I’m not sure which it is since I never met the guy, but it really is tiresome to see people try to pass off as a serious argument on health care something that anyone with any knowledge on the topic knows to be false. In a column touting the virtues of health savings accounts, so that we can all do comparison shopping for our colonoscopies, Stephens pronounced Obamacare a failure.
He notes the high rate increases in the last two years for insurance plans offered on the exchanges (ignoring the fact that the costs were originally below projections, so that premiums are now roughly in line with the projections from before the plan was passed). He then tells readers:
“Same deal for employer-sponsored plans. ‘While Sen. Obama promised during his campaign in 2008 that the average family would see health insurance premiums drop by $2,500 per year, the average family premium for employer-sponsored coverage has risen by $3,671,’ noted Maureen Buff and Timothy Terrell in the Journal of American Physicians and Surgeons. That was back in 2014, and premiums continue to rise.”
Okay Obama’s $2,500 drop in premium number was relative to a growing baseline. This was completely obvious at the time and was apparent to anyone who spend two seconds looking at the projections. Health care costs had been rising 6 to 7 percent annually for decades. Obama was not saying that his plan would reverse this pattern and actually cause costs to decline. He was talking about costs relative to the baseline projection of growth. (Costs actually have dropped relative to baseline projections even more than Obama projected, although it is debatable how much the Affordable Care Act is responsible.)
Everyone following the debate fully understood that Obama was making his claim relative to a baseline of rising cost growth, since it would have been completely absurd for him to claim he would actually cause premiums to fall in nominal terms. If Stephens is unaware of this fact, his level of ignorance on health care is truly astounding. Alternatively he could just be lying, deliberately misrepresenting Obama’s promises to score a cheap political point.
Either way, it doesn’t speak well for Stephens. I know the NYT has an affirmative action policy for conservatives, but this is ridiculous.
I’m not sure which it is since I never met the guy, but it really is tiresome to see people try to pass off as a serious argument on health care something that anyone with any knowledge on the topic knows to be false. In a column touting the virtues of health savings accounts, so that we can all do comparison shopping for our colonoscopies, Stephens pronounced Obamacare a failure.
He notes the high rate increases in the last two years for insurance plans offered on the exchanges (ignoring the fact that the costs were originally below projections, so that premiums are now roughly in line with the projections from before the plan was passed). He then tells readers:
“Same deal for employer-sponsored plans. ‘While Sen. Obama promised during his campaign in 2008 that the average family would see health insurance premiums drop by $2,500 per year, the average family premium for employer-sponsored coverage has risen by $3,671,’ noted Maureen Buff and Timothy Terrell in the Journal of American Physicians and Surgeons. That was back in 2014, and premiums continue to rise.”
Okay Obama’s $2,500 drop in premium number was relative to a growing baseline. This was completely obvious at the time and was apparent to anyone who spend two seconds looking at the projections. Health care costs had been rising 6 to 7 percent annually for decades. Obama was not saying that his plan would reverse this pattern and actually cause costs to decline. He was talking about costs relative to the baseline projection of growth. (Costs actually have dropped relative to baseline projections even more than Obama projected, although it is debatable how much the Affordable Care Act is responsible.)
Everyone following the debate fully understood that Obama was making his claim relative to a baseline of rising cost growth, since it would have been completely absurd for him to claim he would actually cause premiums to fall in nominal terms. If Stephens is unaware of this fact, his level of ignorance on health care is truly astounding. Alternatively he could just be lying, deliberately misrepresenting Obama’s promises to score a cheap political point.
Either way, it doesn’t speak well for Stephens. I know the NYT has an affirmative action policy for conservatives, but this is ridiculous.
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Just kidding, we know that newspapers don’t make a point of running stories on incompetent bosses. Instead we have Obama administration car czar Steve Rattner telling us in a NYT column that manufacturers are not hiring because they can’t get qualified workers. His evidence is data from the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey which shows a rise in job openings reported in manufacturing, but little increase in hires. Rattner says that this is because firms can’t find qualified workers.
The problem with this explanation is that employers are not acting like they have a shortage of workers. As Rattner himself points out, the real hourly wage in manufacturing has risen by just 0.8 percent over the last decade. (This is cumulative, not an annual rate.) If firms really were trying to hire people but couldn’t find qualified workers then they would be offering higher wages to attract workers from their competitors. We don’t see this happening.
