Tag Archives: economic growth

06.13.2013 | Human Capital: Unemployment Predictions

Tepid.

Called “tepid,” during May, the US unemployment rate was 7.6% and job creation was an “okay” 175,000.

The Hamilton Project at the Brookings Institution perfectly displays what tepid means. If we add 175,000 jobs monthly (orange line in the graph, below), we will not return to the 4.6% pre-recession 2007 unemployment level until November, 2022. Even with 472k extra jobs a month (the first line on the left in the graph), still, we will not be back at pre-recession until 2015. (Next line is 321k jobs, then 208k.)

With an additional 321,000 jobs per month, the economy will return to pre-recession employment levels by the beginning of 2017 (light blue line).

Further thinking about “tepid,” I recalled a 2010 Washington Post graph (below) that connected unemployment to GDP growth. Again we are looking at 2022 for a full employment recovery.

Here, sluggish GDP is constraining employment growth. In this Washington Post graph, you can see how fast GDP needs to grow to take us back to pre-recession unemployment levels. With current GDP increases below 2.5%, we can see one cause of that tepid employment report.

Unemployment and the Output Gap from the Washington Post 2010

And finally, you might want to see how your own state is faring. This Hamilton Project at the Brookings Institution graphic shows an uneven jobs recovery.

From The Hamilton Project at the Brookings Institution

Our bottom line: Our sluggish recovery means we could continue underutilizing human capital during the next decade.

Sources and Resources: Always an excellent source of analysis and data, the Hamilton Project at the Brookings Institutions has their jobs interactive graphic here. And here are the Washington Post output gap projections.

Posted by: adminEcon
Tags: economic growth, GDP, human capital, output gap, underutilization, unemployment
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05.29.2013 | GDP: Does Lady Gaga Count?

The United States just got a little richer but not because of the economic recovery. We are just changing what is included in the GDP.

First a little history.

I have always been fascinated by the story of Simon Kuznets. A Russian immigrant who received the 1971 Nobel Prize in Economics, Dr. Kuznets had been the head of a statistical office in the Ukraine before he arrived in the US in 1922. Within 5 years, he was 26, had a Ph.D from Columbia and a job at the National Bureau of Economic Research.

During the 1930s, led by Dr. Kuznets, a group of government economists developed a framework for national income accounting. Sometimes called a national balance sheet, national income data display the value of all that is produced and the incomes that producers earn. By knowing the growing or declining value of what was produced, statisticians can identify economic strengths and weaknesses, learn about business, government and household spending, and make projections. Then lawmakers could have more information on which to base policy decisions.

Identifying the content of national income accounts, Dr. Kuznets decided that only legally produced goods and services that were bought and sold would be included. So, when you paint your own bedroom, your service (as a painter) is not a part of the GDP but the paint you buy is. However, when a painter is hired to do the same job, it is counted. They also decided not to count “intermediate goods” like the flour that goes into a pretzel because the final selling price of the pretzel included the flour.

Similarly, until now, research and development and the money spent on producing music, were considered “intermediate” and not counted separately. All of that will change on July 31, 2013 when the money spent to develop a new kind of missile or flavor or to understand the human genome will be counted directly in the GDP as “intellectual property products” in the fixed investment category. Included in the change is a provision that music and entertainment and TV show product costs will also be directly added to the GDP.

So, that means that any money Lady Gaga spends in the US to develop a musical production could very well elevate our GDP.

Amazingly, the BEA (Bureau of Economic Analysis) decided also to retrofit their calculations and add intellectual property to GDP totals starting in 1929. As a result, almost a century of GDP totals will increase. (I do wonder about accuracy.)

Our bottom line? Just knowing what the GDP is…so you might want to watch this excellent 5 minute video from Slate and Planet Money’s Adam Davidson:

Sources and Resources: The BEA papers on the change are actually quite readable if you want to see the specifics of what they are doing. In addition (and a hat tip to) this WSJ article. It was the source of my Lady Gaga reference and my introduction to the topic while I read more in this brief and thought provoking Reuters blog. Finally, here, econlife looked at the story of how national income accounting helped us win WW II (from which I included a brief excerpt above).

Posted by: adminEcon
Tags: economic growth, GDP, intellectual property capital, Lady Gaga, R&D, Simon Kuznets
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05.24.2013 | Human Capital: Creativity and Competition

Telling graduates that, ”You are now officially credentialed as being smart,” author Walter Isaacson began his commencement address at Pomona College. “But,” he continued, because “Smart people are a dime a dozen, … Think different” is what matters.

With a “Think different” message, Isaacson reminded us of Steve Jobs’s quest for elegant products. His great new story, however, was about the unblinking stare that Jobs learned from his guru in India. That stare, paired with ”Don’t be afraid. You can do it,” pushed people to accomplish what they had thought was impossible. It inspired the first Macintosh team to cut the Mac’s boot-up time from 78 to 50 seconds. It brought uniquely great high quality glass to the iPhone. Repeatedly, it inspired and intimidated people.

I do recommend listening to the talk (below) because Isaacson’s stories about Steve Jobs and then Albert Einstein and Benjamin Franklin were interesting and his advice, though predictable, was to use your creativity to do good.

