What caused the productivity slowdown?

Nick Rowe has a post discussing the post-2008 slowdown in trend growth, which has occurred in many countries.  (I’ll focus on the US, which I know best).  He suggests that the failure of monetary policy during the Great Recession may have increased perceptions of risk going forward, particularly relative to during the Great Moderation, when people had grown more confident in economic stability.  This increased perception of risk may have depressed investment.  Because my previous post predicted that we are in a newer and even greater moderation (and hence that increased perceptions of risk are unwarranted), I feel that I need to address his post.  I left a comment:

Nick, You said:

“And it is indeed too big a coincidence to suppose that an exogenous slowdown in long-run growth just happened to coincide with the Great Recession.”

I think that this may be exactly what happened. The growth slowdown would have occurred even if we had not had the Great Recession. (It’s partly demographics). I’d go further and argue that the slowdown in trend growth helped to cause the Great Recession. The slowdown reduced the Wicksellian natural rate, and the world’s central banks were slow to spot this change. Taylor Rule type thinking led to unintentional monetary tightening in 2008. A given interest rate setting (2% after Lehman failed) was much tighter than the Fed assumed.)

Note that this slowdown began before the Great Recession, as the equilibrium real interest rate has been gradually declining for several decades.

And Nick responded:

Scott: The slowdown in labour force growth was clearly partly due to demographics, and that part would have happened anyway. Though that would not have explained slowing productivity growth. And maybe there was a steady slowing of investment that would have happened anyway. But the apparent break in the trends just looks too big and sharp. Like in Simon Wren-Lewis’ chart of UK GDP per capita. The same trend line works pretty well, from 1955 to 2008. Then it doesn’t.

So I decided to check investment (excluding residential) as a share of GDP, and found this graph.  (Non-housing investment seemed more relevant to productivity growth, but perhaps that assumption is wrong):

Screen Shot 2017-03-04 at 10.57.28 AMThis surprised me.  I had no idea that the late 1970s and early 1980s were “peak investment”, especially given the poor performance of the economy.  Nor did I expect recent investment levels to exceed all pre-1975 business cycles, including the fast-growing 1960s.  It is similar to the late 1980s, or 2002-05, when growth was far higher. Yes, investment is slightly below the levels of the late 1990s, but I’m not seeing a big enough fall in investment to explain trend growth falling from about 3% per year for the entire 20th century to perhaps half that figure today.  (Yes, RGDP growth has recently averaged 2%, but that’s during a period of recovery and rapidly falling unemployment, which means trend growth has probably fallen below 2%.)

I think the recent growth slowdown is unrelated to the Great Recession.  What do you think?

PS.  If output was above trend in 2007, then the post-2008 slowdown may not be as sudden as Nick assumed, just by looking at the graph.

PPS:  This article in The Economist presents another problem with the argument that uncertainty is reducing investment:

There is an alternative explanation for the failure of expectations to shift. Both businesses and investors, realising that the economic outlook is uncertain, may be demanding a higher risk premium for starting new projects or buying shares. That explanation is a little hard to square, however, with the repeated new record highs being scaled by stockmarkets or with the high valuations afforded to American equities.

Since the market low in March 2009, dividends have risen by 48% in real terms and real share prices have risen by 167%, according to Robert Shiller of Yale University. The cyclically-adjusted price-earnings ratio (or CAPE), which averages profits over ten years, is 28.7, its highest level since April 2002. In the past, very high CAPEs have been associated with low future returns.

Indeed, having analysed the data, Messrs Dimson, Marsh and Staunton reckon global investors are expecting a risk premium of 3-3.5% relative to Treasury bills—a level that is lower, not higher, than the historic average. So something does not add up.

 


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47 Responses to “What caused the productivity slowdown?”

  1. Gravatar of Julius Probst Julius Probst
    5. March 2017 at 08:38

    Maybe we need to look at net investment (deducting depreciation) instead of gross investment? Looks like depreciation increased from about 14% of GDP in the 1970s to about 18% today. So higher levels of investment are offset by a much higher depreciation rate.

