A Tale of Two Speeches [feedly]

A Tale of Two Speeches
http://www.epi.org/blog/a-tale-of-two-speeches/

This post originally appeared in Democracy.

This election will be different, not only because of the stark departure of Donald Trump's candidacy from any usual political convention, but also because the current economic debate is unlike any in recent memory. This was further elucidated by the plans each candidate laid out in Michigan this week. It is noteworthy, first of all, that both candidates have joined in calling for greater infrastructure spending, have abandoned the traditional approach toward trade and opposed the Trans-Pacific Partnership (TPP), have proposed subsidizing child care expenses, have highlighted wage stagnation, and have each claimed to be able to provide faster economic growth than the other.

It would be pointless, however, to delve into precise policy details without first commenting on the disturbing nature of the Trump candidacy. Among the least of his campaign's problems is that it fails to elaborate on any of its positions or provide any kind of science or data, that would allow a proper assessment of its proposals. Trump has offered many broad ideas about taxes, but the details are strikingly few. Similarly, Trump's budget plans just don't add up: He wants more military spending, more infrastructure spending, and no cuts to Medicare or Social Security, along with huge tax cuts—all while claiming he would still move toward a balanced budget. Of course, most problematic is Trump's bigotry and misogyny, and the egregious character flaws he displays almost daily: authoritarianism, dishonesty, volatility, and a lack of compassion.

But setting all that aside for the moment…

The inherent contradictions in Trump's rhetoric highlight the fact that the major, traditional divide between the parties is still present in this election. While the GOP candidate claims to offer more growth, he is, in reality, seemingly unconcerned about distributional questions (despite his claims to the contrary). Trump's growth agenda comes straight from the classic Republican or Chamber of Commerce playbook: tax cuts for corporations and the wealthy, along with deregulation of the economy, and a laissez-faire energy plan. Some populist. We know this will not actually generate better growth because it has failed to do so for the last four decades—otherwise, we would remember George W. Bush for the economic boom he created with his deep income, capital gains, and dividend tax cuts. We also know that growth, in and of itself, has not been associated with rising wages for most workers; these traditional GOP policies will, evidently, provide neither economic growth nor wage gains for the vast majority of workers.

Clinton, meanwhile, made it clear that she is actually both pro-growth and in favor of greater economic fairness. Clinton's plan is based, firstly, on job creation—through investments in infrastructure, help for small businesses, and "new market tax credits" to create jobs in high unemployment communities. In the past, she has also made it clear that she supports maintaining low interest rates and changing the composition of key Federal Reserve Board positions to ensure greater diversity, and make sure less bank industry insiders are represented—which would hopefully mean a stronger commitment to job growth. She has also promised to subsidize her proposed investments by making business and the wealthy pay their fair share of taxes. (Trump actually calls for even larger expenditures, claiming he will borrow to do so, which is actually a better approach than Clinton's. But it is difficult to take this stance seriously given that it is not embedded within any coherent budget plan.)

Clinton also promises a range of worker-friendly policies. She's called for stronger collective bargaining, higher minimum wages, equal pay for women, stronger overtime protections, and so on. And I've personally appreciated her emphasis on the essential role of strong unions for all workers. This is at the heart of Clinton's "fairness" agenda, and is critical for ensuring that growth actually yields results for the majority. Trump, on the other hand, is mostly silent on labor policy—though he's positioned himself on the opposite end of the spectrum with his endorsement of right-to-work laws, while he has taken every position imaginable on the minimum wage. His stance opposing any new form of regulation also contradicts all notions that he will foster fairness in his economic agenda.

Clinton took the opportunity on Thursday to challenge Trump, particularly on trade, pointing out that his bluster will not provide better policy results. Clinton highlighted a more vigorous trade enforcement plan, reiterated her opposition to the TPP ("I oppose it now, I'll oppose it after the election, and I'll oppose it as President"), and emphasized the need to address currency manipulation. It is refreshing that both candidates have departed so vigorously from the policies of corporate America and of Presidents Reagan, Bush, Clinton, W. Bush, and even Obama.

For example, on Monday, when Trump announced his support for a large income tax deduction for child care expenses, he was, at the very least, furthering the major debate regarding how to help working people balance both work and family. This will be the first time the major parties' candidates have focused on this issue. It should be noted that Trump's policy would not actually help the bottom forty-five percent who pay no income taxes and cannot benefit from more deductions—his plan is really geared toward the needs of high-income families. Clinton's plan, on the other hand, would limit child care costs to 10 percent of income and provide support to all families.

