the world’s fastest-growing economies in 2017 - World Economic Forum

These are the world’s fastest-growing economies in 2017

The World Economic Forum, June 14, 2017

 Image: REUTERS/China Daily

Alex Gray, Formative Content

https://medium.com/world-economic-forum/these-are-the-worlds-fastest-growing-economies-in-2017-52eeec80c5f3

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Ethiopia is the fastest-growing economy in 2017, according to the World Bank’s latest edition of Global Economic Prospects.

Ethiopia’s GDP is forecast to grow by 8.3% in 2017. By contrast, global growth is projected to be 2.7%.

The East African country’s accelerating growth comes on the back of government spending on infrastructure.

However, borrowing to finance Ethiopia’s large public infrastructure projects has led to a rise in public debt, which increased by more than 10% of GDP between 2014 and 2016, and now exceeds 50% of GDP.

Many emerging market economies have high levels of public debt, and the World Bank says it is concerned about this because it could drag down growth.

Worsening drought conditions could also affect Ethiopia’s growth, says the report.

The outlook for the world economy

Global growth is predicted to rise by 2.7% on the back of a pick-up in manufacturing and trade, improved market confidence and a recovery in commodity prices.

Trade increased by around 4% in 2017, up from a post-crisis low of 2.4% in 2016. Although it is expected to remain below pre-financial crisis levels.

Image: The World Bank

Growth in emerging markets and developing economies

As this map shows, much of Asia and Africa (in light blue) are experiencing rapid growth.

Emerging-market and developing economies are anticipated to grow 4.1% — far faster than advanced economies.

GDP growth across the world

Image: The World bank

The fastest-growing economies

Uzbekistan has the second-fastest-growing economy, with projected growth of 7.6% thanks to rising oil prices, benign global financing conditions, robust growth in the Euro Area, and generally supportive policies among governments of several large countries in the region.

Nepal is next, with a 7.5% projection. Nepal’s growth has rebounded strongly following a good monsoon, reconstruction efforts after the 2015 earthquakeand normalization of trade with India, says the Bank.

India is the fourth-fastest-growing economy with 7.2% projected growth, thanks in part to a rise in exports and an increase in government spending.

Among the other top 10 performers are Djibouti and Laos with 7% and Cambodia, the Philippines and Myanmar with 6.9%.

China, despite experiencing a slowdown and an economic transition, was in 16th place with 6.5% expected growth, helped by robust consumption and a recovery of exports.

Advanced economies

But advanced economies are improving too. Growth in advanced economies is expected to accelerate to 1.9% in 2017, according to the World Bank.

Europe has experienced strong growth, and growth in the United States is expected to recover in 2017 and to continue at a moderate pace in 2018. Japan also saw robust growth at the start of 2017.

Image: The World Bank

A fragile recovery

However, the World Bank warns that the recovery in the global economy is fragile. New trade restrictions — such as those promised by President Donald Trump — could hamper global trade, just as uncertainty over policies could hamper investment. Mounting public debt is also of concern to the Bank, because it says borrowing conditions — such as interest rates — could get tougher, which would affect countries’ economies. Global government debt has risen by 12% of GDP since 2007, to 47% of GDP by 2016.

At the end of 2016, government debt exceeded its 2007 level by more than 10% of GDP in more than half of emerging market and developing economies. Fiscal balances — the ability of a country to cope with increases in costs of financing — worsened from their 2007 levels by more than 5% of GDP in one-third of these countries, says the Bank.

Image: The World Bank

The Bank says that countries now need to undertake institutional and market reforms in order to attract private investment. This will help sustain growth in the long-term.

“The reassuring news is that trade is recovering,” said World Bank Chief Economist Paul Romer.

“The concern is that investment remains weak. In response, we are shifting our priorities for lending toward projects that can spur follow-on investment by the private sector.”

The pitfalls of using GDP

GDP has been has been widely used over the years to measure economic progress. But many argue that it’s not a useful indicator. Nobel Prize winning economist Joseph Stiglitz, IMF head Christine Lagarde and MIT professor Erik Brynjolfsson have all said GDP is a poor indicator of progress, and argued for a change to the way we measure economic and social development.

Alternatives could include measuring jobs, well-being and health. GDP also ignores the impact of important things like climate change.

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Originally published at www.weforum.org.

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Gordon on Economic Growth in the USA, 1870-2014 - book review by William Nordhaus

Why Growth Will Fall

William D. Nordhaus

AUGUST 18, 2016 ISSUE

The Rise and Fall of American Growth: The US Standard of Living Since the Civil War

by Robert J. Gordon

Princeton University Press, 762 pp., $39.95

Musée d’Orsay, Paris

Gustave Caillebotte: The Floor Planers, 1875

Robert Gordon has written a magnificent book on the economic history of the United States over the last one and a half centuries. His study focuses on what he calls the “special century” from 1870 to 1970—in which living standards increased more rapidly than at any time before or after. The book is without peer in providing a statistical analysis of the uneven pace of growth and technological change, in describing the technologies that led to the remarkable progress during the special century, and in concluding with a provocative hypothesis that the future is unlikely to bring anything approaching the economic gains of the earlier period.

The message of Rise and Fall is this. For most of human history, economic progress moved at a crawl. According to the economic historian Bradford DeLong, from the first rock tools used by humanoids three million years ago, to the earliest cities ten thousand years ago, through the Middle Ages, to the beginning of the Industrial Revolution around 1800, living standards doubled (with a growth of 0.00002 percent per year). Another doubling took place over the subsequent period to 1870. Then, according to standard calculations, the world economy took off.

