AAT Explains the Great Stagnation

At his blog Greg Cochran raises the issue of the Great Stagnation.

decline-in-growth

Basically, GDP per capita growth rates throughout the developed world have plummeted relative to the levels of 1950-1973 (the years of the miracle economy, Wirtschaftswunder, trentes glorieuses, etc).

They are however more or less typical of growth rates earlier in the century, substantially higher than in the 19th century, and still cardinally different from the Malthusian stasis that characterized most of human history (when technology increases led to bigger populations but no improvements in individual wellbeing, at least in nutritional terms).

So the question could also be put as: What made the third quarter of the 20th century so special?

(1) Long-term GDP per capita growth is ultimately a function of growth in total factor productivity, or the “A” part of the Cobb-Douglas production function (where GDP = ACapital^0.3Labor^0.7).

(2) Total factor productivity is itself, for the most part, a function of technology, including social technology (otherwise known as institutions); and of aggregate cognitive power, which determines the efficiency with which said technology can be utilized.

Now let us look at each of the above in turn:

(a) Social technology – In general, in most places – within the OECD, at least, as a criterion of inclusion – the best mix of institutions for maximizing economic output has already been found and implemented. There are, to be sure, substantial differences in ease of business and hours worked between, say, Italy and the US; but said differences are marginal, not cardinal, such as those between North Korea and the US.

Incidentally, the idea that in most areas of the world improving institutions further has entered the realm of decreasing marginal returns is hardly a fringe view in economics (e.g. Glaeser 2004).

(b) Cognitive power – Literacy was closing in on 100% by 1900 in the US and “core” Europe. At that same time, the Flynn effect took off in earnest, continuing to around 1970-2000 but tapering off or even going into decline by the turn of the millennium. So aggregate elite cognitive power is now increasing at much more modest rates than before.

(c) Technology – As per Apollo’s Ascent Theory, there is an equilibrium technology level for every level of aggregate cognitive power, with the rate of growth of technology being proportional to the gap between the current and equilibrium state. However, since the equilibrium level of technology is now seeing only very minor gains (relative to the trend for most of the 20th century), technological growth has also become more subdued.

(3) The decline in technological growth leads to a decline in the rate of GDP per capita growth in the advanced countries, which are close to the technological frontier.

(4) Why is China growing very fast? Because its growth is based on mere convergence to the developed world, which it can effect by dint of its First World-quality human capital. At a stroke, the reforms of the 1980s involved a quantum leap in social technology (i.e. abandonment of Maoist economics, an aberration that made Soviet-style central planning look rational) and the removal of barriers to technological diffusion from the developed world.

(5) Why was the 1950-1973 period that of the miracle economy? 

The conventional explanation is that the world hit a sweet spot in which many interrelated productivity improvements linked to advances in electro-mechanics, decision theory, etc. in prior recent decades that had been marred by war and instability could now all be implemented at the same time. Another important factor is that back then industry accounted for a larger share of GDP than today, which enabled faster growth because productivity improvements in manufacturing are easier to implement than in services.

However, surely another major factor was that the Flynn Effect and improvements in cognitive technology, or what you could view as technology-to-make-technology (e.g. much better “cognitive sorting,” as described by Charles Murray and Richard Herrnstein in The Bell Curve) was advancing at a very rapid pace during that period.

Also, both Europe and Japan had been wrecked by the war, so they were very much below potential; and Japan especially still had ample scope for pure convergence growth, conveniently protected under the American security umbrella. Hence why most of Europe and especially Japan grew even faster than the US during that period.

There is also a “thermoeconomics” school (e.g. Ayres 2002) which argues that the Great Stagnation is explainable on account of energy conversion efficiency ratios beginning to hit plateaus from the 1970s.

ayres-us-gdp-forecasts1

Potentially, this could even lead to a decline in the level of equilibrium GDP, if technological growth slows down past the point at which it no longer fully counteracts increasing resource depletion.

That said, I don’t know to what extent I buy this thesis, and especially the impicit assumption that GDP must be quite tightly linked to material output.

Comments

  1. jimmyriddle says

    Interesting, that the advent of the internet seems not to have had a noticeable effect.

