The US Productivity Slowdown After 2005 [feedly]

The US Productivity Slowdown After 2005
https://conversableeconomist.blogspot.com/2021/04/the-us-productivity-slowdown-after-2005.html

 -- via my feedly newsfeed

In the long run, a rising standard of living is all about productivity growth. When the average person in a country produces more per hour worked, then it becomes possible for the average person to consume more per hour worked. Yes, there is a meaningful and necessary role for redistribution to the needy. But the main reason why societies get rich is by redistributing more: rather, societies are able to redistribute more because rising productivity expands the size of the overall pie. 

In the latest issue of the Monthly Labor Review from the US Bureau of Labor Statistics, Shawn Sprague provides an overview in "The U.S. productivity slowdown: an economy-wide and industry-level analysis" (April 2021). In particular, he is focused on the slowdown in US productivity growth since 2005, after a resurgence of productivity growth in the previous decade. Here's a figure showing the longer-run patterns, which have birthed roughly a jillion research papers. 

Notice that total productivity growth is robust in the decades after World War II, from 1948 to 1973. Then there is a productivity slowdown, especially severe in the stagflationary 1970s, but continuing through the 1980s and into the 1990s. There's a productivity surge from 1997 to 2005, commonly attributed to acceleration in the power and deployment of computing and information technology. But just when it seemed as if the economy might be moving back to a higher sustained rate of productivity growth, then starting around 2005, productivity sagged back to the levels of the slowdown in the 1970s and 1980s. 

The figure also shows how economists break down sources of economic growth. First look at how much the quality of the labor force has improved, as measured by education and experience. Then look at how much capital the average worker is using on the job. After calculating how much productivity growth can be explained by those two factors, what is left over is called "multifactor productivity growth." This is often interpreted as changes in technology--broadly understood to include not just new inventions but all the ways that production can be improved. But as the economist Moses Abramowitz said years ago, measuring multifactor productivity growth as what is left over, after accounting for other factors, means that productivity growth is "the measure of our ignorance."

As Sprague points out, variations in multifactor productivity growth are the biggest part of changes in productivity over time. 

The deceleration in MFP growth—the largest contributor to the slowdown—explains 65 percent of the slowdown relative to the speedup period; it also explains 79 percent of the sluggishness relative to the long-term historical average rate. The massive deceleration in MFP growth is also emblematic of a broader phenomenon shown in figure 2. We can see that throughout the historical period since WWII, the majority of the variation in labor productivity growth from one period to the next was from underlying variation in MFP growth, rather than from the other two components.

However, the most recent slowdown in productivity also seems to have something to do with capital investment. Sprague again: 

At the same time, in addition to the notable variation in MFP growth during the recent periods, something unprecedented about these recent periods was the additional contribution from variation in the contribution of capital intensity. The contribution of capital intensity had previously remained within a relatively small range (0.7 percent to 1.0 percent) during the first five decades of post-WWII periods, but then in the 1997–2005 period, the measure nearly doubled, from 0.7 percent up to 1.3 percent, followed by nearly halving to 0.7 percent in the 2005–18 period. ... The contribution of capital intensity accounts for 34 percent of the labor productivity slowdown relative to the speedup period and explains 25 percent of the sluggishness relative to the long-term historical average rate.

What are some possible explanations for the growth slowdown? As Sprague writes: [N]not only has the productivity slowdown been one of the most consequential economic phenomena of the last two decades, but it also represents the most profound economic mystery during this time ..." Sprague does a detailed breakdown of economy-wide factors that may have contributed to the productivity slowdown as well as industry-specific factors. Here, I'll just mention some of the main themes. 

A first set of explanations focus on the Great Recession, and the sluggish recovery afterwards. One can argue, for example, that when the financial sector is in turmoil and an economy is growing slowly, firms have less ability and less incentive to raise capital for productivity gains. This seems plausible, and surely has some truth in it, but it also has some weak spots. For example, the productivity slowdown in the data pretty clearly starts a few years before the Great Recession. Also, one might argue that in difficult times, firms might have more incentive to seek out productivity gains. Finally, it feels like a circular argument to ask "why aren't additional inputs producing output gains as large as before?" and then to answer "because the output gains were not as large as before." 

