
Experts Keep Getting the Economy Wrong - FactolSarin
https://www.nytimes.com/2019/03/10/opinion/us-economy-stagnation-growth.html
======
burlesona
From the article:

> Beside a lack of competition, the investment slump stems from what Summers
> calls the de-massification of the economy. Developers aren’t building as
> many malls and stores, because goods now go straight from warehouses to
> homes. Offices don’t need as much storage space. Cellphones have replaced
> not just desktop computers but also cameras, stereos, books and more. Many
> young people have decided they’re happy living in small apartments, without
> cars.

My reaction to that is LOL. Those changes represent forward progress, we can
have more and better stuff easier than before, and/or our preferences have
changed. If that somehow is “the cause” of our “economic suffering,” then
maybe it’s time to change the way we measure.

~~~
wwweston
Measurement is, of course, a key issue, but it's less clear than you think
that these changes represent forward progress.

Device convergence is pretty handy, and the shift towards spacial minimalism
suits me nicely.

Is having less time in shared physical space, fewer "third places" really
good? Do virtual replacements -- and their tendency toward sorted-ness --
really replace them effectively?

But most of all, a narrower demand profile leads to people who are left out of
the labor market (and an even larger number of people who may be included but
are poorly rewarded).

Make sure any alternatie measure you suggest keeps an eye on these issues.

~~~
Novashi
>the shift towards spacial minimalism suits me nicely.

It hasn't for me. Rent has gone in the opposite direction as I've downsized.

We haven't optimized low-cost, small, quality homes despite all of
technological progress and I'm pretty sure it's intentional.

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gridlockd
Why is the income of the 0.01% rising so drastically? Because it is based on
assets like stock and real estate, which are inflating at a rate completely
detached from the actual economy.

Why are asset prices inflating? Because of a policy of easy and cheap money,
worldwide.

Why is there a policy of easy and cheap money? To "boost" the zombie
economies.

Why boost the zombie economies? To maintain zombie jobs and prevent
unemployment.

Why not just take a shortcut and hand out cash directly to the people? Because
then _all_ prices, including consumer goods, will inflate.

The "solution" isn't tax cuts, it's a massive re-pricing and it'll happen on
its own. Something like what happened to Japan in the nineties.

~~~
__ralston3
Love the list/bulleted way that this is presented. Obviously missing a lot of
granular points, but at a high level, I think this is spot on

~~~
thundergolfer
It's missing the fact that the 0.01% are so ridiculously wealthy already
because they control fabulously profitable enterprises, and they keep the
produced value of those enterprises with insufficient distribution to everyone
else.

Absent cheap-money, they'd still be in a inequitable position that wouldn't
correct itself on its own.

~~~
gridlockd
> It's missing the fact that the 0.01% are so ridiculously wealthy already
> because they control fabulously profitable enterprises, and they keep the
> produced value of those enterprises with insufficient distribution to
> everyone else.

What do you consider "fabulously profitable"? Take a peek here for a reality
check:

[https://insight.factset.com/sp-500-reporting-record-high-
net...](https://insight.factset.com/sp-500-reporting-record-high-net-profit-
margin-for-q1-2018)

A "record high" average profit margin only equals to around 10% and at least
theoretically that needs to balance out the bad years.

> Absent cheap-money, they'd still be in a inequitable position that wouldn't
> correct itself on its own.

Of course inequity will remain, even if everyone lost 90% of their paper
wealth, the ratios remain the same. However, you're implying there is a
problem with inequity, I submit to you that you _need_ inequity.

If all the money were to be expropriated and spread out to all the people,
there is nothing left for investment. Individually, the money just doesn't
amount to much and it would likely be consumed right away, or used to pay off
debt. Over time, that money would accumulate at the top again, but in the
meantime, you would have an economic disaster.

Of course you could have the government do all the investment, but that just
means you shifted all that inequity from private individuals (who at least in
theory will use their money somewhat wisely) to a bureaucracy which has no
incentive to be efficient.

The real problem is that we have a monetary policy that protects poor
investment. There is no need for private individuals to manage their wealth
properly, to make informed investments, etc. All they need to do is put their
money into diversified stocks and real estate, because they can rely on the
governments bailing them out if things go south.

------
huffmsa
> _Last week, while attending an economics conference in Washington, I
> discovered one particularly clear sign of the economy’s struggles — namely,
> that it keeps performing worse than the experts have predicted._

Sounds like the "experts" aren't that good at their jobs and so are blaming
"the economy" for making them look like fools.

What do you call an expert poker player who loses every hand? A loser. Money
talks, bullshit walks.

Economics is a hack field, no matter how many Krugmans pretend they're gods.

"Discussing growth without concern for fragility: like studying construction
without thinking of collapses. Think like engineer not economist." \-- Taleb

------
dboreham
Isn't this just the same as sales forecasts inside a company or software
development project schedule estimates? Nobody gets promoted for saying "it's
very hard to predict how long it will take to develop software, but it'll
probably take a long time, much longer than you'd like". Similarly nobody gets
a promotion from forecasting that we're doomed. So there's a built in optimism
bias.