The other way that employers would respond to a lack of qualified workers is by working their existing workforce more hours. This doesn’t seem to be happening either as the graph below shows.
Average Weekly Hours: Manufacturing Workers
Source: Bureau of Labor Statistics.
While average hours are high, they are no higher than they were in 2013 and down from the peaks hit in 2014, periods when the labor market was considerably weaker by all measures. This picture is not consistent with an industry desperate for qualified workers.
Another item that needs correcting in Rattner’s piece is the claim that college-educated workers are doing well in the current economy. His column includes a chart that shows the wages of college-educated workers (including those with advanced degrees) have increased by 10.7 percent since 1979. (This is actually a growth rate of just 0.3 percent annually — not very impressive.) Since 2000, the median wage of workers with just a college degree has fallen by 1.5 percent. So, even college grads have not shared in the gains from growth in this century.
Just kidding, we know that newspapers don’t make a point of running stories on incompetent bosses. Instead we have Obama administration car czar Steve Rattner telling us in a NYT column that manufacturers are not hiring because they can’t get qualified workers. His evidence is data from the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey which shows a rise in job openings reported in manufacturing, but little increase in hires. Rattner says that this is because firms can’t find qualified workers.
The problem with this explanation is that employers are not acting like they have a shortage of workers. As Rattner himself points out, the real hourly wage in manufacturing has risen by just 0.8 percent over the last decade. (This is cumulative, not an annual rate.) If firms really were trying to hire people but couldn’t find qualified workers then they would be offering higher wages to attract workers from their competitors. We don’t see this happening.
The other way that employers would respond to a lack of qualified workers is by working their existing workforce more hours. This doesn’t seem to be happening either as the graph below shows.
Average Weekly Hours: Manufacturing Workers
Source: Bureau of Labor Statistics.
While average hours are high, they are no higher than they were in 2013 and down from the peaks hit in 2014, periods when the labor market was considerably weaker by all measures. This picture is not consistent with an industry desperate for qualified workers.
Another item that needs correcting in Rattner’s piece is the claim that college-educated workers are doing well in the current economy. His column includes a chart that shows the wages of college-educated workers (including those with advanced degrees) have increased by 10.7 percent since 1979. (This is actually a growth rate of just 0.3 percent annually — not very impressive.) Since 2000, the median wage of workers with just a college degree has fallen by 1.5 percent. So, even college grads have not shared in the gains from growth in this century.
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That seems to be the case in an article on the recent drop in fertility rates that warns:
“If the trend (lower fertility) continues — and experts disagree on whether it will — the country could face economic and cultural turmoil.”
That is more than a bit hard to see. If we do see a sustained drop in the fertility rate it will mean that eventually we will have higher rates of retirees to workers, assume no offsetting increase in immigration or an increase in labor force participation by either the prime-age population (ages 25 to 54) or older potential workers.
However, the economic implications of this rise in the ratio of retirees to workers are very modest. According to the Social Security Trustees Report, the impact of a sustained fall in the fertility rate would increase Social Security’s projected shortfall over the next 75 years by an amount equal to 0.36 percent of payroll over this period. This is equal roughly 0.12 percent of projected GDP. There are other costs, such as Medicare, that would also increase with a larger ratio of retirees to workers; however, this would be offset in part by reduced spending on education and health care for the young.
By comparison, the increase in military spending associated with the wars in Iraq and Afghanistan was close to 2.0 percentage points of GDP. While these wars have prompted some opposition and protest, it has not led to economic turmoil. It is difficult to see why an increase in spending that is perhaps one-tenth as large would be expected to cause economic turmoil.
It is also worth noting that plausible changes in productivity growth swamp the impact of even large changes in fertility rates. If the country, had sustained the rate of productivity growth it experienced from 1995 to 2005 (also from 1947 to 1973) over the last twelve years, it would have the equivalent effect on workers’ take-home pay as reducing the Social Security tax by 10 percentage points. If the rate of productivity can be boosted by just 0.1 percentage point, it would swamp the long-term impact of a lower fertility rate on workers’ living standards. And, this is before even taking into the account the benefits of reduced stress on infrastructure and the environment.
In short, we should worry if people don’t have children because they don’t think they can afford them. We need not worry about running out of people.
That seems to be the case in an article on the recent drop in fertility rates that warns:
“If the trend (lower fertility) continues — and experts disagree on whether it will — the country could face economic and cultural turmoil.”