Restraining the incomes of the top 1 percent is essential for facilitating wage and income growth for all. Clinton's tax policies, along with her plans to further restrict Wall Street, would be an important step toward doing so. Trump would simply shovel more money to those at the top and further deregulate Wall Street. Despite his populist rhetoric, his policy proposals stand little chance of translating into any tangible gains for those Americans in need of a truly fairer economy.

 -- via my feedly newsfeed

Dani Rodrik: The False Economic Promise of Global Governance

I have to confess that Rodrik's argument below is a compelling rebuke to my own leanings toward "global governance" as the "only remedy" for the perils of globalization. My take: the requirement to perfect democracy at home -- the more perfect union -- cannot be bypassed. The interaction of interests will tend over the long run to enforce this code: Good will beget good, on yourself, and others. Bad will beget bad, on  yourself, and others.

The False Economic Promise of Global Governance

CAMBRIDGE – Global governance is the mantra of our era's elite. The surge in cross-border flows of goods, services, capital, and information produced by technological innovation and market liberalization has made the world's countries too interconnected, their argument goes, for any country to be able to solve its economic problems on its own. We need global rules, global agreements, global institutions.

This claim is so widely accepted today that challenging it may seem like arguing that the sun revolves around the earth. Yet what may be true for truly global problems such as climate change or health pandemics is not true when it comes to most economic issues. Contrary to what we often hear, the world economy is not a global commons. Global governance can do only limited good – and it occasionally does some damage. 

What makes, say, climate change a problem that requires global cooperation is that the planet has a single climate system. It makes no difference where greenhouse gases are emitted. So national restrictions on carbon emissions provide no or little benefit at home.

By contrast, good economic policies – including openness – benefit the domestic economy first and foremost, and the price of bad economic policies is primarily paid domestically as well. Individual countries' economic fortunes are determined largely by what happens at home rather than abroad. If economic openness is desirable, it is because such policies are in a country's own self-interest – not because it helps others. Openness and other good policies that contribute to economic stability worldwide rely on self-interest, not on global spirit.

Sometimes domestic economic advantage comes at the expense of other countries. This is the case of so-called beggar-thy-neighbor policies. The purest illustration occurs when a dominant supplier of a natural resource, such as oil, restricts supply on world markets to drive up world prices. The exporter's gain is the rest of the world's loss.

A similar mechanism underpins "optimum tariffs," whereby a large country manipulates its terms of trade by placing restrictions on its imports. In such instances, there is a clear argument for global rules that limit or prohibit the use of such policies.

But the vast majority of the issues in world trade and finance that preoccupy policymakers are not of this kind. Consider, for example, Europe's agricultural subsidies and ban on genetically modified organisms, the abuse of antidumping rules in the United States, or inadequate protection of investors' rights in developing countries. These are essentially "beggar thyself" policies. Their economic costs are borne primarily at home, even though they may produce adverse effects for others as well.

For example, economists generally agree that agricultural subsidies are inefficient and that the benefits to European farmers come at large costs to everyone else in Europe, in the form of high prices, high taxes, or both. Such policies are deployed not to extract advantages from other countries, but because other competing domestic objectives – distributional, administrative, or related to public health – dominate economy-wide motives.

The same is true of poor banking regulations or macroeconomic policies that aggravate the business cycle and generate financial instability. As the 2008 global financial crisis showed, the implications beyond a country's own borders can be momentous. But if US regulators fell asleep on the job, it was not because their economy benefited while everyone else paid the price. The US economy was among those that suffered most.

Perhaps the biggest policy letdown of our day is the failure of governments in advanced democracies to address rising inequality. This, too, has its roots in domestic politics – financial and business elites' grip on the policymaking process and the narratives they have spun about the limits of redistributive policies.

To be sure, global tax havens are an example of beggar-thy-neighbor policies. But powerful countries such as the US and European Union members could have done much on their own to limit tax evasion – and the race to the bottom in corporate taxation – if they so desired.

So the problems of our day have little to do with a lack of global cooperation. They are domestic in nature and cannot be fixed by rule making through international institutions, which are easily overwhelmed by the same vested interests that undermine domestic policy. Too often, global governance is another name for the pursuit of these interests' global agenda, which is why it ends up mainly furthering globalization and harmonizing domestic economic policies.

An alternative agenda for global governance would focus on improving how democracies function at home, without prejudging what the policy outputs ought to be. This would be a democracy-enhancing rather than globalization-enhancing model of global governance.

What I have in mind is the creation of global norms and procedural requirements designed to enhance the quality of domestic policymaking. Global disciplines pertaining to transparency, broad representation, accountability, and use of scientific or economic evidence in domestic proceedings – without constraining the end result – are examples of such requirements.