    Hope this link works.
    https://fred.stlouisfed.org/graph/?g=cV96

  2. Gravatar of Becky Hargrove Becky Hargrove
    5. March 2017 at 09:44

    Of the 15 most profitable industries in 2016, only one of these (nonmetallic mineral mining and quarrying) utilizes investment in ways that are clearly capable of contributing to further growth and output. The other categories often invest in technology so as to reduce costs of doing business in what may already be predetermined output.
    https://www.forbes.com/sites/sageworks/2016/08/06/the-most-profitable-industries-in-2016/#130d7aa72557

  3. Gravatar of James Alexander James Alexander
    5. March 2017 at 09:48

    I guess the fact that you don’t think new, lower NGDP trend growth is a bad thing, means you never saw 5% NGDP growth as a cause of anything good. You just see a sudden (or prospective) drop from 5% to much lower rate as a cause of something bad. Like a recession. Due to sticky wages.

    I have always thought that 5% or so NGDP growth promotes a healthy, flexible labour market, that allows job-hopping and thus gets workers to where they are most valued, quicker. Thus promoting productivity. Low NGDP growth, i.e. low overall wage growth, squeezes pay differentials due to the very same sticky wages problem,that causes a recession.

  4. Gravatar of ssumner ssumner
    5. March 2017 at 10:02

    Julius, Good point, that strengthens the argument that investment is a problem.

    I’m still a bit doubtful that there’s much increase in NGDP growth uncertainty, certainly compared to the Great Inflation, when it was very erratic. But if I’m wrong, then perhaps investment is a mechanism that could be slowing growth.

    Becky, But doesn’t reducing costs then free up resources to boost growth elsewhere?

    James, There are advantages and disadvantages to faster trend NGDP growth. I certainly don’t oppose 5% NGDPLT. I’m just not sure the trend makes much difference if we are in the 3.5% to 5% range.

    I still think the volatility of NGDP is far and away the bigger problem.

  5. Gravatar of Kevin Erdmann Kevin Erdmann
    5. March 2017 at 10:04

    That a last quote probably isn’t that useful. If CAPE was 8 years instead of 10, it would produce a lower number right now. And anyone starting a comparison at March 2009 is really only measuring cyclical volatility of the measures,regardless of what they claim to be measuring.

  6. Gravatar of Kevin Erdmann Kevin Erdmann
    5. March 2017 at 10:10

    Scott, I wonder if NGDP uncertainty is asymmetrical – more disruptive to the downside.

  7. Gravatar of Becky Hargrove Becky Hargrove
    5. March 2017 at 10:24

    Yes to a certain extent – think growth in experiential product for instance. It may depend on the services organizational structure and the extent of their existing budget obligations: whether the organization is professionals who might financially benefit from tech investment versus employees which don’t.

  8. Gravatar of Ram Ram
    5. March 2017 at 10:35

    Wouldn’t a drop in expected productivity growth cause the natural rate to drop? And wouldn’t this cause a recession if central banks reduced policy rates insufficiently in response?

  9. Gravatar of Becky Hargrove Becky Hargrove
    5. March 2017 at 10:50

    My answer must have sounded a bit vague. It’s difficult to determine gain in output potential when product is services oriented, because (present) service formation already is not a direct wealth result. “Crowding out” also occurs, both in the physical sense of wealth creation potential in prosperous regions, and in terms of what monetary policy is willing to represent that could translate in discretionary income, particularly for strong tradable sector activity.

  10. Gravatar of ssumner ssumner
    5. March 2017 at 10:56

    Kevin, I would think stocks are pretty high under either measure.

    I agree with your second point, but I still don’t seem much evidence that this is a major concern right now.

    Ram, Yes, that’s what I said in the post. See the first quoted passage. :)

  11. Gravatar of Kevin Erdmann Kevin Erdmann
    5. March 2017 at 11:07

    There are other problems with CAPE. For instance, the current popularity of returning capital through buybacks instead of dividends affects earnings growth in a way that I think probably inflates CAPE. It’s probably not a coincidence that secular higher CAPE values coincide with increased buybacks. For some reason buybacks make everyone cuckoo so reasonable adjustments for this don’t tend to get noticed. This also inflates stock index returns so, for instance, index growth vs GDP growth has become fairly meaningless and equity returns are overstated.