That is more than a bit hard to see. If we do see a sustained drop in the fertility rate it will mean that eventually we will have higher rates of retirees to workers, assume no offsetting increase in immigration or an increase in labor force participation by either the prime-age population (ages 25 to 54) or older potential workers.
However, the economic implications of this rise in the ratio of retirees to workers are very modest. According to the Social Security Trustees Report, the impact of a sustained fall in the fertility rate would increase Social Security’s projected shortfall over the next 75 years by an amount equal to 0.36 percent of payroll over this period. This is equal roughly 0.12 percent of projected GDP. There are other costs, such as Medicare, that would also increase with a larger ratio of retirees to workers; however, this would be offset in part by reduced spending on education and health care for the young.
By comparison, the increase in military spending associated with the wars in Iraq and Afghanistan was close to 2.0 percentage points of GDP. While these wars have prompted some opposition and protest, it has not led to economic turmoil. It is difficult to see why an increase in spending that is perhaps one-tenth as large would be expected to cause economic turmoil.
It is also worth noting that plausible changes in productivity growth swamp the impact of even large changes in fertility rates. If the country, had sustained the rate of productivity growth it experienced from 1995 to 2005 (also from 1947 to 1973) over the last twelve years, it would have the equivalent effect on workers’ take-home pay as reducing the Social Security tax by 10 percentage points. If the rate of productivity can be boosted by just 0.1 percentage point, it would swamp the long-term impact of a lower fertility rate on workers’ living standards. And, this is before even taking into the account the benefits of reduced stress on infrastructure and the environment.
In short, we should worry if people don’t have children because they don’t think they can afford them. We need not worry about running out of people.
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I suppose that is their natural state. After all, they completely missed the housing bubble and then somehow expected the economy would bounce right back even though there was nothing to replace the demand generated by the bubble. Anyhow, at least according to this NYT article, they are very confused about the course of technology.
There are two big issues that the piece implies the bankers are missing. First, contrary to the concern of massive job displacement by robots, productivity growth has actually been very slow in recent years. It has averaged just over 1.0 percent annually over the last decade. This compares to a 3.0 percent annual rate in the long post-war Golden Age from 1947 to 1973 and again from 1995 to 2005.
It is also worth noting that these periods of rapid job displacement due to technology were also periods of low unemployment and rapid wage growth. (The 2001 recession, following the collapse of the stock bubble, put an end to the late 1990s wage growth.) There is no reason to blame weak wage growth and high unemployment on rapid productivity growth. If there is a weak labor market the problem is with macroeconomic policy that is leading to insufficient demand. (Bizarrely, this piece never once mentions trade deficits, which are a major drain on demand.)
The other big issue missing here is attributing distribution effects to technology. The ownership of technology is determined by policy, specifically rules on patents and copyrights, it is not determined by the technology. If we are seeing an upward redistribution associated with trends in technology, it would indicate that patents and copyrights are too long and too strong.
That would be a strong argument for making these forms of protection shorter and weaker (policy has been going in the other direction). There is no indication this topic even came up at the meetings. This suggests the central bankers are once again very confused about the economy.
I suppose that is their natural state. After all, they completely missed the housing bubble and then somehow expected the economy would bounce right back even though there was nothing to replace the demand generated by the bubble. Anyhow, at least according to this NYT article, they are very confused about the course of technology.
There are two big issues that the piece implies the bankers are missing. First, contrary to the concern of massive job displacement by robots, productivity growth has actually been very slow in recent years. It has averaged just over 1.0 percent annually over the last decade. This compares to a 3.0 percent annual rate in the long post-war Golden Age from 1947 to 1973 and again from 1995 to 2005.
It is also worth noting that these periods of rapid job displacement due to technology were also periods of low unemployment and rapid wage growth. (The 2001 recession, following the collapse of the stock bubble, put an end to the late 1990s wage growth.) There is no reason to blame weak wage growth and high unemployment on rapid productivity growth. If there is a weak labor market the problem is with macroeconomic policy that is leading to insufficient demand. (Bizarrely, this piece never once mentions trade deficits, which are a major drain on demand.)
The other big issue missing here is attributing distribution effects to technology. The ownership of technology is determined by policy, specifically rules on patents and copyrights, it is not determined by the technology. If we are seeing an upward redistribution associated with trends in technology, it would indicate that patents and copyrights are too long and too strong.
