Tag Archives: productivity

The IMF warns us of economic stagnation & suggests fixes. We should listen.

Summary: Today’s post looks at an important new report about the IMF, another step by economists towards recognition that we’ve left the post-WWII order for a new world. Now that’s a world of persistent slow growth, in which repeated rounds of fiscal and monetary stimulus (conventional and unconventional) prevents recessions but cannot reignite strong growth. The IMF’s economists discuss possible causes and solutions.  {1st of 2 posts today.}

Slow Economic Growth

Contents

  1. The IMF discovers secular stagnation.
  2. Slowdown since the crash.
  3. What comes next?
  4. What should we do?
  5. For More Information.

 

(1)  The IMF discovers secular stagnation

One of the great issues of our time concerns our future. Do we face continued slow growth (aka secular stagnation) or the accelerating growth of a new industrial revolution? These paths offer different challenges and require radically different central bank policies.

But central banks have been unable to prepare for either alternative because they’re stuck in the first — and often the most difficult — phase of the problem resolution process: recognition. Since the crash they’ve expected economic growth to return to normal. Year after year they’ve been disappointed, responding to a series of ad hoc improvisations that have poor grounding in economic theory and history. Yet time brings insight, and the international economic agencies have slowly come to grapple with these questions.

This post looks at the April 2015 IMF report “Where Are We Headed? Perspectives on Potential Output“.  Here’s a summary for a general audience from the IMF’s survey magazine. They open by comparing forecasts made in 2007 and 2008 with actual economic growth through 2014. Slowing, slowing, slower.

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Do we face secular stagnation or a new industrial revolution?

Summary:  US growth is slowing when it should be accelerating as we shake off the effects of the crash. The possibility of a fifth year of slow growth strengthens fears of stagnation like that afflicting Japan since 1990. Yet there’s good reason to suspect that a new industrial revolution has begun, potentially generating incredible new wealth — if we manage the process well politically. Which future is correct? Both of them.  {1st of 2 posts today.}

“There are decades when nothing happens; and there are weeks when decades happen.”
— Attributed to Lenin.

Future Industry

Contents

  1. We’re becoming Japan.
  2. We’re accelerating to take off speed!
  3. The 3rd industrial revolution?
  4. Conclusions
  5. For More Information.

(1)  We’re becoming Japan.

Compare growth in per capita GDP of America and Japan. We following in their footsteps.

  • US since the crash:  1.4%/year (2010-2014: 1.7, 0.8%, 1.6%, 1.5%, 1.6%).
  • Japan before the crash: 2.0%/year (2003-2007: 1.2%, 2.6%, 1.9%, 2.1%, 2.3%).

This is a big story. It’s called secular stagnation (see the posts describing this theory, with links). Readers of the FM website have known about this since 2010, with more details given in 2013 and even more last year.  Larry Summers introduced it to the world in 2013. It’s still controversial, as seen in Ben Bernanke’s rebuttal this week (see Larry Summers devastating reply). I suspect time will prove Summers is correct.

Also, Japan has still not pulled out of their stagnation, despite the 3 arrows of Abenomics.

(2)  But we’re accelerating to take off speed!

No, we’re slowing, as shown by the Atlanta Fed’s GDPnow forecast for Q1 of zero growth. Yet the experts remain hopeful for a better year than 2014. The Fed foresees growth in 2015 of 2.3% – 2.7%. But then in September 2012 they expected growth in 2015 of 3.0 – 3.8%. The February survey of Professional Forecasters shows a median expectation of 3.2% for 2015 (note this calculates annual GDP slightly differently than does the Fed). I expect they will be disappointed, yet again.

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At last economists see the robot revolution. Here’s why they worry.

Summary:  When I first warned about the “robot revolution” (the 3rd industrial revolution) 3 years ago, I was one of a minority. Experts assured us it would produce quick benefits without much disruption (unlike the previous 2). Time has brought new evidence, and now concern has replaced confidence. Today we review the problem. The next few posts will consider solutions. {1st of 2 posts today.}

“An increase in the productivity of labour means nothing more than that the same capital creates the same value with less labour, or that less labour creates the same product with more capital.”

— Karl Marx’s “A Contribution to the Critique of Political Economy” (1857/58).

Robot Evolution

Matthew Yglesias gave a strong rebuttal to people blaming automation for the slow growth in jobs and wages since the recession ended. But it’s happening nonetheless, slowly but accelerating. People tend to underestimate short-term change, and over estimate it over the long term. But now people are noticing the drumbeat of announcements, as automation affects more jobs of all kinds. Even economists are doubting their easy confidence that the future must be like the past.

Previous posts list scores of examples. Every month brings more, such as …”The computer will see you now. A virtual shrink may sometimes be better than the real thing.” “Here come the autonomous robot security guards.”  Robots help deliver meals for patients.  “Eerily lifelike androids join staff at Tokyo tech museum.Journalists reporting the end of journalism as a profession,  “Watch out, coders — a robot may take your job, too.

The problem is structural on three levels, and just beginning. First there is the shift of rewards from labor to capital (those who own the machine), as we see in the workers’ falling share of GDP, and the rise in corporate profits as a percent of GDP.

The second structure factor: technology changes the distribution of income in many fields. We’re shifting to a winner-take-all economy, as explained in “Welcome To Extremistan! Please Check Your Career At The Door.” Excerpt:

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