A second explanation is that productivity gains at the frontier have not actually slowed down: instead, what has slowed down is the rate at which these gains are diffusing to the rest of the economy. From this point of view, the real news is a wider dispersion in productivity growth within industries, as productivity laggards fall farther behind leaders (for discussion, see here and here). At a more detailed level, "not many of the firms that have been innovating have not similarly been able to scale up and hire more employees commensurate with their improved productivity." It could also be that there are certain characteristics of productivity growth leaders--like an ability to apply leading-edge information technology to business processes throughout the company--that are especially hard for productivity laggards to follow. This lack of reallocation in the economy toward high-productivity firms may be related to other prominent issues like a decrease in levels of competition in certain industries or rising inequality. 

A third explanation is that the productivity surge from 1997-2005 should be be viewed as a one-time anomalous event, and what's happening here is a long-term slowdown in the rate of productivity growth. Sprague writes: 

One underlying rationale for this potential story is provided by Joseph A. Tainter. This author offers that, in general, as complexity in a society increases following initial waves of innovation, further innovations become increasingly costly because of diminishing returns. As a result, productivity growth eventually succumbs and recedes below its once torrid pace: "As easier questions are resolved, science moves inevitably to more complex research areas and to larger, costlier organizations," clarifying that "exponential growth in the size and costliness of science, in fact, is necessary simply to maintain a constant rate of progress." Nicholas Bloom, Charles I. Jones, John Van Reenen, and Michael Webb offer supporting evidence for this view regarding the United States, asserting that given that the number of researchers has risen exponentially over the last century—increasing by 23 times since 1930—it is apparent that producing innovations has become substantially more costly during this period.

Again, this explanation has some plausibility. But it also feels as if the modern economy does have a substantial number of innovations,  and the puzzle is why they aren't showing up in the productivity statistics.

A fourth set of explanations digs down into which industries showed the biggest falls in productivity after 1995 and which ones showed the biggest rises. Here's an illustrative figure. The industries with the biggest losses are computers/electronics products, along with retail and wholesale trade. 

This selection of industries may feel counterintuitive, but remember that this is a comparison between two time periods. Thus, the figure isn't saying that productivity outright declined in these sectors--only that the gain after 2005 was slower than the gain in the pre-2005 decade. In computers, for example, rate of decline in  prices of microprocessors began to slow down in the mid-2000s. Similarly, retail and wholesale businesses underwent a huge change in the late 1990s and early 2000s that increased their productivity, but then the changes after that time were more modest.  In short, this is the detailed version industry-level version of the argument that the productivity rise from 1997-2005 was a one-time blip.

A final explanation, not really discussed by Sprague, is worth considering as well: Perhaps we are entering an economy where certain kinds of gains in output are not well-reflected in measured GDP gains. For example, imagine that the development of COVID-19 vaccines halts the virus. The social welfare gains from such vaccines are much larger than just the measured gains to GDP. Or imagine that a set of innovations makes it possible to reduce carbon emissions in a way that reduces the risk of climate change. From a social welfare perspective, this avoided risk would be a huge benefit, but it wouldn't necessarily show up in the form of a more rapidly expanding GDP. 

Or consider the range of online activities now available: entertainment, social, health, education, retail, working-away-from-the-office. Add in the services that are available at no direct financial cost, like email, software, shared websites, cloud storage, and so on. It seems plausible to me that the social benefits from this expanding set of options are much greater than how they are measured in GDP terms--for example, by how much I pay for my home internet service or how much ad revenue is taken in by companies like Google and Facebook. 

Again, this thesis has some plausibility. One never wants to fall into the trap of thinking that output as measured by GDP is also a measure of social welfare. It's well-known that GDP measures money spent on health care and money spent on environmental protection, but will have troubles measuring gains in actual health or the environment. GDP will often have a hard time measuring gains in variety and flexibility as well.  

But this set of explanations also raises issues of its own. It suggests that people may be experiencing gains in their standard of living that are not reflected in their paychecks. In contrast, when productivity gains in terms of output per worker slow down, we are talking about output as measured by what is bought and sold in the economy. In short, gains in measured productivity are what can help to produce pay raises. But if these other kinds of gains are meaningful, they can't be used to pay your rent or your taxes.  