  12. Gravatar of E. Harding E. Harding
    5. March 2017 at 11:13

    @s”the Syrian government is worse than ISIS”sumner

    -Here’s the net investment graph, if you care to look:

    https://fred.stlouisfed.org/graph/?g=cVcR

    This post-Great-Recession productivity slowdown also took place in numerous other places, including Russia, Brazil, Italy, Britain, and, to a lesser extent, China. It’s worldwide. I think it was caused by the Great Recession (as it came immediately after it), but I’m not sure exactly how. The only precedent for this in the U.S. is the 1977-1981 period. Maybe we are exiting out of it. I sure hope so.

    I mean, what but the Great Recession would cause manufacturing productivity to go from growing at a steady clip (due to outsourcing to China?) to flatlining?

    https://fred.stlouisfed.org/graph/?g=cVcW

  13. Gravatar of Kevin Erdmann Kevin Erdmann
    5. March 2017 at 11:23

    Sorry. One more point on CAPE. Corporate earnings have been weak for some time now. So there is no reason to think that current PE ratios are cyclically understated.

  14. Gravatar of dtoh dtoh
    5. March 2017 at 11:30

    Scott
    Just a couple of thoughts off the top of my head without thinking this through.

    1. Can you simply look at gross investment or do you need to look at it terms of investment relative to the existing capital base, or to put it another way, look at in terms on the percentage increase in capital per worker, i.e some sort of a logarithmic scale.

    2. I think you have to consider the changing asymmetry of returns. If you’re moving people off the farm into a steel factory, it’s close to 100% certain that you’ll get rising productivity. (Even the Soviets were able to achieve this in the 1920s.) If you’re investing in a high tech venture, there’s a 90% chance the undertaking will fail and the investment will have been a waste.

    3. As others have often said, there’s a lot of productivity gain that the numbers don’t pick up. For example what percentage of GDP would have been required as an investment to produce an iPhone in 1965.

  15. Gravatar of Benjamin Cole Benjamin Cole
    5. March 2017 at 11:38

    After 2008, labor was cheap. High unemployment.

    Yet aggregate demand was weak due to central-bank suffocation.

    Really, add weak demand to cheap labor, and would you expect rising productivity?

  16. Gravatar of d d
    5. March 2017 at 12:43

    @ben, wouldnt weak labor also make for weak demand, since most demand is from workers (they tend to be both workers and consumers dont they?). and i would think huge job losses would have a much larger impact on demand, than the central raising rates wait they didnt do that?). and of course they all had huge savings accounts so lower rates would mean less money to spend (wait, did hey actually have a savings account?. and based on what I recall from the early 90s its not like banks were paying much in the way of interest on savings accounts)

  17. Gravatar of Potato Potato
    5. March 2017 at 13:14

    Scott,

    I’d like to ask a question about the data. I’m a firm believer in data collection and analytics. As an undergrad economics student, years ago, I took all data analysis as it came and used it to form my world view. When I finished my graduate degree and worked in industry/and the government, my belief in officially published data was crushed. I hope that the model errors are normalized and thus don’t affect the overall statistics. However , productivity to me seems to be the epitome of impossible to measure statistic. Maybe it’s my hayekian humility, maybe it’s dealing with engineers who can’t do convolution intervals, integration by parts, schotastic calculus, modeling by systems, time series econometrics, etc. as a child of mathematicians, my opinion of the average ability of the “elite” has declined every year since I was 11. When I realized my math teacher only knew how to teach from slides. And again, when I realized the COO of my company didn’t understand linear regression and thought SPSS, tableau, SQL and R were rival companies.

  18. Gravatar of James Alexander James Alexander
    5. March 2017 at 13:47

    What evidence would make you think that the 3.5% NGDP growth since 2008 has depressed productivity? Apart from the obvious correlation.

  19. Gravatar of d d
    5. March 2017 at 14:16

    @potato, so you found out the ‘real’ world isnt as clean as we would like it to be, and business is more shades of grey, than black and white. and FYI, private data isn’t ‘clean’ either, as operational systems have so many exceptions that unfortunately that is how it is. and most of the data warehouse systems have to ‘clean’ up the data before it can be used. i discovered that in m first programming job. and most executives dont look at other companies unless they are vendors or competitors, every one else doesnt matter.