Watching Isaacson, I recalled a David Brooks column that conveyed a less obvious lesson from creativity. Comparing competition and creativity, Brooks said that alone, competition draws people to “a status funnel” that points “to the most competitive colleges and … companies..” and discourages change.

However, when competition and creativity combine, we get disciplined, reliable human capital and unique goods and services. The result is “creative monopolies” that dominate new markets and produce our Ben Franklins, Albert Einsteins and Steve Jobses.

Your opinion?

Sources and Resources: Each of Walter Isaacson’s 3 recent biographies–Steve Jobs, Einstein and Benjamin Franklin: An American Life, was excellent as was the NY Times David Brooks column, “Creative Monopoly.” And here, at econlife, you can see how Malcolm Gladwell looks at competition and creativity.

Posted by: adminEcon
Tags: competition, creativity, economic growth, human capital, Walter Isaacson
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05.05.2013 | Economic Growth: Natural Resource Curse

The natural resource curse can strike in surprising places.

But Detroit?

When economies blessed with commodity wealth fail to soar, the reason might be the natural resource curse. Single minded focus on one economic sector means unpreparedness when that sector falters. It means a less diversified economy that ignores its total potential. It means a costly infrastructure that will eventually become virtually useless.

In other words, channeling resources toward one industry can lead to “crowding out” others.

Also, the natural resource curse can involve political instability, volatile world markets and the impact of currency appreciation. Furthermore, comparing those stricken–Bolivia, Sudan, the Congo–to those who avoided it–Norway, Chile, Botswana–we can see that it is not inevitable.

But for now, let’s just stick with “crowding out” and return to Detroit.

If someone says Ford, Buick, Chevrolet, Dodge and Chrysler, don’t you think of car companies? Also though, they are last names of the amazing entrepreneurs who made the Detroit region thrive. With the auto as the growth engine, Detroit was a leading US city during the first half of the 20th century.

Now, Detroit is always near the top of distressed municipalities lists. With a jobs, transport and housing infrastructure based almost exclusively on the auto, Detroit responded catastrophically to globalization. Only 12% of Detroit’s adults have a college degree, much of their infrastructure is irrelevant, 1/3 of the city’s population lives below the poverty line (2011 stats) and April unemployment is close to 10%. Harvard economist Ed Glaeser says that the decline could have been lessened or avoided by targeting auto manufacture with less human and physical capital.

In other words, as with the traditional definition of the natural resource curse, a temporarily thriving economic sector monopolized land, labor and capital. Consequently, the region was unprepared for the inevitable changes that the future always brings.

Our bottom line? Debating resource or manufacturing development, many of the same ideas relate. We can consider crowding out, negative externalities, currency appreciation, civil institutions or depletion. Always though, economic growth is the bottom line.

Sources and Resources: Harvard economist Ed Glaeser conveys his analysis of Detroit in an hour long econtalk podcast and much more briefly for economix. For more on Detroit’s descent toward bankruptcy and the state’s takeover of its finances, this Reuter’s article provides the details. Then, to complete the picture, this superb NBER working paper discusses the causes, likelihood, and prevalence of the natural resource curse and its connection to economic growth.

Posted by: adminEcon
Tags: Detroit, distressed municipalities, economic growth, GDP, land labor capital, natural resource curse
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03.30.2013 | A Progressive Tax: Beer Economics

Artisanal beer makers are asking for a tax break.

Because typical craft brewers produce fewer than 15,000 barrels a year, they already have a lower tax rate than the larger firms. Currently, US beer brewers pay a $7 tax per barrel (31 gallons) for the first 60,000 they produce annually. Anything more, the tax for each barrel increases to $18. At 98.5 million barrels for 2011, Anheuser-Busch InBev’s tax rate was pretty much the $18.

Hoping to support craft brewers, legislators have proposed the Small BREW Act. If passed, the new law will lower the tax on each of the first 60,000 barrels to $3.50. For production between 60,000 and 2 million, the tax per barrel would be $16. And then above 2 million, the $18 rate remains. Because the proposed act extends the definition of a small brewer, moderately larger firms like the makers of Samuel Adams would benefit.

As economists, instead of beer, we could say that our story is about a progressive tax. Structured just like our income tax system where the more affluent pay a higher proportion of their income than those who earn less, beer maker tax rates are higher for the bigger producers.

Others though see the Small BREW Act through an entirely different economic lens. Rather than debating the fairness of progressive taxes, opponents of the act say the cost is too high for society because of the negative externalities of excessive drinking.

Sources and Resources: There is lots more to beer than drinking. For the economics, this NY Times article provides a thorough picture of craft beer maker lobbying for lower taxes in the US while this article from The Hill provides a fascinating account of why the big beer makers oppose the Small BREW Act. Meanwhile, described in this Bloomberg article, French beer makers are protesting a massive tax hike. And everywhere, for centuries increased beer consumption has reflected middle class status in developing nations. We look at more of these beer facts, here and here, at econlife.com.

Posted by: adminEcon
Tags: craft beer, economic growth, federal taxes, progressive taxation, regressive taxation
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