~~~
0815test
The best forecasts are always provided by market indicators. And these
indicators seem to be agreeing that we are in stagnation territory, though we
might still manage to achieve a nice "soft landing" that doesn't lead to
slipping into an outright recession.

------
rpeden
What if we've entered an era where this is the new normal? Where the kind of
growth we've seen in the past isn't something we can expect anymore?

I'm asking because I'm genuinely curious and I have no idea whether this is a
reasonable hypothesis or not. I'm hoping others here can point me toward what
I should be reading to learn more.

~~~
AlanSE
It's not only reasonable, but is becoming increasingly accepted. I finished
this book a little while ago:

[https://www.amazon.com/Rise-Fall-American-Growth-
Princeton/d...](https://www.amazon.com/Rise-Fall-American-Growth-
Princeton/dp/153661825X)

But it really said the same thing that many other economics books said. If you
read Thomas Piketty, you know that inequality basically comes down to the end
of growth. He starts with the mostly-factual premises that growth will remain
stalled while capital returns will continue at their historical rates. I'm
still unsure about the latter premise myself, but the former is undeniable.

But we also need to distinguish economic growth from quality of life
improvements. Quality of life, necessarily, has to come from productivity
improvements (not in the dictionary sense of those words, but in the macro
economic sense). The US GDP could be partially buoyant due to immigration, and
partially due to demographics.

To some of the points of the article - companies would invest more if there
was an expectation that new technologies were fundamentally transformative. I
don't get that sense.

~~~
zone411
Have you also read the criticisms of Pikkety's book? I would find it hard to
recommend this book. [https://en.wikipedia.org/wiki/Capital_in_the_Twenty-
First_Ce...](https://en.wikipedia.org/wiki/Capital_in_the_Twenty-
First_Century#Criticism)

~~~
AlanSE
I didn't really recommend it, and the reason I borrowed from it in my comment
was for an economic point which was not its main focus.

To borrow from your own link:

> Lawrence Summers criticizes Piketty for underestimating the diminishing
> returns on capital, which he believes will offset the return on capital and
> hence set an upper limit to inequality.

We are moving further away from the original point, but this is very close to
what I said. Sometimes a complex topic doesn't need to be complex. What
Pikkety argued was simple math - almost high school level math. He still spent
decades doing the research groundwork (very very complex), but the take-away
for the rest of us is very simple.

If we return to a low-growth world, then it's very very hard for me to accept
that returns on capital will remain high. From where will these returns come
from?

Pikkety only has 1 real reference point for the high-inequality world, and
that was the 1800s.

One very very major unanswered question for Pikkety is this - if capital
returns hold strong indefinitely, where will the negative feedback come from?

I could never tell if the book was literally apocalyptic. If you
mathematically describe something which multiplies infinitely, then either
you're making the point that some negative feedback is missing, or you're
predicting collapse for any real world system where that model applies (also a
negative feedback, just a very jerky one).

I think he thought that in the 1800s, the rich found a way to balance their
expenses with their income. This is silly. Perhaps there was no means of re-
investment due to the illiquidity of land. This is also silly. Anyway, I can
still accept that some negative feedback from people's behavior existed in the
1800s, but even if I do, I don't accept that such a feedback would exist
today. Rich people today have no natural limit to how rich they want to be,
and no neo-feudalistic system that prevents further expansion. This all argues
for the apocalyptic interpretation.

My take - I don't think we can be at low growth for long. If we are, things
will start to change Perhaps climate change, perhaps war. We're not going to
just hang out in that state. Maybe we can then stay at low-growth, but low-
growth with capital destruction. However, the more disruptive historical
events tend to bring back growth. I think potential for technological
productivity growth is still very very possible, but with a restructured way
of life. Right now, the incentives just don't work. That's all.

------
chillacy
Every year the GDP grows while inequality gets worse. This is going to come
home when most Americans look at the topline stats (GDP and unemployment)
getting better while their own lives get worse. Are we optimizing the wrong
thing?