Lower unionization over the last 40 years decreased wages by 7.9% [feedly]

Lower unionization over the last 40 years decreased wages by 7.9%
https://www.epi.org/blog/lower-unionization-decreased-wages/

The suppression of collective bargaining over the last four decades has ushered in a new era of inequality—one that impacts all workers, not just union members.

In 1979, 27.0% of workers were covered by union contracts. By 2019, that number had dropped to 11.6%. New research finds that this single factor dragged down the typical full-time workers' wages by over $3,000/year.

Read the report:

The enormous impact of eroded collective bargaining on wages

 -- via my feedly newsfeed

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Fwd: 🎉 Dean Baker just shared "Patents and the Pandemic: Can We Learn Anything? " for patrons only

---------- Forwarded message ---------
From: Patreon <bingo@patreon.com>
Date: Sun, Apr 11, 2021, 7:18 PM
Subject: 🎉 Dean Baker just shared "Patents and the Pandemic: Can We Learn Anything? " for patrons only
To: John Case <jcase4218@gmail.com>

Dean Baker Patents and the Pandemic: Can We Learn Anything? I realize that I may seem obsessed with the topic of patents (and copyrights), but it really is a big deal, and few people seem to appreciate the issue in its larger economic context. I have written about the inefficiency and corruption associated with these monopolies for decades, but if there was ever a time when public attention should be focused on reforming the system, it is now. With the pandemic costing millions of lives around the world, and costing our economies trillions in lost output, we really should be asking whether the current system serves us well in producing vaccines, tests, and treatments. Incredibly, public debate is so dominated by the pharmaceutical industry and its allies, we are primarily seeing celebration of the system's dubious claims to success, rather than discussions of the way in which system was and is failing us in addressing the pandemic. We also should be discussing the lessons for possible alternatives. Starting with the failures, while we should all be glad that we now have several effective vaccines, which a large percentage of the U.S. population has now received, the fact is that only a small portion of the world's population has been vaccinated. In Latin America less than one percent of the population has been vaccinated and in Sub Saharan Africa the figure is less than one percent. The enormous gap in vaccination rates is important not only because of the unfairness of the world's poor being left behind, but because of the risk the situation poses to the whole world. If the pandemic is allowed to spread unchecked through the developing world it is certain that we will see more mutations. It is very possible that some of these mutations may be more contagious and/or more deadly, and more resistant to our current crop of vaccines. The last possibility should make us very worried. The makers of the mRNA vaccines are confident that they will be able to tweak their current vaccines to protect against new variants. That may prove to be true, but even if it is the case we would still be looking at a disastrous scenario. In a best case scenario we would still be looking at many months where a new variant was spreading across the country, while we wait for a new vaccine to be tested and then produced in mass quantities. We would then need to distribute and administer hundreds of millions of shots. In the mean time we would be looking at more sickness, death, and economic shutdowns. Given the enormous costs associated with a vaccine resistant strain, we should be doing everything possible to get the whole world vaccinated as quickly possible. We clearly are not going this route, as the U.S. and other wealthy countries insist on maintaining patent protections, as well as doing nothing to ensure that the technologies needed to manufacture vaccines are made widely available, instead of being kept as industrial secrets. The Vaccines as a Dubious Success of Patent Monopoly Financing There have been numerous efforts to point to the mRNA vaccines developed by Pfizer and Moderna as great successes of our system of patent monopoly financing of drug research. These celebrations are bizarre because so much of the research that led up to these vaccines was done on the taxpayer's tab, through funding by the National Institutes of Health (NIH) and other government agencies. Earlier this month New York Times ran a pieceon Katalin Kariko, one the heroes in the development of mRNA technology, who spent her career going from lab to lab, where she was supported by government grants. According to the piece, she never made more than $60,000 a year. This was the sort of work that created the basis for the developments of the vaccines shortly after the pandemic was recognized. The scientists at both Moderna and Pfizer (actually its German partner BioNtech) have boasted about how they were able to develop the vaccines now being distributed in a matter of days after getting the genome for the coronavirus. These companies claim that this success was only possible because of years of prior research. That claim is true, but most of the key research was on the taxpayers' dime, not out of the pockets of these companies. In short, telling the story of the mRNA vaccines as a tale of a successful patent system is a serious rewrite of history. This is a story where two companies stand to make tens of billions in profits off of decades of publicly funded research, while putting relatively little of their own money at risk. In fact, if there is a tale to be told about the development of vaccines in response to the pandemic, it is how public funding can provide an enormous impetus to medical progress. In addition to the years in which the NIH supported the development of mRNA technology, we had the one-time influx of $10 billion in public funding through Operation Warp Speed (OWS). While this is a substantial sum, it is just 11 percent of the $90 billion that the industry reports spending on research each year. This means that, if we think that a dollar of public funding is equal to a dollar of private funding in its impact, then we should have expected OWS to have roughly one tenth