Gordon focuses on growth in the United States. Living standards, as measured by GDP per capita or real wages, accelerated after 1870. The growth rate looks like an inverted U. Productivity growth rose from the late nineteenth century and peaked in the 1950s, but has slowed to a crawl since 1970. In designating 1870–1970 as the special century, Gordon emphasizes that the period since 1970 has been less special. He argues that the pace of innovation has slowed since 1970 (a point that will surprise many people), and furthermore that the gains from technological improvement have been shared less broadly (a point that is widely appreciated and true).

A central aspect of Gordon’s thesis is that the conventional measures of economic growth omit some of the largest gains in living standards and therefore underestimate economic progress. A point that is little appreciated is that the standard measures of economic progress do not include gains in health and life expectancy. Nor do they include the impact of revolutionary technological improvements such as the introduction of electricity or telephones or automobiles. Most of the book is devoted to describing many of history’s crucial technological revolutions, which in Gordon’s view took place in the special century. Moreover, he argues that the innovations of today are much narrower and contribute much less to improvements in living standards than did the innovations of the special century.

Rise and Fall represents the results of a lifetime of research by one of America’s leading macroeconomists. Gordon absorbed the current thinking on economic growth as a graduate student at MIT from 1964 to 1967 (where we were classmates), studying the cutting-edge theories and empirical work of such brilliant economists as Paul Samuelson, Robert Solow, Dale Jorgenson, and Zvi Griliches. He soon settled in at Northwestern University, where his research increasingly focused on long-term growth trends and problems of measuring real income and output.

Gordon’s book is both physically and intellectually weighty. While handsomely produced, at nearly eight hundred pages it weighs as much as a small dog. I found the Kindle version more convenient. Here is a guide to the principal points.

The first chapter summarizes the major arguments succinctly and should be studied carefully. Here is the basic thesis:

The century of revolution in the United States after the Civil War was economic, not political, freeing households from an unremitting daily grind of painful manual labor, household drudgery, darkness, isolation, and early death. Only one hundred years later, daily life had changed beyond recognition. Manual outdoor jobs were replaced by work in air-conditioned environments, housework was increasingly performed by electric appliances, darkness was replaced by light, and isolation was replaced not just by travel, but also by color television images bringing the world into the living room…. The economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once.

The series of “only once” economic revolutions behind this short summary makes up the next fourteen chapters of the book. Most of the innovations are familiar, but Gordon tells their histories vividly. More important, in many cases, he explains quantitatively the way these economic revolutions boosted the living standards of the statistically average American. Among the most illuminating chapters are those on housing, transportation, health, and computers.

The last two chapters are about the fall in Rise and Fall. This book differs from the Spenglerian “decline of the West” genre in an important respect. As the mathematicians might say, Gordon moves up a derivative. In other words, he is not predicting that living standards in the US will decline; rather he views it as likely that the growth rate of living standards will decline from its very rapid pace in the special century.

Gordon sees two sources for his pessimistic outlook. The first is that the long list of “only once” social and economic changes cannot be repeated. A second source is what he calls “headwinds.” These are structural changes in the economy that reduce actual output below the country’s technological potential and provide another reason for slow growth in living standards in the decades ahead.

The central subject in Rise and Fall is the rapid growth of output in the 1870–1970 period, followed by a period of slower growth. We must clarify that “growth” in Gordon’s view involves intensive rather than extensive expansion. Intensive growth is that of output per unit of input, also called productivity, while extensive growth refers to total output. A standard productivity measure that encompasses all inputs is called “total factor productivity” or TFP.1

What are the underlying trends? Figure 1 on this page shows the growth in total factor productivity by decade since 1890. I show two estimates to provide an idea of how robust Gordon’s conclusions are. The one labeled “Gordon” is from his Figure 16.5. The alternative measure, which I have constructed for this review, combines other sources, with private GDP for the first half of the period covered and business output for the second half.2 (The data were provided by Gordon. A shortcoming of his book is the absence of an online appendix, and in this respect it is behind best practice.)

The main result of both measures is to confirm that there was a marked slowdown in productivity growth when we compare the earlier period (1890–1970) to the latest period (1970–2014). Both series give a slowdown of 0.6 percentage points per year in productivity growth. The alternative estimate is that the growth in productivity slowed from 1.7 percent per year in the earlier period to 1.0 percent per year in the second period.

The alternative series shows a smoother increase from the 1890–1920 period to the 1920–1970 period, and then a sharp drop after 1970. Gordon makes much of the robust productivity growth during the Great Depression and World War II, but this is not apparent in the alternative series.

Productivity growth slowed sharply after 1970, with little variability from decade to decade. The slowdown has been puzzling scholars for four decades. My own view is that it is a decline from one thousand cuts. Important ones are rising energy prices, growing regulatory burdens, a structural shift from high- to low-productivity growth sectors (such as from manufacturing to services), as well as the source that Gordon emphasizes, the decline of fundamentally important inventions.

So Gordon’s basic hypothesis looks rock solid: there has been a substantial slowdown in productivity growth since the end of the special century in 1970.

It is commonplace to complain that gross domestic product does a poor job of representing true economic welfare because it omits harmful elements such as pollutionn.3 This is true. However, most readers will be surprised to learn that the major shortcoming of conventional measures is that they underestimategrowth. Moreover, according to Gordon, the understatement was arguably much larger in the special century than before or after.

