TFP growth rate is falling towards zero or rising at an additive rate is not at all the same statement. Phillipon and Peters' point is a very different statement than Gordon's.
It would be better to promote productive investment that increases the supply of goods and services in a noninflationary manner, but the current political environment is an impediment. There is a strong push to switch to less efficient means of energy production to decrease carbon emissions. There is also a cultural and political segment that believes we must lower our consumption of goods and services to protect the environment. I believe these policies will increasingly lead to radical politics on the left and right of the political spectrum. On the bright side, labor shortages might help to redirect the benefits of growth more equitably, and technological and scientific advances might help us out of this quagmire.
Understanding Capital Cycles (Capital Returns) agrees with the Demand/Supply hypothesis!
A.I. “It’s competently incorrect”…There is a huge diff between assuming and learning.
--It's a TOOL (A.I.) stupid (not you Mike/a metaphor)--
EOD AI is a capability that increases efficiency/productivity or a “TOOL” for all workers/entities and likely to increase content creators….importantly it will/can create questions toward a new hypothesis of which you have not thought of as you execute better decisions. Finally this will/may stoke the fire of “Data-Ownership”…TBD on outcome and no judgement either.
Last Question: Does it democratize something? (Josh Wolfe) Entropy…where is there an abundance of something and a scarcity of something? Just another tool that helps you be more productive…can it be exploited yes, but do you know what exploits more than anything be it structured or unstructured data? "Entrenched-Belief" and those are nearly impossible to change of which peeps are always confirming their own biases…nothing new under the sun but we can always be/do better. GL
Let's hope A.I. gets imbedded in their decision matrix fast so they can discern the environment better as they maneuver thru it...gonna take more pain! One funeral at a time. Models are like Beliefs...tough to get peeps to see differently...Incentives & Culture! Two things destroy culture...same for change: Indifference & Entitlement for your chosen winner(s).
IMO, *incentives*, both public and private, are misaligned with productive growth and social harmony. Our oligopolistic companies have little incentive to do anything but maximize profits by holding costs down (labor, investment in new capacity) and prices up (whatever the market will bear). Politicians, whose re-election campaigns depend on funding from those same oligopolist companies, have little incentive to change either tax policy or regulations on those same companies (don't bite the hand that feeds you).
There are many interrelated causes of the decline in TFP but many align to the increasing financialization of our economy. Junk bonds, strip and burn private equity, management payouts via inflated stock prices, monopolies, etc. are all focused on extracting rather than building. When companies do invest aggressively (which is a rarity) they grow rapidly.
While many may decry Amazon as a monopoly, they have radically improved productivity through their incredible logistics capabilities (as Walmart had done before them). And how many companies exist today only because of AWS. Investors were patient capital with Amazon, suffering through years of losses to get to today.
In many respects, Tesla is doing the same. Electric cars wouldn't be the same without Tesla. A car as software - Tesla. New distribution model - Tesla. Global charging network - Tesla. New manufacturing technology (Gigapress) - Tesla. Again, patient capital was required to make this work (and yes, a lot of government payments).
Are there things to not like about Amazon and Tesla? Yes. And for every Amazon there are plenty of zombie companies that are only alive through the grace of (or hope for) zero interest rates.
The solution is via strengthening and aggressive enforcement of antitrust rules and likely taxation. It will be difficult to aggressively push for enhanced antitrust action with political campaigns so expensive and the revolving door between government and industry. And fairer taxation is just a dream if we're not even willing to do the minimum re: carried interest.
My fear is that while the idea of increased investment leading to better outcomes is arguably preferred from a purely economic basis, undoubtedly that will result in some people gaining more of the benefits of the new, larger pie, than others and that is anathema to many today, especially the current administration. And so, under the guise of achieving equal outcomes, they will have the opportunity to crash the economy and make everyone poor (except of course the government).
Conclusion: An narrow (and increasingly so) set of economic winners have won too much for too long. Flawed ideas about the supply of growth (exponential vs. incremental) have led to a distribution of that growth that is suboptimal for societal cohesion. Did I get it right?