of the impact on medical progress as the industry's annual spending. From we have seen to date, this public spending could quite possibly have an impact that is ten times as large as the industry's annual $90 billion in spending. In addition to helping to quickly develop vaccines against the coronavirus, it looks at though it is also leading to spinoffs results that could result in effective vaccines against Malaria, AIDS, and possibly other diseases. And, we must remember that only a portion of the $10 billion from OWS went to developing vaccines. Much of the funding went to developing treatments and tests. Even this picture understates the potential benefits from publicly funded research. There was little concern from the Trump administration about sharing findings. If publicly funded research was fully open-source, researchers could build more quickly on each other's successes and failures. There would also be the benefit that the cost of research itself is inflated by patent monopolies, due to the fact that many of the tools researchers must use are themselves protected by patents. As a result of patent protection, these tools sell at prices that are many thousand percent above the free market price. Additional Benefits of Publicly Funded Research In addition to the likelihood that research would advance more quickly if it were fully open, we would also have the advantage that we would take away the perverse incentives created by patent monopolies. When a drug or vaccines can sell for many thousand percent above the free market price to a government-granted monopoly, we give companies an enormous incentive to lie about the safety and effectiveness of their products. We saw this most dramatically with the opioid crisis. The leading manufacturers of the new generation of opioids paid billions in settlements based on the allegation that they deliberately misled doctors about the addictiveness of the new generation of opioids, in order to maximize sales. They would have had little incentive to push their drugs so aggressively, if they had been selling as cheap generics. We have seen the same sort of issue in the pandemic, where all the drug companies have been less fully transparent in sharing their clinical trial data. Most notably Astra Zeneca was accusedof cherry-picking results to inflate the reported effectiveness of its vaccine. More recently, the company insisted that there was no issue with its vaccines causing blood clots, even though a number of young healthy people got blood clots, many of them fatal, shortly after receiving its vaccine. If the people managing clinical trials and overseeing a vaccine's safety record had no incentive to misrepresent evidence, then we should see many fewer cases of deliberate lying. Anyone who believes that people respond to incentives has to accept this fact. Patents and copyright monopolies are also a big part of the story of inequality. Bill Gates is the poster child on this one. Gates is one of the world's richest people because the government will arrest anyone who uses software developed by Microsoft without its permission. Without government-granted patent and copyright monopolies, Mr. Gates would probably still be working for a living. But we are also getting a lesson on the inequality story in front of our faces in the pandemic. The shareholders and top scientists at Moderna, Pfizer, and the other leading manufacturers stand to make billions that will come out of the pockets of the rest of us. The amount of money transferred to the drug industry alonethrough patent monopolies and related protections is close to $400 billion a year. This comes to more than $5,000 a year for a family of four. People would have a lot more money in their pocket if drugs sold for ten or twenty dollars a prescription, instead of hundreds or thousands of dollars. When economists claim that technology is the cause of the growth in inequality over the last four decades, they actually mean that patent and copyright monopolies are the cause. These government-granted monopolies are what allowed a relatively small group of people to get a grossly disproportionate share of the benefits of new technologies. It wasn't the fault of the software or mRNA. Finally, it is important that we recognize that the rents created by patent and copyright monopolies are implicit forms of government debt. With the passage of President Biden's recovery plan and his newly proposed infrastructure package, we have seen the deficit hawks return in force, warning about the burden the debt will be placing on our children. The argument is that they will have to pay higher taxes to service the debt created by current and future deficits. While I have mocked this argument numerous times, if anyone wants to take debt service burdens seriously, they have to also include the higher prices that our children will pay for drugs, medical equipment, software and other items due to the patent and copyright monopolies that we are currently granting. It makes zero sense to claim that a tax on these, or other items, to cover debt service is a burden, but paying higher prices due to patent or copyright monopoly is not. Unfortunately, no one expects the people who lead our policy debates to be consistent, so the debt whiners literally never have to comment on the burdens of patent and copyright monopolies. Can We Get to a Patent Free World? To my view, there is no economic policy that is worse in its outcomes than our system of patent monopoly financing for prescription drugs. Yet, the question of alternatives almost never comes up in policy discussions. (My scheme is in chapter 5 of Rigged [it's free].) It is encouraging that there are politically plausible proposals to limit drug prices in the United States, comparable to the limits that already exist in Europe, Canada, and elsewhere. However, as we know, intellectuals have a hard time dealing with new ideas. Even though having public funding of biomedical research is not new, in public debates, it is treated like an alien concept. Corruption and inertia are very powerful forces in public policy, but we can still hope. View on Patreon Get the Patreon app Patreon Inc. 600 Townsend St, San Francisco, CA 94103 This email was sent to jcase4218@gmail.com Manage email settings