Global institutions already use disciplines of this type to some extent. For example, the World Trade Organization's Agreement on Application of Sanitary and Phytosanitary Measures (the SPS Agreement) explicitly requires the use of scientific evidence when health concerns are at issue for imported goods. Procedural rules of this kind can be used much more extensively and to greater effect to improve domestic decision-making.


Problems rooted in failures of domestic deliberation can be solved only through improved democratic decision-making. Global governance can make only a very limited contribution here – and only if it focuses on enhancing domestic decision-making rather than constraining it. Otherwise, the goal of global governance embodies a yearning for technocratic solutions that override and undercut public deliberation.Anti-dumping rules can also be improved by requiring that consumer and producer interests that would be adversely affected by import duties take part in domestic proceedings. Subsidy rules can be improved by requiring economic cost-benefit analyses that incorporate potential consequences for both static and dynamic efficiency.

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.

Check out Socialist Economics.

Failing to Address the Status Quo will Drive Racial Wealth Divide for Centuries..

The Ever-Growing Gap: Failing to Address the Status Quo Will Drive the Racial Wealth Divide for Centuries to Come

http://www.ips-dc.org/report-ever-growing-gap/

Portside Date: 

August 12, 2016

Author: 

Chuck Collins, Dedrick Asante-Muhammed, Josh Hoxie and Eman

Date of Source: 

Monday, August 8, 2016

Institute for Policy Studies

 

Racial and economic inequality are the most pressing social issues of our time. In the last decade, we have seen the catastrophic economic impact of the Great Recession and an ensuing recovery that has bypassed millions of Americans, especially households of color. This period of economic turmoil has been punctuated by civil unrest throughout the country in the wake of a series of high-profile African-American deaths at the hands of police. These senseless and violent events have not only given rise to the Black Lives Matter movement, they have also sharpened the nation's focus on the inequities and structural barriers facing households of color.

However, even when these economic inequities do get attention, the focus is often on a single facet of the issue: income. The new report Ever-Growing Gap [1], published by the Institute for Policy Studies and the Corporation for Enterprise Development, focuses instead on a related but distinct facet of the issue: the essential role that wealth plays in achieving financial security and opportunity. It examines our country's growing racial wealth divide and the trajectory of that divide.

 

 

Report authors: Chuck Collins, Dedrick Asante-Muhammed, Josh Hoxie and Emanuel Nieves

 

 

This growing wealth divide is no accident. It is the result of public policy designed to widen the economic chasm between white households and households of color and between the wealthy and everyone else. In the absence of significant reforms, the racial wealth divide—and overall wealth inequality—are on track to become even wider in the future.

 

 

How far behind is the wealth of black families compared to white families?

 

 

 

Key Findings:

• Over the past 30  years the average wealth of white families has grown by 84%—1.2 times the rate of growth for the Latino population and three times the rate of growth for the black population. If that continues, the next three decades would see the average wealth of white households increase by over $18,000 per year, while Latino and Black households would see their respective wealth increase by only $2,250 and $750 per year.

 

• Over the past 30 years, the wealth of the Forbes 400 richest Americans has grown by an average of 736%—10 times the rate of growth for the Latino population and 27 times the rate of growth for the black population. Today, the wealthiest 100 members of the Forbes list alone own about as much wealth as the entire African American population combined, while the wealthiest 186 members of the Forbes 400 own as much wealth as the entire Latino population combined. If average Black households had enjoyed the same growth rate as the Forbes 400 over the past 30 years, they would have an extra $475,000 in wealth today. Latino households would have an extra $386,000.

 

 

• By 2043—the year in which it is projected that people of color will make up a majority of the U.S. population— the wealth divide between white families and Latino and black families will have doubled, on average, from about $500,000 in 2013 to over $1 million.

 

 

• If average black family wealth continues to grow at the same pace it has over the past three decades, it would take black families 228 years to amass the same amount of wealth white families have today. That's just 17 years shorter than the 245-year span of slavery in this country. For the average Latino family, it would take 84 years to amass the same amount of wealth White families have today—that's the year 2097.

 

Addressing this growing crisis:

• Conduct an evidence-based, government-wide audit of federal policies to understand the role current policies play in perpetuating the racial wealth divide
• Fix unfair, upside-down tax incentives to ensure households of color also receive support to build wealth
• Address the distorting influence of concentrated wealth at the top through the expansion of existing progressive taxes and the exploration of a dedicated wealth tax

 

 

Read the full report here [PDF]. [2]

 

[Chuck Collins is the director of the Program on Inequality and the Common Good at the Institute for Policy Studies.