But in the early parts of the piece, you mention that Gordon’s model suggests lack of supply is the problem. But supply of what? Is it a lack of labor? A lack of trained labor? Too narrow a capital base?
What does “investment that raises additive growth” look like practically speaking?
Investment that raises additive growth includes increasing human capital (superior education, nutrition, childcare, universal healthcare for children, etc) and investments that can be broadly shared -- infrastructure improvements, energy supplies, etc
Methodologically - isn't it the same as saying that TFP is falling towards zero and the only growth we get is only extensive growth, a la Middle Ages? Gordon's argument, that todays innovation can't hold water to past innovation. Then you don't really need Ole Peters work, entia non sunt multiplicanda paeter necessitatem.
TFP growth rate is falling towards zero or rising at an additive rate is not at all the same statement. Phillipon and Peters' point is a very different statement than Gordon's.
We doin't know how to get where you'd like to get. "To redistribute the benefits of additional growth in a manner that is more conducive to societal harmony" is the goal, I believe, of many politicians, but in a globalized world with global competition for the cheapest labor this ain't working without strict regulation, sanctions on foreign productive capacity, and the resulting domestic inflation. I'd love to hear your view on how this can be done in practicality. How do we get there from here without a deep global crisis? What are the measures or steps we'd demand from our politicians and industrial leaders?
Thank you, I “discovered” you through Triggernometry. I am not an economist, just a lay reader, irrespective I am enjoying your articles and the process of becoming less under informed. I used to be a fan of the Economist magazine, but gave up on it in the 2000s (after 20years - changes in editors and owners post the mid 90s), and your Substack looks as if it will fill that gap.
Productivity increases may be linear (which make sense as a "leverage factor" in otherwise exponential growth), but the benefits will precipitate according to a Pareto distribution. In other words, 50% of the windfall from generative AI will be skimmed off and collected by the 0.1%. Barring forceful redistribution, I think the trajectory in the US is pretty much foregone (ha-ha, "moderately pessimistic"). How China handles its own AI boom will be a critical question for their social stability via "common prosperity". Unfortunately I believe the lesson from history that a population divided and polarized against itself along class lines has faded out of living memory in the United States.
What do you think over the idea that there’s an ideal range for investment capital?
Too little investment relative to demand and inflation soars as supply can’t keep up. This is where you’d see the wage-price spiral and higher levels of return to labor.
Too much investment relative to demand, often in times of high wealth disparity, and inflation is a problem as investment goes toward monopolizing industries and hoarding scarce assets rather than increasing production.
It seems prevailing thought is stuck on the “more investment capital is always better” approach.
It's a great question and feeds directly from a model of additive growth. If growth is additive, rather than multiplicative, then too much investment is malinvestment and perversely drives inflation as we lower costs too much in some areas and not enough in others.
The monopoly rules that come with all government sovereignty - whether additive or compounding in their effects on growth - are a permanent burden on all growth in incomes and savings/investment. It is the problem Clarence Darrow identified when he said of himself that it was easy to be a defender of the poor but much harder simply to be poor. That is the inescapable defect in all schemes of sharing; the people in government will always have the ability to cut the cake and then decide which slices they get as the administrators of the helping and sharing
Man... you really know how to spoil a party, don't you? ;) Next week we'll start to delve into energy as a unique, non-rivalous good under normal conditions.
Really enjoy the sweeping historical perspective. What policies would you specifically change and implement? Maybe another piece. I also am fascinated by impact AI could have on developing countries. Will it help address skilled labor shortages? Or will it add another barrier to middle income trap.
TFP growth rate is falling towards zero or rising at an additive rate is not at all the same statement. Phillipon and Peters' point is a very different statement than Gordon's.