The $50 billion race to save America’s renters from eviction [feedly]

The $50 billion race to save America's renters from eviction
https://www.washingtonpost.com/business/2021/04/08/biden-renters-cdc-eviction-moratorium/?utm_source=feedly&utm_medium=referral&utm_campaign=wp_business

The Biden administration again extended a federal moratorium on evictions last week, but conflicting court rulings on whether the ban is legal, plus the difficulty of rolling out nearly $50 billion in federal aid, means the country's reckoning with its eviction crisis may come sooner than expected.

The year-old federal moratorium — which has now been extended through June 30 — has probably kept hundreds of thousands or millions of people from being evicted from their apartments and homes. More than 10 million Americans are behind on rent, according to Moody's, easily topping the 7 million who lost their homes to foreclosure in the 2008 housing bust.

Despite the unprecedented federal effort to protect tenants, landlords have been chipping away at the moratorium in court. Six lawsuits have made their way before federal judges — with three ruling in support of the ban and three calling it illegal.

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The opposition started when landlords in Texas sued in the fall, arguing that the Centers for Disease Control and Prevention had overstepped its bounds in implementing the ban. Apartment owners argued in their complaint that they built and maintained apartment buildings "with the reasonable expectation that they would be legally permitted to realize the benefit of their bargain by collecting monthly rent from their tenants."

District Judge J. Campbell Barker agreed. "Although the COVID-19 pandemic persists, so does the Constitution," he wrote.

The National Association of Home Builders joined Ohio landlords in another suit. The judge in that case, J. Philip Calabrese, also ruled against the ban, writing March 10 that "the CDC's orders exceeded the statutory authority Congress gave the agency."

Treasury Department officials have been armed with nearly $50 billion in emergency aid for renters who have fallen behind, and are racing to distribute it through hundreds of state, local and tribal housing agencies, some of which have not created programs yet.

The idea is to get the money to renters before courts nationwide begin processing evictions again.

"We are running the Emergency Rental Assistance Program every day like we're going to lose the moratorium tomorrow," said a Treasury Department official, who spoke on the condition of anonymity to discuss the program before any formal announcements.

The moratorium was not overly controversial at first and it has received bipartisan support from lawmakers. It was formed when President Donald Trump and Congress directed the CDC to create a form tenants can use to declare that they cannot pay rent because of the pandemic and that they have been unable to secure other housing. Filing the form generally halts eviction proceedings.

But that was a year ago, which is a long time to go without collecting rent, especially for landlords who own smaller properties and are increasingly facing debts they cannot pay.

This isn't a concern for the vast majority of owners of high-end apartments catering to professionals, because their tenants can work from home and are far less likely to be unemployed. But it can amount to a financial catastrophe for companies housing low- and moderate-income workers, many of whom were laid off from service and tourism industries and have not been required to pay rent for a year.