Dedrick Asante-Muhammed is the director of the Racial Wealth Divide Initiative at the Corporation for Enterprise Development.

Josh Hoxie is the director of the Project on Opportunity and Taxation at the Institute for Policy Studies.

Emanuel Nieves is the Government Affairs Manager at the Corporation for Enterprise Development.]

 

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.

Check out Socialist Economics.

Re: [socialist-econ] John Cassidy (New Yorker): The Great Productivity Puzzle

There may well be a number of reasons for the collapse in productivity growth.  Certainly the collapse in consumer demand because of stagnant and declining wages is part of it.  And the complete private sector disinvestment is part of it.  But one factor Cassidy didn't mention is that the only growing sector in the economy, the service sector, relies on the hands on work of humans and is not affected much by innovation.  Think of healthcare, hospitality, etc.  finally, our crumbling infrastructure is slowing productivity.  

Sent from my iPad

On Aug 11, 2016, at 7:11 PM, John Case <jcase4218@gmail.com> wrote:

The Great  Productivity Puzzle

John Cassidy (New Yorker): 

I was going to start this column with some new productivity figures from the Bureau of Labor Statistics, but I realized that at least half of the readbores, or mystifies, almost everyone else.

Instead, let's start with a little story. Imagine that it's 1890 and you and a friend have bought a donkey and cart and started a moving company that transports heavy objects, such as sofas and beds. If you work hard, you can manage two deliveries a day, for each of which you charge a price that, if adjusted for inflation, would amount to fifty-five dollars today. Let's say overhead, such as advertising and food for the donkey, comes to ten dollars a day. That means you and your partner each earn fifty dollars a day.

Now imagine that time shoots forward fifteen years and a bank lends you money to buy one of the newfangled motorized trucks that are coming onto the market. They can pull much heavier loads than a donkey can: up to four thousand pounds. Once you've learned how to drive your new vehicle, you can carry a lot more stuff, and charge much higher prices—say, a hundred and ten dollars a load. Since the truck moves a lot faster than a donkey does, you can also double your number of daily deliveries to four. Assuming you can find enough customers, the amount of revenue your business produces will shoot up to four hundred and forty dollars a day. Even if your costs jump to forty dollars a day (factoring in gas and interest payments on the truck), you and your partner will each earn two hundred dollars. Thanks to technological progress, your earnings will have quadrupled.

Of course, this parable leaves out a lot, including the fact that competition tends to drive down prices over time. But it still conveys an essential fact about the modern economy, which Karl Marx and other nineteenth-century critics of capitalism originally denied: over the long haul, technological progress raises productivity, which, in turn, generates higher wages and living standards. Until recently, in fact, economy-wide productivity growth and wage growth have tended to have a one-to-one relationship. When productivity rose rapidly, as it did in the period from 1945 to 1973, wages also rose rapidly. When productivity growth slowed sharply, as it did between 1973 and 1995, wage growth also stagnated.

In the United States over the past twenty years, however, the tight relationship between productivity growth and wage growth has broken down. Wages have slipped behind productivity. Economists debate why this has happened, and how long the situation might last. (Some point to the rising cost of non-wage benefits, such as health insurance; others to the fact that profits have risen relative to wages.) But none deny that, over the long term, a healthy rate of productivity growth is a prerequisite for a further rise in living standards. Or that an anemic rate of productivity growth is a recipe for stagnation and class conflict.

Which brings me, finally, to the figures released this week by the Bureau of Labor Statistics. The new data showed that productivity in the non-farm business sector of the U.S. economy—i.e., most of it—has declined for the third quarter in a row. That's the longest falling streak since 1979, and, unfortunately, it isn't merely a statistical blip. Since 2007, the rate of productivity growth has been disappointing. Since 2010, it has been extremely disappointing.

Some numbers tell the story. Between 1947 and 1973, output per hour (the standard measure of labor productivity) rose at an annual rate of about three per cent. Then, between 1974 and 1995, for reasons that have never been fully explained, the rate of growth fell by half, to 1.5 per cent. Not coincidentally, this was the period when wage growth started to stagnate. Then things improved. For a decade or so, perhaps owing to the development of the Internet, the rate of productivity growth returned to about three per cent, and wages started to rise again. Optimists predicted a bright future—one that didn't materialize.