It would be better to promote productive investment that increases the supply of goods and services in a noninflationary manner, but the current political environment is an impediment. There is a strong push to switch to less efficient means of energy production to decrease carbon emissions. There is also a cultural and political segment that believes we must lower our consumption of goods and services to protect the environment. I believe these policies will increasingly lead to radical politics on the left and right of the political spectrum. On the bright side, labor shortages might help to redirect the benefits of growth more equitably, and technological and scientific advances might help us out of this quagmire.
Understanding Capital Cycles (Capital Returns) agrees with the Demand/Supply hypothesis!
A.I. “It’s competently incorrect”…There is a huge diff between assuming and learning.
--It's a TOOL (A.I.) stupid (not you Mike/a metaphor)--
EOD AI is a capability that increases efficiency/productivity or a “TOOL” for all workers/entities and likely to increase content creators….importantly it will/can create questions toward a new hypothesis of which you have not thought of as you execute better decisions. Finally this will/may stoke the fire of “Data-Ownership”…TBD on outcome and no judgement either.
Last Question: Does it democratize something? (Josh Wolfe) Entropy…where is there an abundance of something and a scarcity of something? Just another tool that helps you be more productive…can it be exploited yes, but do you know what exploits more than anything be it structured or unstructured data? "Entrenched-Belief" and those are nearly impossible to change of which peeps are always confirming their own biases…nothing new under the sun but we can always be/do better. GL
"It's a tool." Absolutely correct. Amazing how flawed hammers are at drilling holes.
Let's hope A.I. gets imbedded in their decision matrix fast so they can discern the environment better as they maneuver thru it...gonna take more pain! One funeral at a time. Models are like Beliefs...tough to get peeps to see differently...Incentives & Culture! Two things destroy culture...same for change: Indifference & Entitlement for your chosen winner(s).
When government policies promote not working and punish working - you get less labor supply and lower growth - who would'da guessed?
IMO, *incentives*, both public and private, are misaligned with productive growth and social harmony. Our oligopolistic companies have little incentive to do anything but maximize profits by holding costs down (labor, investment in new capacity) and prices up (whatever the market will bear). Politicians, whose re-election campaigns depend on funding from those same oligopolist companies, have little incentive to change either tax policy or regulations on those same companies (don't bite the hand that feeds you).
This is my take as well. The question is how do we begin realigning? Likely starts with anti-trust enforcement.
There are many interrelated causes of the decline in TFP but many align to the increasing financialization of our economy. Junk bonds, strip and burn private equity, management payouts via inflated stock prices, monopolies, etc. are all focused on extracting rather than building. When companies do invest aggressively (which is a rarity) they grow rapidly.
While many may decry Amazon as a monopoly, they have radically improved productivity through their incredible logistics capabilities (as Walmart had done before them). And how many companies exist today only because of AWS. Investors were patient capital with Amazon, suffering through years of losses to get to today.
In many respects, Tesla is doing the same. Electric cars wouldn't be the same without Tesla. A car as software - Tesla. New distribution model - Tesla. Global charging network - Tesla. New manufacturing technology (Gigapress) - Tesla. Again, patient capital was required to make this work (and yes, a lot of government payments).
Are there things to not like about Amazon and Tesla? Yes. And for every Amazon there are plenty of zombie companies that are only alive through the grace of (or hope for) zero interest rates.
The solution is via strengthening and aggressive enforcement of antitrust rules and likely taxation. It will be difficult to aggressively push for enhanced antitrust action with political campaigns so expensive and the revolving door between government and industry. And fairer taxation is just a dream if we're not even willing to do the minimum re: carried interest.
100%
My fear is that while the idea of increased investment leading to better outcomes is arguably preferred from a purely economic basis, undoubtedly that will result in some people gaining more of the benefits of the new, larger pie, than others and that is anathema to many today, especially the current administration. And so, under the guise of achieving equal outcomes, they will have the opportunity to crash the economy and make everyone poor (except of course the government).
I agree which is why I am forced to recommend redistribution (tax) over rate (monetary) policy
Conclusion: An narrow (and increasingly so) set of economic winners have won too much for too long. Flawed ideas about the supply of growth (exponential vs. incremental) have led to a distribution of that growth that is suboptimal for societal cohesion. Did I get it right?