  20. Gravatar of ssumner ssumner
    5. March 2017 at 15:27

    Kevin, Ok, but what about the broader question. Does this really look like a stock market that’s held back by uncertainty?

    Harding and dtoh, I may be wrong about the investment figures. Harding’s net investment graph does show a slowdown. I’m still skeptical that NGDP growth uncertainty going forward is particularly high, but net investment does seem to be part of the productivity story.

    Potato, Productivity is tough to measure for exactly the same reason that RGDP is tough to measure. There is the age old debate over whether we are undercounting the benefits of the internet. We are moving from an economy of “stuff”, which is easy to measure, to an economy of services and convenience.

    James, I don’t see an obvious correlation. There were periods in the 20th century with slow NGDP growth and high productivity, such as the interwar period. If you are targeting inflation at 2% then NGDP and productivity are automatically correlated, even if there is no causal relationship. Plus the slowdown started in 2005.

    I think 4% NGDP growth is enough in an economy where the labor force is barely growing. That gives you plenty of wage flexibility. 3% is less obvious, but still doesn’t seem all that low to me.

  21. Gravatar of Scott Freelander Scott Freelander
    5. March 2017 at 17:22

    Scott,

    In response to, “Kevin, Ok, but what about the broader question. Does this really look like a stock market that’s held back by uncertainty?”

    I don’t think it makes sense to separate stock market performance from the economic performance in this case, the latter of which is obviously still weaker than the pre-recession trend. For what it’s worth, which may be less than zero, my gut tells me that the Fed’s timidity while near ZLB is a problem for demand, and if it’s a problem for demand, it’s a problem for investment, and if investment’s still too low, then I don’t see how that can fail to negatively affect productivity.

    Of course demographics are a factor in a secular sense, and those were made worse by recent long-term unemployment. There’s also the drop in net immigration during the recession to consider, along with new regulations, etc.

    So, the economy is now slow for potentially several reasons, but I think it’s likely one of them is that demand and investment are still somewhat depressed due to the Fed not being trusted fully near ZLB.

    I certainly have more of a hedge on my portfolio than I would if interest rates were higher.

  22. Gravatar of Major-Freedom Major-Freedom
    5. March 2017 at 18:52

    And regular as clockwork the elephant in the room is missed:

    With below market interest rates since 2009, the market process of correcting errors founded on below market interest rates prior to 2009, CANNOT take place.

    Healthy economic growth requires liquidating the resource wasting malinvestment that is clogging up the system.

    Now just because you’re emotionally afraid of that correction taking place, it doesn’t entitle you to make up excuse after excuse for why growth has been so slow since 2009. It is a non sequitur.

  23. Gravatar of Ray Lopez Ray Lopez
    5. March 2017 at 19:14

    Good grief, is our host losing his mind? Is he completely incompetent? Wow. First, during any downturn productivity falls, I’m surprised our host and Nick Rowe don’t explicitly recognize this; it’s an artifact of how productivity is measured, as well as I suppose what Major Freedom says (though that’s more difficult to prove).

    Second, our host says: “This surprised me. I had no idea that the late 1970s and early 1980s were “peak investment”, especially given the poor performance of the economy”–really? Good grief! I guess Sumner will be surprised to learn in fact productivity, even TFP, went up during the 1930s, the time of the Great Depression. Surprise, surprise! (Ray rolls eyes)

    Look people, I’m getting tiring of being the ‘bad guy’ around here. Really, I’m a reasonable fellow. But to be honest, I read blogs so I can learn something, not to be teaching the blogger. That’s a waste of my time. If this blog doesn’t improve soon–Mr. Sumner, I’m talking to you–I just might take my marbles (and I have all of mine, thank you, unlike you know who, economically speaking) and go home.