Since 2007, the annual rate of productivity growth has averaged about 1.3 per cent. Since 2010, it has been even lower, about 0.5 per cent. According to the new figures, in the twelve months that ended in June, the growth rate of output per hour was negative 0.5 per cent. In the three months that ended in June, the annualized growth rate was negative 0.4 per cent.

Now, those last two numbers shouldn't be taken too seriously. Quarterly productivity figures are very volatile, and the most recent ones reflect a decline in G.D.P. growth that appears to have ended. More worrying is the fact that slow productivity growth has now persisted for almost a decade, and that this development hasn't been restricted to the United States. Something similar has happened in countries like Japan, Germany, France, and the United Kingdom. Whatever is driving the slowdown in productivity growth appears to be affecting the advanced world as a whole. What is it? Three possible answers have been put forward, and I'll go through them in order of how alarmist they are.

The most benign explanation is that it's all, or mostly, a statistical mirage. According to this school of thought, the basic problem is that the government's figures are too antiquated to keep up with today's hyper-connected economy, in which new goods and services are introduced at a breakneck pace. "Today's pessimists about the economy's rate of growth are wrong because the official statistics understate the growth of real GDP, of productivity, and of real household incomes," Martin Feldstein, the Harvard economist, wrote in the Wall Street Journal last year.

On its face, this is a persuasive explanation. To someone of my generation, which came of age when the personal computer was a novelty, things like Siri, FaceTime, and G.P.S.-generated directions seem like technological marvels. Surely they must have saved us time and made us more productive. If the official productivity figures don't reflect this, mustn't there be something wrong with them?

Perhaps not. Earlier this year, three experts on productivity statistics—David M. Byrne, of the Federal Reserve Board; John G. Fernald, of the Federal Reserve Bank of San Francisco; and Marshall B. Reinsdorf, of the International Monetary Fund—published a study that debunked the mismeasurement explanation. The team of economists made three key points. First, they said, mismeasurement has always been an issue in the information-technology sector, and it was just as big an issue in the period from 1995 to 2005, when productivity was growing rapidly. Second, the productivity slowdown hasn't been confined to sectors in which output is tough to measure: it has been broadly based. And, finally, many of the benefits that we've reaped from things like smartphones and Google searches have been confined to non-market activities, such as communication with friends and other leisure activities, rather than boosting our productivity at work. While that amounts to an increase in consumer welfare, it doesn't generate higher wages.

A second possible explanation, and one that may withstand further scrutiny, is that the productivity slowdown has been a temporary, although extended, product of the Great Recession. Many productivity-enhancing new technologies are capital goods—think back to the moving truck. But since the recession ended, many businesses have been crimping on capital investments, preferring to hoard cash or spend it on stock buybacks.

It's not just that senior executives now care only about their company's stock prices, although that may have played a role. The bigger issue is that many corporations aren't seeing enough demand for their products to justify large new investments. And even when they do see an uptick in demand they hire new workers who have to make do with existing equipment. So employment growth looks healthy, but the economy remains stuck in a low-growth, low-investment, low-productivity trap.

If this is what's happening, there isn't anything wrong with new technology, or the economy's capacity to grow: the issue is how to exploit its potential. If higher demand could be sustained, perhaps through a fiscal or monetary stimulus, firms would step up investment, and the economy would return to a more virtuous circle, in which higher rates of productivity growth and G.D.P. growth reinforced each other. This is basically what happened between 1945 and 1973.

But there's a final explanation, the darkest of all. It has been put forward, most recently, in a monumental new book, "The Rise and Fall of American Growth," by Robert Gordon, an economist at Northwestern. Gordon's theory, parts of which I recall him explaining to me over a lunch, in Chicago, some fifteen years ago, is that technological advancement just ain't what it used to be.

To Gordon's mind, things like the Internet and the smartphone, while they are undoubtedly marvellous products of human ingenuity, don't match up to previous technological innovations, such as indoor plumbing, the internal-combustion engine, electrification, and commercial jetliners. In speeches, Gordon sometimes holds up pictures of a flushing toilet and an iPhone and asks audience members which one they would rather give up. "Look at what an ideal kitchen looked like in 1955," he told the Wall Street Journal a few years ago. "It's not that different than today. It's nothing like moving from clotheslines to clothes dryers."

If Gordon is right, sagging productivity figures simply reflect the fact that scientific progress doesn't have as much impact on the economy as it once did. Rather than waiting for productivity growth and wages to rebound of their own accord, Gordon supports policies designed to expand the size and quality of the labor force, such as raising the retirement age, letting more immigrants into the country, and expanding access to higher education. His argument also implies that we will have to get used to lower productivity growth.