  2. anonymous coward says

    GDP must be quite tightly linked to material output

    Of course it isn’t. If me and you exchange IOU’s for 1 million dollars, our collective GDP just got raised by two million bucks. Meanwhile the net material output is negative. (We just wasted time trading equivalent pieces of paper.)

  3. Furthermore, the ample space for fiddling, fudge factors and fragile estimation makes any calculation of GDP a subjective exercise, to a vastly greater extent than that of material output. The GDP of China and South Korea would be much larger than it officially now is, if calculated on the same basis as that of the US or western European countries. This is without even raising the question of graver statistical inadequacies in Africa, for example.

  4. [Why is China growing very fast? Because its growth is based on mere convergence to the developed world, which it can effect by dint of its First World-quality human capital. At a stroke, the reforms of the 1980s involved a quantum leap in social technology (i.e. abandonment of Maoist economics, an aberration that made Soviet-style central planning look rational]

    It was Mao who gave China a (real) demographic transition and mass literacy, which surely have more than a little to do with “human capital”. Easy maybe, but no-one had done it for China before him.

  5. Anatoly Karlin says

    Chiang Kai-shek gave Chinese Taipei a (real) demographic transition and mass literacy, plus quadruple the GDP per capita.

  6. Population of Taiwan: early 50s 8 million, mid 70s 16 million
    Population of PRC: early 50s 550 million, mid 70s 950 million

    Jiang Jieshi had had his chance on the Chinese mainland already.

  7. No economic phenomena have one cause, but if you miss out this one, then you’re not even beginning to tell the story.

  8. Could institutions be improved? Yes, of course. Some types of economic activity are useful to society and some are harmful. More of the harmful types could be banned. Advertising, a lot of what Wall St. does. More kinds of poisons and sources of addiction could be banned. More resources could be allocated to fighting the poisons and sources of addiction that are aready banned.

    All of that would improve the standard of living. Most of it would decrease the GDP though. A lot of the economic activity that’s reflected in the GDP is harmful to society.

  9. More of the obvious stuff: more resources could be put into science and technology. Right now a large share of the smart fraction speculates in stocks or babbles about pseudoscience. Governments could attract them to real science and technology instead with financial rewards.

  10. I think a lot of the Chinese elite fled with Chiang to Taiwan. The presence of those people must have given a boost to Taiwan’s economy.

    The Mao period wasn’t economically successful, but he preserved China’s independence from Japan, the USSR and the US. People have always been willing to sacrifice material comforts, and acually their lives too, for independence. Japan, Taiwan and South Korea aren’t independent.

    There are so few truly independent countries on earth that each instance of real sovereignty is an impressive achievement. Who knows what dangers China may escape in the future, what benefits it might reap, because it preserved its independence?

  11. jimbojones says

    It’s not just economic growth that has fallen. In the West, many indicators of societal health have fallen since about 1975.
    Obesity has gone up, test scores have gone down, “social cohesion” in the US has fallen (as documented in Bowling Alone), divorce rates have risen, depression rates have risen, sperm counts have fallen, fertility has fallen, etc etc.
    (It should be noted, of course, that spectacular technological advancement has led to decreases in child mortality and increases in lifespans.)

    The West seems to be experiencing civilizational decline on a grand scale.

    As to why that decline is occurring, it seems reasonable to believe that a loss of understanding of something like “human nature” (however one wants to define that) would cause grave societal problems; and that the West has experienced exactly such a loss. For example, nowadays many argue that there is no such thing as “human nature” – e.g. many claim that boys are the same as girls and so on and so forth.

  12. Another factor that partly explains the boom of 1950-1973 is energy. Hydrocarbon (oil and gas) consumption doubled every 10 years during that period and rose from being a fringe fuel besides coal and wood to become widely used all over the world. The advantage of oil over coal is that it can be shipped much more efficiently, meaning that after 1950, the development of industry wasn’t tied to the country being both rich in energy and human capital but only in human capital anymore. Therfore, rapid development finally was possible in high-IQ but resource poor countries like Japan, Korea but also in Southern Europe. Brazil and mexico also developed rapidly, but soon hit the glass ceiling.