Why do conventional measures understate actual improvements in living standards? Gordon gives two principal reasons. First, the growth of real income is systematically understated because of flawed price indexes. The price indexes used to convert current dollars of output into inflation-corrected or “real” output overestimate price increases and consequently understate real output growth. Second, GDP omits many aspects of economic activity that are not captured in market transactions. The common omissions are environmental degradation, leisure time, nonmarket work, and improvements in health.

We can begin with the price-index problem. For this, I take an example familiar to most people, lighting. If you were to examine the US economic accounts, you would not find a component that measures the price of lighting or the real output of lighting. Instead, you would find elements such as the price of fuel (whale oil or electricity) and the price of lighting devices (oil lamps or lightbulbs). For each of these prices, we today have carefully designed techniques for collecting prices and spending. So, you might think, by combining correctly the prices of the lighting devices and the fuels (the input prices), we might accurately track the price of producing a certain amount of light (the output price).

Or so we thought until the actual estimates were made. It turns out for lighting that the output price fell much more sharply than the input prices. We can take the example of standard incandescent lightbulbs and LEDbulbs to illustrate. Assume that we need 800 lumens to light a space (a candle produces about thirteen lumens). Suppose that we light the space for 50,000 hours. This would require about 50 incandescent bulbs and 60 watts x 50,000 hours or 3,000 kilowatt-hours (kwh) of electricity. At the current US average electricity price of ten cents per kwh, the cost of incandescent lighting over the period would be about $350 ($50 for the bulbs and $300 for the electricity). Now assume that a new technology, LED bulbs, becomes available. You can get the same illumination with one $5 six-watt LED bulb lasting 50,000 hours. When you calculate the life-cycle costs, the 800 lumens x 50,000 hours cost only $35 ($5 for the bulb + $30 for the electricity).

So the price of lighting declined by 90 percent. And—the critical point for Gordon’s story—with the introduction of LED bulbs, every $100 of expenditures on lighting produced ten times the real output. This is not an isolated example. This same quantum jump came with each improvement in lighting technologies: from oil lamps, to kerosene lamps, to incandescent, to compact fluorescent, to LED lighting. A more detailed look at the history of lighting indicates indeed that conventional measures have understated the growth in the output of lighting by a huge margin.

How do conventional measures of prices or real output treat this major change in prices and real output? They simply ignore it. More precisely, the LED bulb is “linked” to price and output indexes when it is introduced. This means that the amount or efficiency of lighting per dollar is assumed to be unchanged.

Gordon emphasizes that this tiny but revealing story about lighting is told time and again during the special century. The major inventions that revolutionized American living standards were seldom captured in the standard indexes. Examples include running water, toilets, telephones, air travel, phonographs, television, air conditioning, central heating, antibiotics, automobiles, financial instruments, and better working conditions. These tectonic shifts in technology and living standards would generally go unrecorded in “real GDP” growth and in the growth of “real wages.”

The second source of mismeasurement concerns activities that are outside the purview of standard output measures. On close examination, many of these have little effect on the growth of real output when included. For example, if you included a correction for carbon dioxide emissions, it would reduce the level of output, but such a correction would not reduce real output growth at all over the last decade.

However, one specific measurement of error makes an enormous difference—the omission of improvements in health status. Gordon has a fascinating chapter on the sharp “only once” improvements in health and life expectancy. While some of his views on the sources of improvements in health are not persuasive, his final conclusion on the importance for living standards seems justified:

A consistent theme of this book is that the major inventions and their subsequent complementary innovations increased the quality of life far more than their contributions to market-produced GDP…. But no improvement matches the welfare benefits of the decline in mortality and increase in life expectancy….

His statement refers to a strange aspect of output measurement. Suppose we lived on average fifty years, and the average consumption of housing, food, etc. rose by 10 percent. Then our measures of living standards (real GDP or real income) would rise by 10 percent. However, assume that we had the same consumption every year, but had less illness because of antibiotics, or less pain because of anesthetics, or lived twenty years longer. Then there would be no measured gain in living standards. This seems strange, but that is the way our methods for measuring output and income are designed.

There have been several studies attempting to incorporate the benefits of improved health into measures of living standards.4 These show two important points. First, including health status increases sharply the improvement in living standards over the last century. And second, this health-status bonus was larger during the special century than before or after.

In recent years, trends in average living standards interacted with rising income inequality to produce stagnant wages in the lower and middle income groups. Table 1 shows the basic trends over recent decades. The first row shows the results of the last part of the special century. The last two rows show the period of slower growth.

The column labeled “average” shows the growth in per capita, inflation-corrected, post-tax income. This shows an income slowdown that parallels the productivity slowdown, with a decline of 1.4 percentage points from the first to the third subperiod. The slowdown in the growth of real income was largely due to the slowdown in productivity growth from the special century to the more recent period.

The last three columns show how the growth was divided between the bottom fifth, the middle fifth, and the top 1 percent of the income distribution. The first subperiod was one of shared prosperity; indeed, the bottom groups fared slightly better than the top. However, in the most recent years, particularly since 2000, the decline in average income growth was further exacerbated for the lowest income groups by a declining share of the total. So, for the bottom fifth, the growth in real income declined from 3 percent at the end of the special century to essentially zero in the last fifteen years. Of this catastrophic decline, about half was due to the slower overall growth, while half was due to rising inequality. Gordon has an extensive review of the sources of rising inequality, but his emphasis on the role of declining productivity growth is an important and durable part of the story of stagnant incomes.