"Those who have fallen behind in their rent are among the most vulnerable members of society: more likely to be unemployed, with less income and less education," experts from Moody's wrote in January.

Evictions continue in Virginia despite CDC order extension

As months of unpaid rent dragged on, landlords began filing suits nationwide asking judges to strike down the ban. Three have now ruled against it.

The rulings in Texas and Ohio did not include injunctions removing the CDC's ban, and the Justice Department is appealing. Dozens of state and local bans remain in place as well.

But days after the Ohio judge's order came a more concrete ruling against the moratorium, when District Judge Mark Norris in Tennessee ruled that extending the ban had been illegal. He issued an order saying the moratorium was "unenforceable in the Western District of Tennessee."

Advocates say this is the first ruling that may carry severe consequences for thousands of people. More than 19 percent of renters in Tennessee are behind on rent, according to Moody's. Norris's district includes Memphis, where landlords have filed more than 13,000 eviction notices in the past year, according to Princeton University's Eviction Lab.

Memphis may be a test case for what the impact will be when the moratorium expires nationwide with eviction filings piled up in courts.

"Tenants in Western Tennessee are at immediate risk," said Diane Yentel, president and chief executive of the National Low Income Housing Coalition.

Although the CDC ban remains in place, and other judges have upheld it, for Justice Department lawyers, it looks like an increasingly difficult game of whack-a-mole, with each adverse ruling chipping away at the moratorium's protections. The National Association of Home Builders now argues that the CDC ban should not apply to any of its 1,700 or so members, some of whom own thousands of units.

Tenants are already increasingly subject to the rules of their local jurisdictions, as some have halted eviction proceedings altogether while others allow landlords to file eviction papers or to complete evictions for reasons unrelated to the coronavirus pandemic.

Landlords also are instituting very different policies from one another, as some are aggressively filing eviction notices against tenants even where local courts are not processing cases, said Jim Baker, an advocate. His group, the Private Equity Stakeholder Project, has reviewed thousands of eviction filings nationwide.

"We have seen dramatically different polices from different landlords," Baker said. He said some appear to be targeting apartment communities predominantly populated by racial minorities, a disparity the Eviction Lab documented.

Baker also found a motion filed as part of an eviction case in Florida in which a landlord's attorney cited a decision in West Texas, arguing that the CDC ban had been deemed "an unconstitutional overreach into the general police power retained by the states," even though it did not include an injunction.

Banning evictions is not the only strategy for preventing them. Some states and municipalities have provided subsidies to renters who have fallen behind, to prevent them from being evicted.

These policies carry an additional benefit by putting money in landlords' pockets, keeping smaller companies solvent and ideally making all landlords less eager to evict tenants. Bankruptcy filings among real estate companies have significantly increased over previous years.

So tenants' advocates and apartment company lobbyists alike celebrated when the federal government approved about $46.5 billion in emergency rental aid to be distributed to renters and landlords through hundreds of state, local and tribal housing agencies and organizations.

But quickly and efficiently disbursing so much money is no straightforward task. Yentel said recently that only about half the states have created a program to do so. Some landlords have begun saying they won't accept the money out of concern that too many strings are attached.

The Treasury Department has not yet released data on the emergency rental aid program, one of a number of stimulus initiatives deploying unprecedented sums of money.

The U.S. government approved trillions in aid. Many hard-hit families have yet to receive it.

"I see progress and that is heartening, but that doesn't get us to take our feet off the gas," said the treasury official.

Part of the effort is to assure landlords that they should participate in the program, regardless of how they feel about the moratorium, so they can collect unpaid rent. Landlords should also benefit from payments renters make after receiving money from Congress's $1.9 trillion stimulus package.

"Are there landlords that don't want to take the money? I am sure there are. But we are really working hard to build that confidence among landlords so that they confidently come in and participate in this program," the official added.

If the money gets to the tenants and landlords who need it before the ban ends, the onslaught of evictions may be avoided. But given the legal rulings so far, no one can say when the ban will end.

 -- via my feedly newsfeed