  24. Gravatar of Ray Lopez Ray Lopez
    5. March 2017 at 19:18

    @myself–I did get it right, for you careful readers, in my last message: productivity initially falls during the start of a recession, then, if the recession is long lasting, will start rising for the reasons Major Freedom articulates, though as I say most textbooks don’t get into the ‘why’. This is Econ 102. I mean, it’s so basic that I wonder what ax Rowe and Sumner are grinding not to mention this; I reckon they are trying to make some sort of monetary case for any slowdown in productivity (hard to do as money is largely neutral, but facts have never stopped ideologues).

  25. Gravatar of Jose Jose
    6. March 2017 at 04:03

    What about excess regulation ? Hasn’t the regulatory state become too big after all? Gross investment may be relatively “normal”, but net investment is actually low, because investment is being directed by government officials more than by market forces and therefore returns on investments are lower than otherwise, and investments depreciate faster, because they were not so good an idea in the first place …

  26. Gravatar of ssumner ssumner
    6. March 2017 at 05:55

    Scott, I don’t see much evidence that there’s much of a demand problem right now.

    Ray, So many mistakes, so little time to comment. . . .

    Jose, Yes, I think regulation is part of the story, but not all.

  27. Gravatar of dtoh dtoh
    6. March 2017 at 08:19

    Scott,
    Also I don’t see how you can even attempt to analyze this without looking at tax rates on capital. Unless of course you believe that investors are NOT rational and expected after tax returns on don’t impact the level of investment.

  28. Gravatar of Scott Freelander Scott Freelander
    6. March 2017 at 09:03

    Scott,

    I don’t see a lot of clear evidence for a demand shortfall either, hence my pathetic reference to intuition no one has reason to trust. However, recent inflation figures not withstanding, I think it’s at least not entirely stupid to look at wage growth, which while being on a general upward trajectory in recent years, dipped a bit most recently, and more importantly, is still below the pre-recession trend, which was below the prior pre-recession trend. Now, obviously causation can move from non-demand related factors lowering productivity growth to lower wage growth, and I don’t doubt some of that is going on. But, I also think it’s possible that there are yet more people who will enter the workforce, as we saw in numbers released last month, causing unemployment to tick up a bit, and that this slow drip will represent a friction that can make it appear we’re at real GDP growth potential and or full employment prematurely at times. I think there is a case for at least raising the inflation target for a little while, acknowledging the uncertainty around the demand question, but also recognizing the benefit of higher interest rates as a cushion against the ZLB.

  29. Gravatar of Don Geddis Don Geddis
    6. March 2017 at 10:44

    @Major-Freedom: “With below market interest rates since 2009

    What does this phrase mean? Current public interest rates are already “market” rates, set (as usual) by the intersection of credit supply and credit demand. Interest rates are not set by fiat.

    What is set by fiat, is the size of the money supply. And the size of the money supply of course influences the free market clearing price of credit. But in an economy with fiat currency, any money supply size is arbitrary. No particular size is more fundamental than any other. It is not possible to “not do monetary policy”.

    So, can you be more specific? What, exactly, does the phrase “below market interest rates” refer to? I can’t relate that phrase to any real-world concept.

  30. Gravatar of Don Geddis Don Geddis
    6. March 2017 at 10:47

    @Ray Lopez: “to be honest, I read blogs so I can learn something

    False. Years of experience on this blog has clearly shown that “learning” is not the reason you read blogs.

    I just might take my marbles … and go home.

    If wishes were horses, beggars would ride.

  31. Gravatar of flow5 flow5
    6. March 2017 at 13:42

    It’s quite simple. Commercial banks do not loan out savings. And the only way savings are activated is via non-bank conduits.

  32. Gravatar of msgkings msgkings
    6. March 2017 at 13:49

    @Don Geddis: He does this once in a while, pretends he’s going to stop posting somewhere. He’s a desperately lonely sex tourist in the Phillipines, this is all he has. To his credit, he trolls for attention and gets plenty of it, including from me.

  33. Gravatar of Cooper Cooper
    6. March 2017 at 15:15

    Since the Dodd Frank financial regulations have been implemented, the number of new banks chartered in the US has *collapsed*.

    “From 1990 to 2008, 1,850 new banks were formed, a rate of nearly 100 per year. From 2010 to 2012 only 5 new banks were formed, a rate of fewer than 2 per year.