The last chapter of the book suggests that the US faces major “headwinds” that will continue to drag down living standards relative to underlying productivity growth. In Gordon’s account, these headwinds are rising inequality, poor-quality education, the aging population, and rising government debt. Gordon forecasts that average growth in real income per person over the next quarter-century will be 0.7 percent per year—even lower than the 1.3 percent per year in the 2000–2015 period. If inequality continues to grow, this might lead to declining incomes of the bottom part of the distribution—and therefore to true Spenglerian decline. I emphasize that these forecasts are highly speculative and contingent on many economic, fiscal, and demographic forces.

What of the future of economic growth? Here Gordon is a leading proponent of the view emphasizing the likelihood of “secular stagnation.” There are actually two variants of the stagnation. The first, emphasized by Lawrence Summers, is “demand-side”: a global savings glut along with low inflation is leading to weak aggregate demand in the high-income regions. This syndrome is consistent with zero or negative interest rates in Europe and Japan.

Gordon’s view of stagnation is “supply-side”—referring to a slackening in the growth of productivity rather than persistent weakness caused by the business cycle and high unemployment. His pessimism does not involve the neo-Malthusianism of groups like the Club of Rome, which foretold resource exhaustion, or concerns of those like Nicholas Stern, who sees future climate-driven catastrophes. Rather, Gordon’s concept of stagnation comes from his view about the slow future pace of technological change. He recognizes the perils of forecasting technological futures. But in the end he sees the slow growth of decades since 1970 shown in Figure 1—not those of the special century—as the norm for the years to come. He does not argue that returning to rapid growth is impossible. Instead, he thinks that we have exhausted the major society-changing “only once” inventions, and he sees no prospect that we will find a similar set of inventions of such breadth and depth in the near future.

In discussing the future, Gordon dissects the arguments of the technological optimists who see a growing part in the economy for robots and artificial intelligence. An extreme pole of technological futurism is a theory called “the Singularity.” As computer scientists look into their crystal ball, they foresee artificial intelligence moving toward superintelligence, which denotes intellect that is much smarter than the best human brains in practically every field, including not just games like Go but also scientific creativity, general wisdom, and social skills. At the point where computers have achieved superintelligence, we have reached the Singularity, where humans become economically superfluous. Superintelligent computers are the last human invention, as imagined by the mathematician Irving Good:

Let an ultraintelligent machine be defined as a machine that can far surpass all the intellectual activities of any man however clever. Since the design of machines is one of these intellectual activities, an ultraintelligent machine could design even better machines; there would then unquestionably be an “intelligence explosion,” and the intelligence of man would be left far behind. Thus the first ultraintelligent machine is the last invention that man need ever make.

Gordon has no sympathy for these futuristic views. Moreover, the economic data (such as those shown in the figure and table) show no trace of a coming Singularity. If anything, growth has slowed even more since the financial crisis of 2008. But as we observe that games like chess or Go are won by a computer, it seems prudent to keep an eye on the evolution of superintelligence.

To summarize, Rise and Fall is a magnificent book on American economic history of the last century and a half. This review can touch only the major themes and has necessarily skimmed over many of the fascinating discussions of individual sectors and historical episodes. If you want to understand our history and the economic dilemmas faced by the nation today, you can spend many a fruitful hour reading Gordon’s landmark study.

Notes:

1. 1
   Productivity comes in several varieties. The simplest to measure is labor productivity, or output per hour worked. However, this does not account for improvements in education, or for changes in the access of the average worker to a larger stock of more productive capital. Total factor productivity (TFP) is a more complicated concept to measure than labor productivity because it involves measuring the contribution of capital and education, as well as determining how to weigh the different inputs, but today these are standard procedures.
   
   A final detail is whether productivity relates to business output, to private output, or to total GDP (the latter also includes government output). Accurate measures are usually confined to business output because government output in such areas as education and military forces is difficult to measure and therefore these areas customarily are measured as inputs (teachers) rather than outputs (learning). Gordon generally uses the more comprehensive GDP because it is available for longer periods. It must be reemphasized that all productivity figures refer to measured output and omit the unmeasured contributions of important new and improved products discussed in Gordon’s main text. ↩
2. 2
   The alternative is a splicing of the following sources: data for the early part is total factor productivity for the private economy (private GDP), 1890–1950, from Historical Statistics of the United States, Millennial Edition(Cambridge University Press, Vol. 3, Series Cg270, Cg278). The data are based on an early study by John Kendrick in Productivity Trends in the United States (Princeton University Press, 1967). These data are used for the TFP growth rates for 1890–1900 to 1940–1950. For the period 1948–2014, I use total factor productivity for the US private business sector from the US Bureau of Labor Statistics. These are available at www.bls.gov/mfp/#tables, “Historical multifactor productivity measures (SIC 1948–1987 linked to NAICS 1987–2014).” These data are used for the TFP growth rates for 1950–1960 to 2000–2014. Note that for the two periods of overlap (1950–1960 and 1960–1970), the early (Kendrick) series and the BLS series are virtually identical. From 1948 to 1970, the private GDP TFP growth rate averaged 2.13 percent per year while the BLS series averaged 2.03 percent per year.  ↩
3. 3
   Economic statisticians have developed techniques for incorporating external effects like pollution into the measurement of national output. The method is straightforward. You would begin with a measure of the physical emissions, such as annual carbon dioxide (CO2) emissions or sulfur dioxide emissions. These would be parallel to the production of new houses, currently included in the accounts. You then multiply the quantity by a “shadow price,” which would measure the social cost of the emissions. Again, the parallel here would be multiplying the quantity of new houses by the price of the houses. Since the emissions price is a damage, or negative price, the price times quantity of emissions would be subtracted from total output.
   
