seriously, which would help others take libertarian concepts more seriously as well.

If libertarian ideas are to escape theoretical abstraction, the contexts of economic freedom will need more direct application in the real world - especially for countless communities which don't want to be left behind. Libertarians could encourage economic patterns that create greater freedom for people of all income levels - not just individuals who already enjoy considerable wealth and liberty. Libertarian ideas could become a viable part of future supply and demand for time based services markets. Such an approach to individual liberty would be relevant for millions, who previously might not have imagined libertarianism as a true pragmatic source of greater economic freedom and prosperity.

Exit, Voice, and Skills Arbitrage

What benefit can we expect to gain, if we elect to exit malfunctioning economic circumstance, should it become difficult to express voice or loyalty in these environments? In a recent post, Tim Harford explains that while exit remains an option for citizens in mature economies, many feel more constrained in this regard than was once the case. Hence he asks, "What should we do when things go wrong?"

Typically, we think of exit and voice as complementary. Your complaints will be taken more seriously if you can credibly threaten to leave, as anyone who has called to cancel a mobile phone contract can attest. But sometimes exit can silence voice.

Unfortunately, as Harford also notes, one's ability to exit isn't particularly threatening to political parties, "especially not the hardliners who would rather lose than compromise." Alas, when "extremists are delighted" and "moderates quit in disgust", political paralysis is often the result.

The political nature of exit, voice, and loyalty, tends to affect the market potential of nations as well. For instance, since U.S. healthcare is such a commanding portion of GDP, one can forget these markets were constructed so as to intentionally leave market potential incomplete. Just as politicians lack concern for citizens who choose exit over voice, so too the special interests that prefer human capital requirements to restrict market capacity. Even though much of healthcare market exit is far from obvious, there's one important exception. In recent years stories have emerged regarding people in public places who are clearly in need of emergency care, yet they refuse ambulances and assistance to ensure they do not experience financial difficulties afterward.

Skills arbitrage has become one of the main mechanisms responsible for encouraging market exit. Where once people arbitraged their time for mutual assistance, some are more likely now to arbitrage skill sets in highly specific ways that require extensive human capital investment. However, the time based services markets which have resulted, are not near as efficient as one might expect. As "the best of the best" become the last ones standing in formal assistance roles, more citizens become resigned to abandoning services which they no longer have permission to actively provide for themselves or others.

Again, it also helps to consider skills arbitrage roles in the general equilibrium circumstance of national governments. Large nations in particular struggle to coordinate the skills arbitrage of knowledge providers, since only so much of any nation's wealth can be redirected towards full monetary compensation for human capital.

For purposes of general equilibrium, skills arbitrage has largely cornered value in exchange activities, at least for now. Even so, this need not prevent a reemergence of value in use healthcare in the form of time arbitrage. New organizational capacity could make it feasible for participating groups to build much needed skills, as formal value in use economic settings. Defined equilibrium options could help restore a fuller use of knowledge and skill in society. Even though skills arbitrage sometimes results in extensive market exit, time arbitrage might provide ways to ensure that citizens don't continue exiting healthcare markets - especially in moments when they need them most.