That would be a strong argument for making these forms of protection shorter and weaker (policy has been going in the other direction). There is no indication this topic even came up at the meetings. This suggests the central bankers are once again very confused about the economy.
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Realizing the unpopularity of their health care plan, the Republicans are now playing games with the word “cut,” to deny that their proposal would lead to large cuts in Medicaid spending over the next decade and beyond. The NYT ran a piece that ostensibly was intended to clarify the issue, but likely left readers more confused than they had been previously. The piece tells readers:
“At issue is whether the funding changes should be compared to the increases that would occur under current law, the Affordable Care Act, or whether the focus should be on the modest annual increases that would happen under the Republican bill.
“The White House says that Republicans are being victimized by a broken budgeting system that unfairly casts their fiscal restraint as callous cutting.”
The baseline for spending against which the Republican proposal is being measured is a baseline that assumes current levels of services and eligibility requirements are left in place. This can perhaps best be explained by a comparison with Social Security.
Under the law, workers are entitled to Social Security benefits based on their work history and their age. With a growing population of people receiving Social Security benefits and new retirees typically collecting higher benefits than earlier retirees (due to higher average wages), and an inflation adjustment for those already receiving Social Security, benefit payments rise each year.
By standard budgetary practice, if the Republicans were to reduce the benefit schedule or not give the annual cost of living adjustment, it would be called a “cut” in benefits even if total Social Security payments stayed the same or rose somewhat. It is a cut because people would be getting less than is promised under the current law.
In the case of Medicaid, the Congressional Budget Office (CBO) uses the best information available to project the eligible population and also the cost of providing services to this population. This is the baseline that the Republicans are working from with their health care plan. They are proposing to spend roughly $800 billion less over the 10-year budget horizon than the baseline spending level projected by CBO. This is equal to approximately 17.0 percent of projected spending over this period and 25.6 percent of spending in 2026, the last year for which CBO made projections for the Republican plan. (The reduction from baseline is even larger after the end of the 10-year horizon.)
This means that unless the Republicans have some way to reduce the cost of services that they have not told anyone about (e.g. paying drug companies and medical equipment companies less for their products or doctors less for their services), Medicaid will not be able to provide the services offered under current law. Given the size of the reductions relative to the baseline, by year 10 this will likely mean hugely reducing the number of people getting coverage and quite likely throwing people out of nursing homes.
This is the meaning of “cuts.” This is, in fact, a rather simple point and not a question of semantics. The Republicans do not have a plan for Medicaid to provide the level of services promised under current law, they are proposing to radically reduce the level of services. This is not ambiguous, just like it is not ambiguous that President Obama was not born in Kenya.
Realizing the unpopularity of their health care plan, the Republicans are now playing games with the word “cut,” to deny that their proposal would lead to large cuts in Medicaid spending over the next decade and beyond. The NYT ran a piece that ostensibly was intended to clarify the issue, but likely left readers more confused than they had been previously. The piece tells readers:
“At issue is whether the funding changes should be compared to the increases that would occur under current law, the Affordable Care Act, or whether the focus should be on the modest annual increases that would happen under the Republican bill.
“The White House says that Republicans are being victimized by a broken budgeting system that unfairly casts their fiscal restraint as callous cutting.”
The baseline for spending against which the Republican proposal is being measured is a baseline that assumes current levels of services and eligibility requirements are left in place. This can perhaps best be explained by a comparison with Social Security.
Under the law, workers are entitled to Social Security benefits based on their work history and their age. With a growing population of people receiving Social Security benefits and new retirees typically collecting higher benefits than earlier retirees (due to higher average wages), and an inflation adjustment for those already receiving Social Security, benefit payments rise each year.
By standard budgetary practice, if the Republicans were to reduce the benefit schedule or not give the annual cost of living adjustment, it would be called a “cut” in benefits even if total Social Security payments stayed the same or rose somewhat. It is a cut because people would be getting less than is promised under the current law.
In the case of Medicaid, the Congressional Budget Office (CBO) uses the best information available to project the eligible population and also the cost of providing services to this population. This is the baseline that the Republicans are working from with their health care plan. They are proposing to spend roughly $800 billion less over the 10-year budget horizon than the baseline spending level projected by CBO. This is equal to approximately 17.0 percent of projected spending over this period and 25.6 percent of spending in 2026, the last year for which CBO made projections for the Republican plan. (The reduction from baseline is even larger after the end of the 10-year horizon.)