   As an example, total CO2 emissions for the United States in 2015 were 5,270 million tons. The US government estimates that the social cost of emissions is $37 per ton (all in 2009 dollars). So the total subtraction is $37 x 5,270 = $195 billion. This would be a debit from the $16,200 billion of total output in that year, or slightly more than 1 percent of output. (These data are from the Bureau of Economic Analysis and the Energy Information Administration.)
   
   Note, however, that CO2 emissions declined over the decade from 2005 to 2015, from 5,993 billion to 5,270 billion tons per year. So the subtraction from GDP to correct for CO2 emissions was smaller in 2015 than in 2005. Growth of corrected GDP was therefore a tiny bit higher after correcting for CO2 emissions than before the correction. To be precise, after correction, the real growth rates over the 2005–2015 period would be 1.394 percent per year using the corrected figures instead of 1.385 per year using the official figures.So correcting for CO2 emissions would lower the estimate of output, but would raise by a tiny amount the estimate of growth. ↩
4. 4
   Studies on the impact of adding health to the national economic accounts include an early example from William Nordhaus, “The Health of Nations,” in Measuring the Gains from Medical Research: An Economic Approach, edited by Kevin Murphy and Robert Topel (University of Chicago Press, 2010).  ↩

Um livro sobre os progressos economicos nos EUA, desde 1870, um modelo para o Brasil - Book review

Trata-se de uma obra de largo escopo, num modelo que poderia ser adotado pelo IPEA para analisar também onde o Brasil avançou, e onde precisamos avançar.
Um modelo, talvez, de metodologia analítica para ser reproduzido aqui também.
Paulo Roberto de Almeida

Robert J. Gordon:
The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War.  
 Princeton, NJ: Princeton University Press, 2016. vii + 762 pp. $40 (cloth), ISBN: 978-0-691-14772-7.

Reviewed for EH.Net by Robert A. Margo, Department of Economics, Boston University.

This is the age of blockbuster books in economics. By any metric, Robert Gordon’s new tome qualifies.  It tackles a grand subject, the productivity slowdown, by placing the slowdown in the context of the historical evolution of the American standard of living.  Gordon, who is the Stanley G. Harris Professor in the Social Sciences at Northwestern University, needs no introduction, having long been one of the most famous macroeconomists on planet Earth.

The Rise and Fall of American Growth is divided into three parts.  Part One (chapters 2-9) examines various components of the standard of living, in levels and changes from 1870 to 1940.  Part Two (chapters 10-15) does the same from 1940 to the present, maintaining the same relative order of topics (e.g. transportation appears after housing in both parts).  Part Three (chapters 16-18) provides explanations and offers predictions up through 2040.  There are brief interludes (“Entre’acte”) between parts, a Postscript, and a detailed Data Appendix.

Chapter 1 is an overview of the focus, approach, and structure of the book.  Gordon’s focus is on the standard of living of American households from 1870 to the present.  The approach is both quantitative — familiar to economists — and qualitative — familiar to historians.  As already noted, the organization is symmetric — Part One considers the pre-World War II period, and Part Two, the post-war.  The fundamental point of the book is that that some post-1970 slowdown in growth was inevitable, because so much of what was revolutionary about technology in the first half of the twentieth century was revolutionary only once.

Chapter 2 draws a bleak picture of the standard of living ca. 1870, the dawn of Robert Gordon’s modern America.  From the standpoint of a household in 2016, conditions of life in 1870 would appear to be revolting.  The diet was terrible and monotonous to boot; homemade clothing was ill-fitting and crudely made; transportation was dependent principally on the horse, which generated phenomenal amounts of waste; indoor plumbing was all but non-existent; rural Americans lived their lives largely in isolation of the wider world.  In Gordon’s view, much of this is missing from conventional real GNP estimates.  Chapter 3 continues the initial story, focusing on changes in food and clothing consumption.  Gordon contends there was not much change in underlying quality but he argues that, by the 1920s, consumers were paying lower prices for food — having shifted to lower-priced sources (chain stores as opposed to country merchants) — and that most clothing was store-bought rather than homemade.

Chapter 4 studies housing quality.  As with other consumer goods, housing also improved sharply in quality from 1870 to 1940.  Gordon argues that much farm housing was poor in quality, while new urban housing was typically larger and more durably built.  Indoor plumbing, appliances and, ultimately, electrification dramatically enhanced the quality of life while people were indoors.  As elsewhere in the book, reference is made to hedonic estimates of the value of these improvements as revealed in higher rents. Chapter 5 details improvements in transportation between 1870 and 1940. These are grouped into three categories.  The first is improvement in inter-city and inter-regional transportation in rail.  This occurs chiefly through improvements in the density of lines and in the speed of transit. The second is intra-city which occurred with the adoption of the electric streetcar.  The third, and most important arguably, is the internal combustion engine and its use in the automobile (and bus).  Gordon especially highlights improvements in the quality of automobiles, noting that the car is not reflected in standard price indices until the middle of the Great Depression.