    “New charters..have different loan portfolios, being relatively more dependent on commercial & industrial (C&I loans) rather than real estate and consumer loans..”

    https://www.stlouisfed.org/~/media/Files/PDFs/Banking/CBRC-2014/SESSION1_Adams_Gramlich.pdf

    Lending to small businesses collapsed during the Great Recession and never recovered.

    https://www.philadelphiafed.org/community-development/publications/cascade/91/02_online-lenders

    No new community banks –> Far fewer new small business loans –> Fewer fast growing startups developing new, groundbreaking technological breakthrough –> slower productivity growth.

    That must explain at least some of the productivity slowdown.

  34. Gravatar of flow5 flow5
    6. March 2017 at 16:18

    The remuneration of IBDDs emasculated the Fed’s “open market power”. Because the belligerent bifurcation (the mis-aligned distribution of sales and purchases of debt by the FRB-NY’s trading desk and its customers/counterparties) is largely unpredictable, so too now is the volume and rate of expansion in the money stock on even a quarter-to-quarter basis. Instead of couching its instructions in terms of reserves available for private non-bank deposits (RPDs), as the FOMC did in 1972, FOMC policy has now been undermined.

  35. Gravatar of Matthew Waters Matthew Waters
    6. March 2017 at 21:50

    I was also surprised at the late-70’s and early-80’s increase in fixed nonresidential construction. The economy was in bad shape and the stock market was in very deep bear market.

    Doing some digging, the nonresidential fixed investment went up first with oil exploration and then with commercial real estate. The latter was from changes in tax code and availability of bank loans.

    http://academics.wellesley.edu/Economics/case/PDFs/CommercialRealEstate.sept1992.pdf

    The late-90’s boom was, I’m guessing, driven by investment in things like fiber construction and software.

    My thoughts on this data probably isn’t going to make Professor Sumner happy. All of these booms, uh, didn’t make their investors much money. I see a lot of malinvestment here.

    Without going into the reasons for malinvestment, malinvestment could make fixed investment hurt rather than help ultimate productivity. An irrational boom/bust cycle incentivizes learning skills which do not have sustainable demand. For example, the mid-00’s created more mortgage brokers than otherwise would have existed. The mortgage brokers may have learned a different, more sustainable skill.

    This is pretty wild theory, but seems to fit with the data. If you include both residential and nonresidential investment, late-70’s through 2008 consistently had a higher percentage of GDP than the 50’s and 60’s. If this higher percentage was from malinvestment, then the fixed investment hurt productivity.

    https://fred.stlouisfed.org/series/A007RE1Q156NBEA

  36. Gravatar of Matthew Waters Matthew Waters
    6. March 2017 at 22:17

    “Also I don’t see how you can even attempt to analyze this without looking at tax rates on capital.”

    There is little evidence for high elasticity between tax on capital and investment. There is high elasticity for higher short-term realizations. There is also high elasticity as tax treatment changes between different investments.

    Usually arguments for capital gains tax cuts say there will be a PERMANENT increase in OVERALL investment. This elasticity has been found to be low, close to zero. People’s saving decisions depend overwhelmingly on their age and their income/wealth levels. In extreme, Bill Gates and Warren Buffett won’t suddenly change from investment to consumption if capital gains rates go up a little bit. If anything, they will transfer the lion’s share of their assets to charity and avoid the tax anyway.

    https://fas.org/sgp/crs/misc/R40411.pdf

  37. Gravatar of dtoh dtoh
    7. March 2017 at 06:24

    Matthew,

    “There is little evidence for high elasticity between tax on capital and investment.”

    Other than logic and common sense. Seriously this is like the “minimum wage” doesn’t impact employment argument. It’s a partisan argument using garbage data by people who have no clue how the real world works.

  38. Gravatar of Gabe Harris Gabe Harris
    7. March 2017 at 08:10

    I wonder how much of current “investment” is going into super high inflation areas like health care costs for workers and taxes or permitting and/or environmental impact studies approval process for projects….like that 18% of GDP going into investment now might be about the equivalent of 8% in 1979…if you account for how much less a dollar goes in certain endeavors.