This means that unless the Republicans have some way to reduce the cost of services that they have not told anyone about (e.g. paying drug companies and medical equipment companies less for their products or doctors less for their services), Medicaid will not be able to provide the services offered under current law. Given the size of the reductions relative to the baseline, by year 10 this will likely mean hugely reducing the number of people getting coverage and quite likely throwing people out of nursing homes.
This is the meaning of “cuts.” This is, in fact, a rather simple point and not a question of semantics. The Republicans do not have a plan for Medicaid to provide the level of services promised under current law, they are proposing to radically reduce the level of services. This is not ambiguous, just like it is not ambiguous that President Obama was not born in Kenya.
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The New York Times reported this afternoon that Senate Republicans have now altered their health care bill to include a provision that would penalize people who opt not to buy insurance. According to the article, people who go more than two months without insurance will have to wait six months for a new policy to take effect after they buy it.
This is an entirely reasonable change since it prevents the obvious problem that many people would have opted to game the system without a provision like this. As I and others pointed out, it would be a pretty low-risk proposition for healthy people, especially older ones who faced high premiums, to go without insurance and then buy insurance only if they developed a serious illness.
This would likely make the system unstable since it would mean that the pool of people in the system were less healthy than average, and therefore have higher health care expenses. This would raise costs and premium prices, leading more people to drop out. Eventually, only very unhealthy people would look to buy insurance, which would be extremely expensive.
For this reason, the penalty makes sense. What doesn’t make sense is that the Republicans are just adding the provision now. This problem of adverse selection (only less healthy people buy insurance) is not a new discovery. It has been known to people writing about insurance for more than half a century. So how could the Republicans spend all this time hashing out a bill and only now realize that they have a problem?
This is yet another piece of evidence (as if more was needed) that this is not an effort to provide better insurance to the public, it is about giving tax cuts to rich people. The insurance aspect is a sidebar, sort of like when you buy cheese at the store and you need it wrapped in something. You don’t really care what the cheese is wrapped in, you care about the cheese.
In the same vein, the Republicans don’t really care what the insurance looks like, they care about the tax cuts for rich people. If they did care about the insurance, the penalty for going uninsured would not be a last minute addition.
The New York Times reported this afternoon that Senate Republicans have now altered their health care bill to include a provision that would penalize people who opt not to buy insurance. According to the article, people who go more than two months without insurance will have to wait six months for a new policy to take effect after they buy it.
This is an entirely reasonable change since it prevents the obvious problem that many people would have opted to game the system without a provision like this. As I and others pointed out, it would be a pretty low-risk proposition for healthy people, especially older ones who faced high premiums, to go without insurance and then buy insurance only if they developed a serious illness.
This would likely make the system unstable since it would mean that the pool of people in the system were less healthy than average, and therefore have higher health care expenses. This would raise costs and premium prices, leading more people to drop out. Eventually, only very unhealthy people would look to buy insurance, which would be extremely expensive.
For this reason, the penalty makes sense. What doesn’t make sense is that the Republicans are just adding the provision now. This problem of adverse selection (only less healthy people buy insurance) is not a new discovery. It has been known to people writing about insurance for more than half a century. So how could the Republicans spend all this time hashing out a bill and only now realize that they have a problem?
This is yet another piece of evidence (as if more was needed) that this is not an effort to provide better insurance to the public, it is about giving tax cuts to rich people. The insurance aspect is a sidebar, sort of like when you buy cheese at the store and you need it wrapped in something. You don’t really care what the cheese is wrapped in, you care about the cheese.
In the same vein, the Republicans don’t really care what the insurance looks like, they care about the tax cuts for rich people. If they did care about the insurance, the penalty for going uninsured would not be a last minute addition.
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The Washington Post had an interesting column by a doctor that discussed the difficulties his diabetic patients face dealing with the high cost of insulin. While the doctor, David Trigdell, does call for measures by the government to reduce the price that patients and insurers have to pay for the drug, he doesn’t ask the most basic questions about why the price is high in the first place.
This gets back to how the government finances medical research. To a large extent it relies on patent monopolies, and other types of monopoly rights, to pay for drug research. These monopolies are the reason that insulin is expensive. If it were sold in a free market, insulin would be cheap, and Dr. Trigdell’s patients would have little trouble covering the cost.