Chapter 6 details advances in communication from 1870 to 1940.  By current standards, the relevant changes — the telegraph, telephone, the phonograph, and the radio — might not seem like much but from the point of view of a household in 1870, these technologies enabled Americans to dramatically reduce their isolation.  As Gordon points out, one could phone a neighbor to see if she had a cup of sugar rather than visit in person, or listen to Enrico Caruso’s voice on the phonograph if it were not possible to hear him in concert.  The radio brought millions of Americans into the national conversation, whether it was to hear one of Franklin Roosevelt’s fireside chats or listen to a baseball game.  Chapter 7 discusses improvements in health and mortality from 1870 to 1940 which, according to Gordon, were unprecedented.  After summarizing these, he turns to causes, chief among which are improved urban sanitation, clean water, and uncontaminated milk.   Gordon also highlights improvements in medical knowledge, particularly the diffusion (and understanding) of the germ theory of disease.  Chapter 8 studies changes in the quality of work from 1870 to 1940.  These changes were wholly for the better, according to Gordon.  Work became less dangerous, more interesting, and more rewarding in terms of real wages.  Most importantly, there was less working per se, as weekly hours fell, freeing up time for leisure activity.  There was a marked reduction in child labor, as children spent more of their time in school, particularly at older ages in high school.   This was also the period leading up, as Claudia Goldin has told us, to the “Quiet Revolution” in the labor force participation of married women, which was to increase substantially after World War II. Credit and insurance, private and social, is the topic of Chapter 9.  The ability to better smooth consumption and also insure against calamity are certainly improvements in living standards that are not captured by standard GNP price deflators.  Initially the shift of households from rural to urban areas arguably coincided with a decrease in consumer credit but by the 1920s credit was on the rise due to several innovations previously documented by economic historians such as Martha Olney.   Households were also better able to obtain insurance of various types (e.g. life, fire, automobile); in particular, loans against life insurance were frequently used as a source for a down payment on a house or car.  Government contributed by expanding social insurance and other programs that helped reduced systemic risks.

Chapter 10 begins the second part of the book, which focuses on the period from 1940 to the present.  As noted, the topic order of Part Two is the same as Part One, so Chapter 10 focuses on food, clothing, and shelter.  Gordon considers the changes in quality in these dimensions of the standard of living to be less monumental than as occurred before World War II.  For example, frozen food became a ubiquitous option after World War II but this change is far less important than the pre-1940 improvement in the milk supply.  Quantitatively, perhaps the most important change was a reduction in relative food prices which, predictably, led to increase in the quantity demanded.  Calories jumped, and so did obesity and many related health problems.  For clothing, the chief difference is in the diversity of styles and, as with food, a sharp reduction in relative price holding quality constant.  In Chapter 11 Gordon notes that automobiles continued to improve in quality after World War II, mostly in terms of amenities and gas mileage; and their usefulness as transportation improved with the building of the interstate highway system.  Gordon is less sanguine about air transportation, arguing that quality of the travel experience deteriorated after deregulation which was not offset by reductions in relative prices.  For housing, the major changes was suburbanization and a concomitant increase in square footage.  The early postwar period witnessed some sharp improvements in the quality of basic household appliances, and somewhat later, the widespread diffusion of air conditioning and microwaves.

Chapter 12 focuses on media and entertainment post-1940.  Certain older forms of entertainment gave way to television, the initial benefits of which were followed by steady improvements in the quality of transmission and reception.  Similarly, there were sharp improvements in the various platforms for listening to music, with substantial advances in recording technology and delivery — the 78 gave way to the LP to the CD to music streaming and YouTube.  The technology to deliver entertainment also delivered the news in ever greater quantity (quality is in the eye of the beholder, I suppose).  Americans today are connected almost immediately to every part of the world, a level of communications unthinkable a century ago.  A surprisingly brief Chapter 13, recounts the history of the modern computer.  There is no way to tell this history without emphasizing just how unprecedented the improvements have been, from the very first post-war computers to today’s laptops and supercomputers.  Moore’s Law, understandably, takes center stage, followed by the Internet and e-commerce.   Gordon has a few negative things to say about the worldwide web, but the main act — why haven’t computers led a revolution in productivity — is saved for later in the book.

Chapter 14 continues the story of health improvements to the present day.  As everyone knows, the U.S. health care system changed markedly after World War II, in terms of delivery of services, organization, and payment schemes.  Great advances were made in cardiovascular care and treatment of infectious disease through the use of antibiotics.   There were also advances in cancer treatment, mostly achieved by the 1970s; the subsequent “war” on cancer has not been as successful.  Most of the benefits were achieved through diffusion of public health and expansion of health knowledge in the general public (e.g. the harmful effects of smoking).  Since 1970 the health care system has shifted to more expensive, capital intensive treatments primarily provided in hospitals that have led to an inexorable growth in medical care’s share of GNP, increases that most scholars agree exceed any improvements in health outcomes.  The chapter concludes with a mixed assessment of Obamacare.  Chapter 15, on the labor force, is also rather short for its subject matter.  Gordon recounts the major changes in the structure and composition of work since World War II.  Again, it is a familiar tale — improved working conditions due to the shift towards the service sector and “indoor” jobs; rising labor force participation for married women; rising educational attainment, at least until recently; and the retirement revolution.  Your faithful reviewer gets a shout-out in a brief discussion of the “Great Compression” of the 1940s; my collaborator in that work, Claudia Goldin (and her collaborator, Lawrence Katz) gets much more attention for her scholarly contributions on the subject matter of Chapter 15, understandably so.