Which of the three explanations is the most convincing? It seems to me that there is something to all of them.

Despite the work of Byrne, Fernald, and Reinsdorf, measurement issues are a concern. It's not just a matter of capturing and classifying the outputs of digital industries. As advanced economies develop, many of their fastest-growing parts tend to be service industries, such as health care, in which output can be hard to track. Government statisticians are well aware of this problem, but so far they haven't come up with a fully satisfactory solution.

Persistently depressed demand is also a serious problem. In addition to undermining firms' incentives to invest in technology, it degrades the skills of workers who can't find a job that matches their qualifications. Fifty years ago, Keynesian economists like Nicholas Kaldor and P. J. Verdoorn examined the close links between rising demand and rising productivity. It might benefit some of today's economists to rediscover this research.

Finally, Gordon's argument, although controversial, cannot be dismissed. After all, the slowdown in productivity growth is nothing new. It began more than forty years ago, and, setting aside the decade from 1995 to 2005, it's been in place ever since. How long does an economic phenomenon have to last before it is regarded as permanent rather than temporary? In recent years, the productivity slowdown has become more acute, and the belief that it will persist has led corporations and investors to downsize their expectations for future G.D.P. growth. This pessimism about growth helps explain, among other things, the fact that long-term interest rates are now negative in many advanced countries.

The key question is where we go from here. Ultimately, perhaps, ongoing advances in artificial intelligence, robotics, Big Data, and other new technologies will push productivity onto a much higher growth path, generating a new leap in living standards and demonstrating that the pessimists were mistaken. For now, though, we appear to be living in Gordon's fallen world.ers would quit right there. Productivity is one of those subjects that fascinates economists and 

John Case
Harpers Ferry, WV

The Winners and Losers Radio Show

7-9 AM Weekdays, WSHC-Listen Live, Shepherd University

Sign UP HERE to get the Weekly Program Notes.

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John Cassidy (New Yorker): The Great Productivity Puzzle

The Great  Productivity Puzzle

John Cassidy (New Yorker): 

I was going to start this column with some new productivity figures from the Bureau of Labor Statistics, but I realized that at least half of the readbores, or mystifies, almost everyone else.

Instead, let's start with a little story. Imagine that it's 1890 and you and a friend have bought a donkey and cart and started a moving company that transports heavy objects, such as sofas and beds. If you work hard, you can manage two deliveries a day, for each of which you charge a price that, if adjusted for inflation, would amount to fifty-five dollars today. Let's say overhead, such as advertising and food for the donkey, comes to ten dollars a day. That means you and your partner each earn fifty dollars a day.

Now imagine that time shoots forward fifteen years and a bank lends you money to buy one of the newfangled motorized trucks that are coming onto the market. They can pull much heavier loads than a donkey can: up to four thousand pounds. Once you've learned how to drive your new vehicle, you can carry a lot more stuff, and charge much higher prices—say, a hundred and ten dollars a load. Since the truck moves a lot faster than a donkey does, you can also double your number of daily deliveries to four. Assuming you can find enough customers, the amount of revenue your business produces will shoot up to four hundred and forty dollars a day. Even if your costs jump to forty dollars a day (factoring in gas and interest payments on the truck), you and your partner will each earn two hundred dollars. Thanks to technological progress, your earnings will have quadrupled.

Of course, this parable leaves out a lot, including the fact that competition tends to drive down prices over time. But it still conveys an essential fact about the modern economy, which Karl Marx and other nineteenth-century critics of capitalism originally denied: over the long haul, technological progress raises productivity, which, in turn, generates higher wages and living standards. Until recently, in fact, economy-wide productivity growth and wage growth have tended to have a one-to-one relationship. When productivity rose rapidly, as it did in the period from 1945 to 1973, wages also rose rapidly. When productivity growth slowed sharply, as it did between 1973 and 1995, wage growth also stagnated.

In the United States over the past twenty years, however, the tight relationship between productivity growth and wage growth has broken down. Wages have slipped behind productivity. Economists debate why this has happened, and how long the situation might last. (Some point to the rising cost of non-wage benefits, such as health insurance; others to the fact that profits have risen relative to wages.) But none deny that, over the long term, a healthy rate of productivity growth is a prerequisite for a further rise in living standards. Or that an anemic rate of productivity growth is a recipe for stagnation and class conflict.

Which brings me, finally, to the figures released this week by the Bureau of Labor Statistics. The new data showed that productivity in the non-farm business sector of the U.S. economy—i.e., most of it—has declined for the third quarter in a row. That's the longest falling streak since 1979, and, unfortunately, it isn't merely a statistical blip. Since 2007, the rate of productivity growth has been disappointing. Since 2010, it has been extremely disappointing.