Of course, it is necessary to pay for the research, but there are other mechanisms. The most obvious would be for the government to pay for the research upfront as it is doing now in the case of the development of a Zika vaccine by Sanofi. (Unfortunately, in this case, the government is both paying for the research and planning to give Sanofi a monopoly on its distribution.)
If drug research was paid for upfront it would have the benefit that all research findings would be fully open (that could be a condition of the funding) and there would be no reason for unnecessary duplicative research, as no one would have the incentive to try to innovate around a patent just to develop a copycat drug. I discuss this in chapter 5 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it’s free).
The Washington Post had an interesting column by a doctor that discussed the difficulties his diabetic patients face dealing with the high cost of insulin. While the doctor, David Trigdell, does call for measures by the government to reduce the price that patients and insurers have to pay for the drug, he doesn’t ask the most basic questions about why the price is high in the first place.
This gets back to how the government finances medical research. To a large extent it relies on patent monopolies, and other types of monopoly rights, to pay for drug research. These monopolies are the reason that insulin is expensive. If it were sold in a free market, insulin would be cheap, and Dr. Trigdell’s patients would have little trouble covering the cost.
Of course, it is necessary to pay for the research, but there are other mechanisms. The most obvious would be for the government to pay for the research upfront as it is doing now in the case of the development of a Zika vaccine by Sanofi. (Unfortunately, in this case, the government is both paying for the research and planning to give Sanofi a monopoly on its distribution.)
If drug research was paid for upfront it would have the benefit that all research findings would be fully open (that could be a condition of the funding) and there would be no reason for unnecessary duplicative research, as no one would have the incentive to try to innovate around a patent just to develop a copycat drug. I discuss this in chapter 5 of Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer (it’s free).
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The NYT had a piece on how many smaller cities that have already lost factory jobs are no seeing a loss of jobs in retail due to the growth of online shopping.The article provides an interesting picture of some of the cities in industrial Midwest and Northeast that have already lost many of their manufacturing jobs and are now seeing major retailers shut their doors.
What is striking is that the piece doesn’t present any economists saying how this is good news, as is usually the case on pieces with trade, since the fact that people can buy items online for less money means that they will have more money left in their pockets to buy other things. In fact, there is a better case for this story with retail than with trade since the on-line retailers generally are still in the United States, which means that the money will largely be re-spent here. By contrast, much of the money spent on imports is not spent in the United States.
It is also worth noting that the rate of job displacement due to technology has actually been extremely slow (as in the opposite of fast) over the last decade as productivity growth has fallen to its slowest pace on record. This doesn’t mean that people are not losing jobs due to technology, but the rate is slower than normal, not faster than normal.
There could be a problem of inadequate aggregate demand, but in that case, the Federal Reserve Board should not be raising interest rates. The purpose of higher interest rates is to slow the economy and reduce the rate of job creation. The Fed raises interest rates because it considers aggregate demand to be too high, not too low.
The NYT had a piece on how many smaller cities that have already lost factory jobs are no seeing a loss of jobs in retail due to the growth of online shopping.The article provides an interesting picture of some of the cities in industrial Midwest and Northeast that have already lost many of their manufacturing jobs and are now seeing major retailers shut their doors.
What is striking is that the piece doesn’t present any economists saying how this is good news, as is usually the case on pieces with trade, since the fact that people can buy items online for less money means that they will have more money left in their pockets to buy other things. In fact, there is a better case for this story with retail than with trade since the on-line retailers generally are still in the United States, which means that the money will largely be re-spent here. By contrast, much of the money spent on imports is not spent in the United States.
It is also worth noting that the rate of job displacement due to technology has actually been extremely slow (as in the opposite of fast) over the last decade as productivity growth has fallen to its slowest pace on record. This doesn’t mean that people are not losing jobs due to technology, but the rate is slower than normal, not faster than normal.
There could be a problem of inadequate aggregate demand, but in that case, the Federal Reserve Board should not be raising interest rates. The purpose of higher interest rates is to slow the economy and reduce the rate of job creation. The Fed raises interest rates because it considers aggregate demand to be too high, not too low.