  13. That’s not counted in GDP:

    https://en.wikipedia.org/wiki/Gdp#Components_of_GDP_by_expenditure

    In contrast to its colloquial meaning, “investment” in GDP does not mean purchases of financial products. Buying financial products is classed as ‘saving’, as opposed to investment. This avoids double-counting: if one buys shares in a company, and the company uses the money received to buy plant, equipment, etc., the amount will be counted toward GDP when the company spends the money on those things; to also count it when one gives it to the company would be to count two times an amount that only corresponds to one group of products.

  14. But the command economy model where a centralized body tries to decide what is valuable and then tries to force some concrete, material standard and quantity of output doesn’t work.

    The reason we use GDP as a measure of standard of living is because it’s a measure of spending by consumers and businesses for things they regard as valuable.

  15. Anatoly,

    If you ever have the time, it might be interesting if you reviewed Joe Studwell’s book “How Asia Works”, which came out a couple years ago:

    https://www.amazon.com/How-Asia-Works-Joe-Studwell/dp/0802121322

    In it, he talks about the importance of land reform, which is a factor that most economists and writers on this topic tend to ignore. The land reforms took land previously concentrated by a few landlords and distributed them as smaller plots to owner-farmers who farmed the land themselves. These smaller plots run and worked by the owner-farmers increased agricultural yields, and the owner-farmers used the surplus to engage in entrepreneurial activity and industry.

    Note that the communist land reforms did the opposite – they collectivized the farms and replaced all the landlords with one landlord, the government, and turned everyone into landless serfs. They were indeed worse than the previous situations that prevailed in the newly communist countries because they concentrated land ownership even more, and eliminated the small class of owner-farmers that they did have.

    The 19th century American economist Henry George, whose book “Progress and Poverty” was the most popular economics book and one of the most popular books overall in the 19th century, wrote about the importance of land and rent concentration in impeding economic progress. We may be in a similar situation now where land and more broadly wealth concentration is starting to slow down economic growth and progress.

  16. The 1990s in Russia showed that the command economy works. It’s a very simple thing. The economy worked well in the 1980, when it was commnad. And it collapsed in the 1990s, after it stopped being command. I know that’s not what you’ve been told, but you were told a lie. Those who saw is happen tend to think that the command economy works better than laissez-faire. A ceteris paribus experiment was arranged before my eyes. And, all else, equal, laissez faire lost.

  17. The reason we use GDP as a measure of standard of living is because it’s a measure of spending by consumers and businesses for things they regard as valuable.

    This isn’t true. For example, most consumers regard advertising as an annoyance. Many types of economic activity harm many times more people than they benefit. The overall impact on society of many types of economic activity is negative.

  18. Oh, and by the way, the validity of this experiment was increased by the fact that the country was split into 15 new nations right when it occurred. And the economy collapsed in all 15 of them, yes, without a single exception, after the command economy was abolished. Actually, all of the eastern European economies went into a crisis at this time as well.

    These economies have since bounced back, as measured by the GDP, but you have to realize that the GDP overvalues the lassaiz faire system. Many types of economic activity that are harmful to consumers’ well-being (gambling, stock speculation, advertising, porn, etc.) contribute to the GDP in non-command economies, but did not exist at all in the USSR’s command economy.

    In other words, in capitalist economies you can add to the GDP by annoying and harming consumers. You couldn’t do that in the USSR. So the USSR’s GDP was a more truthful reflection of consumer/citizen satisfaction.

    To summarize: the introduction of capitalism caused a collapse in all the economies where it happened. We’re talking about at least a couple dozen different countries. The more separate cases, the stronger the test. There’s been an improvement after that collapse, as measured by the GDP, but GDP overvalues the extent of that improvement.

    The bounceback in the most inportant areas from the civilizationist perspective – science, technology and high art – was the most modest of all. None of the post-Soviet countries are contributing anywhere near as much to science and technology as they did under the command economy.

  19. Economics is political partisanship dressed up with math-like nonsense. The only real way to arrive at any opinions in this sphere is through intuition.