But in the early parts of the piece, you mention that Gordon’s model suggests lack of supply is the problem. But supply of what? Is it a lack of labor? A lack of trained labor? Too narrow a capital base?
What does “investment that raises additive growth” look like practically speaking?
Thank you as always Mike.
Stan
Investment that raises additive growth includes increasing human capital (superior education, nutrition, childcare, universal healthcare for children, etc) and investments that can be broadly shared -- infrastructure improvements, energy supplies, etc
Methodologically - isn't it the same as saying that TFP is falling towards zero and the only growth we get is only extensive growth, a la Middle Ages? Gordon's argument, that todays innovation can't hold water to past innovation. Then you don't really need Ole Peters work, entia non sunt multiplicanda paeter necessitatem.
TFP growth rate is falling towards zero or rising at an additive rate is not at all the same statement. Phillipon and Peters' point is a very different statement than Gordon's.
We doin't know how to get where you'd like to get. "To redistribute the benefits of additional growth in a manner that is more conducive to societal harmony" is the goal, I believe, of many politicians, but in a globalized world with global competition for the cheapest labor this ain't working without strict regulation, sanctions on foreign productive capacity, and the resulting domestic inflation. I'd love to hear your view on how this can be done in practicality. How do we get there from here without a deep global crisis? What are the measures or steps we'd demand from our politicians and industrial leaders?
Thank you, I “discovered” you through Triggernometry. I am not an economist, just a lay reader, irrespective I am enjoying your articles and the process of becoming less under informed. I used to be a fan of the Economist magazine, but gave up on it in the 2000s (after 20years - changes in editors and owners post the mid 90s), and your Substack looks as if it will fill that gap.
Productivity increases may be linear (which make sense as a "leverage factor" in otherwise exponential growth), but the benefits will precipitate according to a Pareto distribution. In other words, 50% of the windfall from generative AI will be skimmed off and collected by the 0.1%. Barring forceful redistribution, I think the trajectory in the US is pretty much foregone (ha-ha, "moderately pessimistic"). How China handles its own AI boom will be a critical question for their social stability via "common prosperity". Unfortunately I believe the lesson from history that a population divided and polarized against itself along class lines has faded out of living memory in the United States.
"Forceful redistribution" is simply progressive tax rates on income and inherited wealth. It's not "hard", it's just hard politically.
Interesting article.
What do you think over the idea that there’s an ideal range for investment capital?
Too little investment relative to demand and inflation soars as supply can’t keep up. This is where you’d see the wage-price spiral and higher levels of return to labor.
Too much investment relative to demand, often in times of high wealth disparity, and inflation is a problem as investment goes toward monopolizing industries and hoarding scarce assets rather than increasing production.
It seems prevailing thought is stuck on the “more investment capital is always better” approach.
It's a great question and feeds directly from a model of additive growth. If growth is additive, rather than multiplicative, then too much investment is malinvestment and perversely drives inflation as we lower costs too much in some areas and not enough in others.
The monopoly rules that come with all government sovereignty - whether additive or compounding in their effects on growth - are a permanent burden on all growth in incomes and savings/investment. It is the problem Clarence Darrow identified when he said of himself that it was easy to be a defender of the poor but much harder simply to be poor. That is the inescapable defect in all schemes of sharing; the people in government will always have the ability to cut the cake and then decide which slices they get as the administrators of the helping and sharing
Interesting thoughts… Have you ever analyzed Robert Ayres work on total factor productivity? I’d be interested to hear what you think.
Man... you really know how to spoil a party, don't you? ;) Next week we'll start to delve into energy as a unique, non-rivalous good under normal conditions.
Really enjoy the sweeping historical perspective. What policies would you specifically change and implement? Maybe another piece. I also am fascinated by impact AI could have on developing countries. Will it help address skilled labor shortages? Or will it add another barrier to middle income trap.