Some numbers tell the story. Between 1947 and 1973, output per hour (the standard measure of labor productivity) rose at an annual rate of about three per cent. Then, between 1974 and 1995, for reasons that have never been fully explained, the rate of growth fell by half, to 1.5 per cent. Not coincidentally, this was the period when wage growth started to stagnate. Then things improved. For a decade or so, perhaps owing to the development of the Internet, the rate of productivity growth returned to about three per cent, and wages started to rise again. Optimists predicted a bright future—one that didn't materialize.

Since 2007, the annual rate of productivity growth has averaged about 1.3 per cent. Since 2010, it has been even lower, about 0.5 per cent. According to the new figures, in the twelve months that ended in June, the growth rate of output per hour was negative 0.5 per cent. In the three months that ended in June, the annualized growth rate was negative 0.4 per cent.

Now, those last two numbers shouldn't be taken too seriously. Quarterly productivity figures are very volatile, and the most recent ones reflect a decline in G.D.P. growth that appears to have ended. More worrying is the fact that slow productivity growth has now persisted for almost a decade, and that this development hasn't been restricted to the United States. Something similar has happened in countries like Japan, Germany, France, and the United Kingdom. Whatever is driving the slowdown in productivity growth appears to be affecting the advanced world as a whole. What is it? Three possible answers have been put forward, and I'll go through them in order of how alarmist they are.

The most benign explanation is that it's all, or mostly, a statistical mirage. According to this school of thought, the basic problem is that the government's figures are too antiquated to keep up with today's hyper-connected economy, in which new goods and services are introduced at a breakneck pace. "Today's pessimists about the economy's rate of growth are wrong because the official statistics understate the growth of real GDP, of productivity, and of real household incomes," Martin Feldstein, the Harvard economist, wrote in the Wall Street Journal last year.

On its face, this is a persuasive explanation. To someone of my generation, which came of age when the personal computer was a novelty, things like Siri, FaceTime, and G.P.S.-generated directions seem like technological marvels. Surely they must have saved us time and made us more productive. If the official productivity figures don't reflect this, mustn't there be something wrong with them?

Perhaps not. Earlier this year, three experts on productivity statistics—David M. Byrne, of the Federal Reserve Board; John G. Fernald, of the Federal Reserve Bank of San Francisco; and Marshall B. Reinsdorf, of the International Monetary Fund—published a study that debunked the mismeasurement explanation. The team of economists made three key points. First, they said, mismeasurement has always been an issue in the information-technology sector, and it was just as big an issue in the period from 1995 to 2005, when productivity was growing rapidly. Second, the productivity slowdown hasn't been confined to sectors in which output is tough to measure: it has been broadly based. And, finally, many of the benefits that we've reaped from things like smartphones and Google searches have been confined to non-market activities, such as communication with friends and other leisure activities, rather than boosting our productivity at work. While that amounts to an increase in consumer welfare, it doesn't generate higher wages.

A second possible explanation, and one that may withstand further scrutiny, is that the productivity slowdown has been a temporary, although extended, product of the Great Recession. Many productivity-enhancing new technologies are capital goods—think back to the moving truck. But since the recession ended, many businesses have been crimping on capital investments, preferring to hoard cash or spend it on stock buybacks.

It's not just that senior executives now care only about their company's stock prices, although that may have played a role. The bigger issue is that many corporations aren't seeing enough demand for their products to justify large new investments. And even when they do see an uptick in demand they hire new workers who have to make do with existing equipment. So employment growth looks healthy, but the economy remains stuck in a low-growth, low-investment, low-productivity trap.

If this is what's happening, there isn't anything wrong with new technology, or the economy's capacity to grow: the issue is how to exploit its potential. If higher demand could be sustained, perhaps through a fiscal or monetary stimulus, firms would step up investment, and the economy would return to a more virtuous circle, in which higher rates of productivity growth and G.D.P. growth reinforced each other. This is basically what happened between 1945 and 1973.

But there's a final explanation, the darkest of all. It has been put forward, most recently, in a monumental new book, "The Rise and Fall of American Growth," by Robert Gordon, an economist at Northwestern. Gordon's theory, parts of which I recall him explaining to me over a lunch, in Chicago, some fifteen years ago, is that technological advancement just ain't what it used to be.