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The NYT gave us yet another piece telling us that Donald Trump is right about his growth projections and that the Congressional Budget Office is wrong. The piece, by Kai-Fu Lee, the chairman and chief executive of Sinovation Ventures, a venture capital firm, and the president of its Artificial Intelligence Institute, tells readers that we are about to see mass displacement of jobs due to the spread of artificial intelligence (AI).
This mass displacement has another name, it’s called “productivity growth.” In other words, Lee is predicting a massive boom in productivity growth. If we get a massive boom in productivity growth, it will mean a huge rise in the rate of GDP growth.
While Lee doesn’t put a number on the rate of productivity growth, it is clear he thinks it is faster than anything we have seen in the past. In the long post-war Golden Age from 1947 to 1973, and again from 1995 to 2005, productivity growth averaged 3.0 percent annually. (This was a period of rapid wage growth and low unemployment.) Since Lee apparently thinks the growth will be even faster with his job-killing AI story, we should probably envision productivity growth even faster than this 3.0 percent rate.
In that case, Trump and his crew are probably being too pessimistic projecting GDP growth of just 3.0 percent over the next decade. After all, GDP growth is just the sum of productivity growth and labor force growth. Even with the retirement of the baby boomers we are still expecting labor force growth in the range of 0.5–0.7 percent annually. So, if Mr. Lee is anywhere close to being right about his projections of the future, then the Trump team is being too pessimistic.
We can leave the resolution of this debate over the future for other occasions, but there is one point that is clear. If anyone thinks that Mr. Lee’s view should be treated seriously, they better also take Trump’s growth projections seriously. Anyone who thinks this NYT column is plausible but that Trump is just inventing numbers has problems with simple arithmetic and should be laughed out of any serious policy discussion.
There is another important point that Lee misses in his column. He argues that AI will transfer wealth from the rest of us to the people who own AI. This is sloppy thinking. One gets to “own” AI from patent and/or copyright monopolies. These come from governments, not technology. If the ownership of AI is leading to an upward redistribution of income the most obvious way to deal with it is to reduce the length and strength of these monopolies.
This basic point, that policies designed to give incentives to innovate can be altered should be obvious to anyone involved in this debate. But, as we all know, the economy is suffering from a severe skills shortage.
The NYT gave us yet another piece telling us that Donald Trump is right about his growth projections and that the Congressional Budget Office is wrong. The piece, by Kai-Fu Lee, the chairman and chief executive of Sinovation Ventures, a venture capital firm, and the president of its Artificial Intelligence Institute, tells readers that we are about to see mass displacement of jobs due to the spread of artificial intelligence (AI).
This mass displacement has another name, it’s called “productivity growth.” In other words, Lee is predicting a massive boom in productivity growth. If we get a massive boom in productivity growth, it will mean a huge rise in the rate of GDP growth.
While Lee doesn’t put a number on the rate of productivity growth, it is clear he thinks it is faster than anything we have seen in the past. In the long post-war Golden Age from 1947 to 1973, and again from 1995 to 2005, productivity growth averaged 3.0 percent annually. (This was a period of rapid wage growth and low unemployment.) Since Lee apparently thinks the growth will be even faster with his job-killing AI story, we should probably envision productivity growth even faster than this 3.0 percent rate.
In that case, Trump and his crew are probably being too pessimistic projecting GDP growth of just 3.0 percent over the next decade. After all, GDP growth is just the sum of productivity growth and labor force growth. Even with the retirement of the baby boomers we are still expecting labor force growth in the range of 0.5–0.7 percent annually. So, if Mr. Lee is anywhere close to being right about his projections of the future, then the Trump team is being too pessimistic.
We can leave the resolution of this debate over the future for other occasions, but there is one point that is clear. If anyone thinks that Mr. Lee’s view should be treated seriously, they better also take Trump’s growth projections seriously. Anyone who thinks this NYT column is plausible but that Trump is just inventing numbers has problems with simple arithmetic and should be laughed out of any serious policy discussion.
There is another important point that Lee misses in his column. He argues that AI will transfer wealth from the rest of us to the people who own AI. This is sloppy thinking. One gets to “own” AI from patent and/or copyright monopolies. These come from governments, not technology. If the ownership of AI is leading to an upward redistribution of income the most obvious way to deal with it is to reduce the length and strength of these monopolies.
This basic point, that policies designed to give incentives to innovate can be altered should be obvious to anyone involved in this debate. But, as we all know, the economy is suffering from a severe skills shortage.
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