Part Three addresses explanations for the time series pattern in the standard of living.  Chapter 16 focuses on the first half of the twentieth century, which experienced a marked jump in total factor productivity (TFP) growth and the standard of living.  Gordon considers several explanations, dismissing two prominent ones — education and urbanization — right out of the gate.   In paeans to Paul David and Alex Field, he argues that the speed-up in TFP growth can be attributed to the eventual diffusion of key inventions of the “Second” industrial revolution, such as electricity; to the New Deal; and, finally, to World War II.  Chapters 17 and 18 tackle the disappointing performance of TFP growth and the standard of living in the last several decades of U.S. economic history.  Despite remarkable accomplishments in science and technology the impact on average living standards has been small, compared with the 1920-70 period.  Rising inequality since 1970, which can be tied in part to skill-biased technical change, has made matters worse, as did the Great Recession.  While Gordon is not all doom and gloom, he definitely falls on the pessimist side of the optimist-pessimist spectrum — his prediction for labor productivity growth over the 2015-40 period is 1.2 percent per year, a full third lower than the observed rate of growth from 1970 to 2014.

I think it is next to impossible to write a blockbuster economics book without it being a mixed bag in some way or other.  Gordon’s is no exception.  On the plus side, the book is well written, and one can only be in awe of Gordon’s mastery of the factual history of the American standard of living.  We all know macroeconomists who dabble in the past.  Gordon is no dabbler.  One can find interesting ideas for future (professional-level) research in every chapter — graduate students in search of topics for second year or job market papers, take note.  Many previous reviewers have chided Gordon for his pessimistic assessment of future prospects.  Of course, no one knows the future, and that includes Gordon.  It is certainly possible that he will be wrong about productivity growth over the next quarter-century — but I for one will be surprised if his prediction is off by, say, an order of magnitude.

I am less sanguine about the mixed qualitative-quantitative method of the book.  I gave up reading the history-of-technology-as-written-by-historians-of-technology a long time ago because it was just one-damn-invention-after-another.  At the end of a typical article recounting the history of improvements in, say, food processing, I was supposed to conclude that no amount of money would get me to travel back in the past before said improvements took place — except I never did reach this conclusion, knowing it to be fundamentally wrong.  Despite references to hedonic estimation, TFP, and the like, in the end Gordon’s book reads very much like conventional history of technology.  More than a half century ago Robert Fogel showed how one could quantify the social savings of a particular invention, thereby truly advancing scholarly knowledge of the treatment effects. Yet Railroads and American Economic Growth is not even cited in Gordon’s bibliography, let alone discussed in the text.  If one’s focus is the aggregate, I suppose a Fogelian approach is impossible — there are too many inventions, and (presumably) an adding-up problem to boot.  What exactly, though, do we learn from going back and forth between quantitative TFP and qualitative one-damn-invention-after-another? I’m not sure.  There’s the rub, or rather, the tradeoff.

Criticisms aside, if you are into economics blockbusters, The Rise and Fall of American Growth belongs on your bookshelf, next to Piketty and the like.  Just be sure it is a heavy-duty bookshelf.

Robert A. Margo’s Economic History Association presidential address, “Obama, Katrina, and the Persistence of Racial Inequality,” was published in the Journal of Economic History in June 2016.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (July 2016). All EH.Net reviews are archived at http://eh.net/book-reviews/

O baixo crescimento tornou-se a nova norma da economia mundial? - Cato Institute debate

Is Slow Growth the New Normal?

Policy Forum

Cato Institute, October 29, 2013 12:00PM

Hayek Auditorium

Featuring Brink Lindsey, Vice President for Research, Cato Institute; Tyler Cowen, Professor, George Mason University; and Martin Baily, Senior Fellow, Brookings Institution; moderated by Annie Lowrey, Reporter, New York Times.

The sluggish recovery from the Great Recession raises a troubling question: is this the new normal? Tyler Cowen launched an ongoing debate of that question with The Great Stagnation, in which he argued that the “low-hanging fruit” of growth has already been picked. In a new Cato paper entitled “Why Growth Is Getting Harder,” Brink Lindsey offers an analysis that differs from Cowen’s but shares his conclusion that slow growth will be hard to avoid in the coming years. Martin Baily, one of the world’s leading experts on productivity, is optimistic about the future of innovation but cautions that other factors can hold growth back. Please join these experts for a stimulating discussion of a vitally important issue.

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China e India desaceleram: noticia ruim para o Brasil - Pranab Bardhan (NYT)

The New York Times, July 14, 2013

The Slowing of Two Economic Giants

By PRANAB BARDHAN

KOLKATA, India — THE world’s two most populous countries are slowing down. To be sure, China’s output is expected to grow by 7.8 percent this year, and India’s by 5.6 percent — far superior to 2 percent for Japan, 1.7 percent for the United States, 0.9 percent for Britain and a shrinkage (negative 0.6 percent) in the troubled euro zone, the International Monetary Fund projected last week.

But there is no sequel in sight for the 10-percent-plus growth China and India posted in 2010. The West can no longer count on their continued expansion to lift its sagging economies. For 2.5 billion people, the consequences are more dire: in India, less money to strengthen the threadbare social safety net, and in China, possible political instability. What does the slowdown mean for these two giants, and which will come out ahead?