To Gordon's mind, things like the Internet and the smartphone, while they are undoubtedly marvellous products of human ingenuity, don't match up to previous technological innovations, such as indoor plumbing, the internal-combustion engine, electrification, and commercial jetliners. In speeches, Gordon sometimes holds up pictures of a flushing toilet and an iPhone and asks audience members which one they would rather give up. "Look at what an ideal kitchen looked like in 1955," he told the Wall Street Journal a few years ago. "It's not that different than today. It's nothing like moving from clotheslines to clothes dryers."

If Gordon is right, sagging productivity figures simply reflect the fact that scientific progress doesn't have as much impact on the economy as it once did. Rather than waiting for productivity growth and wages to rebound of their own accord, Gordon supports policies designed to expand the size and quality of the labor force, such as raising the retirement age, letting more immigrants into the country, and expanding access to higher education. His argument also implies that we will have to get used to lower productivity growth.

Which of the three explanations is the most convincing? It seems to me that there is something to all of them.

Despite the work of Byrne, Fernald, and Reinsdorf, measurement issues are a concern. It's not just a matter of capturing and classifying the outputs of digital industries. As advanced economies develop, many of their fastest-growing parts tend to be service industries, such as health care, in which output can be hard to track. Government statisticians are well aware of this problem, but so far they haven't come up with a fully satisfactory solution.

Persistently depressed demand is also a serious problem. In addition to undermining firms' incentives to invest in technology, it degrades the skills of workers who can't find a job that matches their qualifications. Fifty years ago, Keynesian economists like Nicholas Kaldor and P. J. Verdoorn examined the close links between rising demand and rising productivity. It might benefit some of today's economists to rediscover this research.

Finally, Gordon's argument, although controversial, cannot be dismissed. After all, the slowdown in productivity growth is nothing new. It began more than forty years ago, and, setting aside the decade from 1995 to 2005, it's been in place ever since. How long does an economic phenomenon have to last before it is regarded as permanent rather than temporary? In recent years, the productivity slowdown has become more acute, and the belief that it will persist has led corporations and investors to downsize their expectations for future G.D.P. growth. This pessimism about growth helps explain, among other things, the fact that long-term interest rates are now negative in many advanced countries.

The key question is where we go from here. Ultimately, perhaps, ongoing advances in artificial intelligence, robotics, Big Data, and other new technologies will push productivity onto a much higher growth path, generating a new leap in living standards and demonstrating that the pessimists were mistaken. For now, though, we appear to be living in Gordon's fallen world.ers would quit right there. Productivity is one of those subjects that fascinates economists and 

John Case
Harpers Ferry, WV

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Incomes Fell for Poorest Children of Single Mothers in Welfare Law’s First Decade [feedly]

Incomes Fell for Poorest Children of Single Mothers in Welfare Law's First Decade
http://www.cbpp.org/research/family-income-support/incomes-fell-for-poorest-children-of-single-mothers-in-welfare-laws

Since the welfare law's enactment, the overall poverty rate for single-parent families has fallen — though many other factors besides TANF influenced this trend — but the poorest families and children have become worse off.

 -- via my feedly newsfeed

Mortgage Delinquencies and the Unemployment Rate [feedly]

Mortgage Delinquencies and the Unemployment Rate
http://www.calculatedriskblog.com/2016/08/mortgage-delinquencies-and-unemployment.html

In the press release for the MBA quarterly National Delinquency Survey for Q2, Marina Walsh, MBA's Vice President of Industry Analysis, wrote: 

"The mortgage delinquency rate tracks closely with the nation's improving unemployment rate. In the second quarter of 2016, the mortgage delinquency rate was 4.66 percent, while the unemployment rate was 4.87 percent. By comparison, at its peak in the first quarter of 2010, the delinquency rate was 10.06 percent and the unemployment rate stood at 9.83 percent."

Here is a graph comparing the mortgage delinquency rate and the unemployment rate. The unemployment rate is in Red, the mortgage delinquency rate (excluding in foreclosure) is in Blue, and the combined delinquency and in foreclosure is in Purple.

Click on graph for larger image.

As Ms. Walsh noted, the delinquency rate has pretty much tracked the unemployment rate since the great recession.

In 2002, the mortgage delinquency rate was below the unemployment rate, probably because house prices were rising even as the unemployment rate was still recovering from the 2001 recession.

A huge difference between the great recession and prior periods was the large number of homes in the foreclosure process (Purple is a combination of the mortgage delinquency rate and the percent of homes in foreclosure). 

The combined rate of delinquencies and in foreclosure is now below the combined rate in 2002.  The mix is different (more in the foreclosure process now).   These rates are getting close to normal (foreclosures are still elevated).

 -- via my feedly newsfeed