~~~
chrisco255
Their lives aren't getting worse. Income grew last year.

A couple of things need serious addressing: cost of housing (almost entirely
due to protectionist zoning laws), cost of education (starting to think boot
camps and trade schools aren't such a bad idea after all) and cost of
healthcare.

I think there's solutions for those three.

~~~
seanmcdirmid
Income growth doesn’t mean equity. It is still getting harder for poor people
and easier for rich people.

Housing isn’t just, or even primarily, protectionist zoning laws. Many places
really are space constrained, and even going for density doesn’t always reduce
costs (many of the densest cities are the most expensive).

As for education and healthcare, these are problems that other developed
countries have solved and so are uniquely American.

~~~
JamesBarney
> many of the densest cities are the most expensive

I don't think the causation runs from dense to expensive. It's desirability
that is causing both density and expensiveness.

What do you think has a larger influence on housing prices than protectionist
zoning and other regulations that severly restrict supply?

~~~
harimau777
For sake of argument: Might NIMBY sentiment actually be due to insufficient
regulations? I'd be a lot more comfortable with someone building near me if I
was confident that they weren't going to build some soulless concrete eyesore.

~~~
strstr
Isn’t this definitionally NIMBY? Might not match modern usage of “all the
housing all the time”, but seems in lines with the words as written.

------
dmix
The author wrote pretty much the same article in 2012 called Obamanomics
[https://www.nytimes.com/2012/09/30/sunday-
review/obamanomics...](https://www.nytimes.com/2012/09/30/sunday-
review/obamanomics-a-counterhistory.html)

------
blackflame7000
I hate articles that call people experts and then build their argument on the
assumption that the expert can’t be wrong

~~~
huffmsa
It's what happens when you don't have to prove your expertness with measurable
metrics.

------
rdiddly
_" There are two main culprits. The first is a savings glut."_

Aaand, this is where they always go off the rails. Still selling that old
trope, eh? Looks like we found another "expert" about to "get the economy
wrong."

~~~
amanaplanacanal
Yeah that is weird. China was growing like gangbusters when they were saving
50% of their income.

------
alexnewman
Warning this is a very difficult subject. Please consider responding before
voting me down.

Economics is plagued by three major problems.

\- History \- Momentum \- Incentives

I do not believe it is reasonable to believe that economics is a tool of elite
bankers even though they are clearly the most well supported humanity subject
in colleges. What I do think what happened was after ww2 we solidified on a ya
reserve currency (vs bancor) and an economic model which assumes a loanable
funds model. Because so much of central banking is about stability and
predictability, the fed has mostly acted along the same framework since the
40s. However, we are starting to see a change in the policy of the english and
german central banks. This is probably due to the super toxic italian Euro ->
German Euro arb and brexit. Europe is going to deploy australian style relief
in the upcoming european economic disaster

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franzwong
If growth is supported by overborrowing the future, perhaps it is better to
have no growth

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SubiculumCode
Perhaps, just perhaps, the worldwide rounds and rounds of austerity just
didn't work.

------
lucidguppy
I think humanity is burnt out on this version of civilization.