Let’s start with China, the bigger of the two economies. Talk of a global “Beijing consensus” — state-controlled capitalism as an alternative to the “Washington consensus” about how poor countries should develop — has largely disappeared. China’s new leaders are focused on problems at home: battling corruption, reining in the overheated housing market, scaling back the government’s outsize role in the economy, and cracking down on financial speculation.

China may be close to exhausting the possibilities of technological catch-up with the West, particularly in manufacturing. For China to move up the value chain, and become an advanced-manufacturing powerhouse like Germany, it must move beyond off-the-shelf technology and copying rival designs and reap gains from genuine innovation, which can come about only through research and development.

China has amassed huge foreign exchange reserves, partly by keeping the value of its currency low. It now has to rebalance its economy away from the construction boom and financial speculation and toward private consumption and improvements in pensions, health care and other forms of social protection. Crony capitalism has been allowed to misallocate capital toward too-big-to-fail, low-productivity state-owned firms operated by loyal apparatchiks and away from dynamic private small firms.

Concentrated wealth poses problems for both countries. The Hurun Report, a Shanghai-based wealth monitor, estimated last year that the 83 richest delegates to the National People’s Congress and an advisory group, the Chinese People’s Political Consultative Conference, had a net worth of over $250 billion. By comparison, the declared assets of all of the roughly 545 members of the Lok Sabha, the lower house of India’s Parliament, amount to only about $2 billion.

In India, the collusion between Indian billionaires and politicians, while rampant, is somewhat less direct and more subject to political and media scrutiny. In China, collusion between party officials and commercial interests, especially at the local level, has caused widespread popular anger against arbitrary land acquisition and toxic pollution.

The economist and philosopher Amartya Sen recently argued on this page that India has lagged behind China because it had not invested enough in education and health care, which raise living standards and labor productivity.

He rightly emphasizes that deficient social services and the inequality that results are not just a matter of social justice, but of economic growth as well, as the history of much of East Asia shows. But one should not get the impression that progress in social services is by itself sufficient for growth. Exemplary welfare programs in the state of Kerala in India, and in Sri Lanka, have not been matched by spectacular economic performance. The latter also requires improvements in infrastructure, less cumbersome regulations and a culture that fosters entrepreneurial investment.

Mr. Sen raises but does not examine a puzzle: why voters in the world’s largest democracy cannot get politicians to effectively deliver social services. Infant and maternal mortality and poor sanitation are not salient electoral issues. This is partly because India’s fractious society (more heterogenous than China’s) has often emphasized uplifting the dignity of former oppressed social groups over basic good governance.

What of the Chinese model? The history of developing countries shows that authoritarianism is neither necessary nor sufficient for development. The Communist Party will find it increasingly tough to manage a complicated economy (without independent regulators) and political system (without an independent judiciary or effective rule of law).

Without innovation, China cannot sustain high growth, as the artificially low prices of land and capital for politically favored firms become difficult to maintain and the supply of cheap labor dwindles. Unlike in India, a significant slowdown could be regime-threatening for China — today’s young people, with higher expectations than their forebears, will have less tolerance for a shortage of good jobs and affordable housing. China’s leaders may be riding a tiger that will be hard to dismount.

On the other hand, India’s experience, like America’s, shows how partisan fragmentation in a rambunctious democracy can undermine effective governance. In the last few years the headline economic stories in India have been about pervasive corruption: politicized allocation of high-value public resources (land, mineral rights, oil and gas, telecommunications), shady public-private partnerships and the galloping cost of elections financed by the illicit incomes of politicians. India’s administrative system, where promotion has little connection to performance, encourages even more malfeasance than China’s. But India has independent judges, government auditors and a free press — checks on corruption that are absent in China.

As inequalities rise and resentment of official corruption, corporate oligarchy and economic and environmental depredations heats up in India, pressure for short-term populist palliative measures — subsidies, handouts, loan waivers and underpricing of energy and water — will also rise, at the expense of long-term investments in infrastructure, education and public health. China has deflected some of the same frustrations through high-profile construction projects, spectacles like the 2008 Olympic Summer Games and the 2010 Shanghai World Expo, and carefully orchestrated campaigns of nationalist fervor.

IN both giant countries there are glimmers of hope. China is making substantial advances in energy-efficient technology and improving health care and pensions. In India, voters are starting to demand good governance, and vigorous social movements against injustice — caste oppression, sexual violence and environmental degradation — are making a dent.

But China’s rigid political system makes it heavily dependent on enlightened consensus among its nonelected rulers, while India’s ramshackle, pluralistic democracy has been surprisingly supple, even if its citizens haven’t reaped the material benefits yet. They share a fundamental problem — a lack of accountability, especially at the local level — that, if not addressed, will make it impossible to sustain strong economic growth and provide a social safety net. In India, democracy is weakest at the village level: electoral participation is vigorous, but local elites often capture the local government, leaving bureaucrats little autonomy (or money) to carry out substantial improvements. In China, the failure of accountability is national, and inherent in the authoritarian system.

In the short term I expect China to do better than India in improving the material condition of its people, primarily because China has more money to spend on redistribution projects and because its infrastructure and administrative capacity are somewhat better. In the medium term, I anticipate that the two countries’ rates of economic growth will converge in the not-too-distant future, as India reaps the benefits of having a younger population. But in the long run, which country does better will depend on political reform, or its absence.

Pranab Bardhan, a professor of economics at the University of California, Berkeley, is the author of “Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India.”