  39. Gravatar of Matthew Waters Matthew Waters
    7. March 2017 at 14:39

    dtoh,

    The parallel with capital gains taxes is not a minimum wage but marginal tax rates. In theory, the top tax rate goes from 35% to 39.6% and some CEO’s will quit and play golf all day.

    Sure, there are probably some cases where a change in the marginal rate is the deciding factor to not work. But most high-earners will keep working. Plus lower tax rates can have the opposite effect: CEO’s decide to play golf instead because they coukd save more from higher after-tax income.

    I didn’t say the elasticity of capital gains was definitely zero. Just that studies show it to be very low. What do you think the elasticity is? Infinite? In that case, a capital gains increase would lead to ZERO investment. That clearly is not the case from past cap gains increases.

  40. Gravatar of ssumner ssumner
    7. March 2017 at 14:47

    dtoh, Taxes on capital were pretty high in the 1950s and 1960s, and growth was pretty strong. I do agree that it’s a (negative) factor, but it doesn’t seem that decisive to me.

  41. Gravatar of Scott Freelander Scott Freelander
    7. March 2017 at 15:31

    Look forward to your next Trump post. Ready to laugh at Trumpista rationalizations for his recent behavior.

  42. Gravatar of bill bill
    7. March 2017 at 15:39

    @ Don Geddis and @ Major Freedom,
    There is one interest rate being set by fiat. The rate for IOR. And that one is clearly ABOVE the market rate.

  43. Gravatar of dtoh dtoh
    7. March 2017 at 16:48

    Scott,
    I’ve said this a zillion times and I mentioned it in my earlier comment. The rates alone are meaningless. You absolutely have to look at distribution of returns. You get radically different expected after tax returns depending on the distribution of pre-tax returns. With low or no asymmetry (SD=0) very HIGH tax rates will still result in positive expected after tax returns, while with high asymmetry even very low tax rates will result in negative expected after tax returns.

    You have to look at both the tax rates and the distribution of returns. Any analysis without taking this into consideration will produce garbage results.

  44. Gravatar of flow5 flow5
    9. March 2017 at 07:30

    We necessarily have regulated capitalism, not laissez-faire capitalism. Oligarchic monopoly power is crushing the U.S. Whereas in the banking system, interstate banking is ultimately contractionary (negative), in the medical insurance industry: interstate funding, tort reform, drug company concessions, and a single payer, would be deflationary. The fact that we don’t know who made contributions to influence legislation is also cost/price un-restrictive.

  45. Gravatar of ssumner ssumner
    10. March 2017 at 12:34

    dtoh, You said:

    “Any analysis without taking this into consideration will produce garbage results.”

    OK, then please provide the analysis.

    I doubt the asymmetry has changed very much.

  46. Gravatar of dtoh dtoh
    10. March 2017 at 17:50

    Scott,
    You’re the economist. You can do the analysis. Just give me a shout out when you make your speech in Stockholm :)

    Of course business investment is much riskier than in the 50s and 60s. Do you seriously doubt that.

  47. Gravatar of JustinD JustinD
    14. March 2017 at 15:01

    Scott,

    It’s been over a week since you posted this, but I think you are right that the slowdown in trend real GDP growth began before the great recession.

    In 2006Q1, unemployment fell to 4.73% (4.7, 4.8 and 4.7 were the 3 monthly totals). It was about the same in 2007Q4, 4.8% (4.7, 4.7 and 5.0). A very slight deterioration, and one that really only happened in December.

    So we can take the GDP growth between those two periods to be evidence of what trend GDP was at that time. Real GDP expanded during that period at a 1.74% annual pace.

    Employment (taking quarterly averages), rose at a 1.12% annual pace, meaning real GDP per worker was barely growing at a 0.6% pace.

    Now, unemployment is essentially the same between 2007Q4 and 2016Q4 (even the U-5, which takes into account discouraged workers and the marginally attached). Over that period, GDP has grown at a 1.28% pace, with employment up at a 0.43% pace (again using quarterly averages for employment figures) and GDP per worker rising at a bit over 0.8%.

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