    My intuition, which I got from looking at what happens in a variety of situations, tells me that a pure libtardian free-for-all cannot work. It wouldn’t even be able to sustain itself for a week because soon someone would grab a lot of power and it wouldn’t be a free-for-all anymore.

    Command economies can work. I grew up in one, and I know it worked. But they can lead to misery as well. It all depends on who’s commanding, what their motivations, loyalties and skills are.

    Limited-market economies can work as well. And they can lead to incredible misery too. It all depends on who’s limiting the market, in whose interests, with what skill. As I said above, unlimited-market economies cannot work. They lead to collapse and the reintroduction of limits.

  20. a pure libtardian free-for-all cannot work

    LibERtardian. Typo. Although I’m sure that a pure libtardian free-for-all wouldn’t work either.

  21. Glossy,

    I’m not a free market fundamentalist.

    I’m not sure that it’s very useful to discuss whether this or that economy “works” or “worked well”, since that is very vague and people have different notions of what “working” or “working well” constitute.

    Generally speaking, people regard their childhoods fondly and remember it as a happy time, regardless of the material conditions of their childhoods. For one thing, they have nothing to compare it to, but more importantly, kids are easily amused and satisfied, each day is a new adventure, simply being outside and running around is a source of great amusement and wonder, etc.

    The economy along with an entire political and social system collapsed with the Soviet Union. This was a unique historical event with many variables. Not exactly a controlled experiment.

    Advertising generally comes packaged in things people consume like magazines and commercials. So the people who subject themselves to the advertising aren’t annoyed enough to not buy the product. Advertising also provides information, so it’s not completely frivolous.

    I agree that there are harmful economic activities, although I think this is primarily due to a similar centralization and monopolization problem you see in command economies.

    It seems impossible to ascertain that “the USSR’s GDP was a more truthful reflection of consumer/citizen satisfaction.” The USSR’s GDP was the product of orders decided and issued by the politburo. So the assumption is that the politburo was able to figure out what maximized consumer/citizen satisfaction, as well as how to produce said satisfaction. That is a huge assumption. When examining the GDP of non-command economies, there is no assumption that anybody can comprehend or know what satisfies everybody and how to produce that satisfaction.

  22. I’ve compared the late USSR to other economic setups. I think it worked better. The post-Soviet economies collapsed after and because of the introduction of the market system. It was the cause of the collapse that killed many millions of people. You can look at life expectancy statistics.

    So in that particular case the market was worse than the command economy. Can a limited market system work in general? Sure, it’s worled in many places. As I said above, it all depends on who limits the market, what their loyalties and skills are. The same can be said about command economies. Their success depends on who commands and what their loyalties and skills are.

    You are the consumer of direct mail. Do you like it? Did you ask for it? One can think of many other ways in which the market annoys or harms people by its nature of maximizing profit. Industries polluting the environment, manufacturing addictive substances.

    You seem to think that orders given by officials would naturally produce worse outcomes than rich people trying to make more money. I don’t share that assumption of yours.

  23. When examining the GDP of non-command economies, there is no assumption that anybody can comprehend or know what satisfies everybody and how to produce that satisfaction.

    Anybody can comprehend what kinds of things are harmful to a society and what kinds aren’t. That’s not usually the problem. The late USSR eliminated gambling, prostitution, drugs, homelessness, unemployment, pornography, lending money on interest, etc. because these things were bad. It funded science and high art because they were good. This stuff isn’t hard to figure out.

    The usual cause of bad outcomes in politics is not a failure to comprehend what’s good and what’s bad. Instead it’s loyalties to things other than the common good.

    All modern market economies are heavily regulated. You’re arguing that no regulator could possibly comprehend what would help consumers and what would hurt them? Does that mean that you don’t want the nuclear power industry regulated? What about medical drug manufacturers? What about illegal deugs? Do you think that the people who banned them had no business making that kind of a choice for consumers? What about the people who banned slavery? What about hunting people down for their organs? Do you think that the people who made that illegal had no business making that choice for consumers because no single human mind can understand the common good as well as the invisible hand? I think slavery was still widely practiced by Britan in its colonies when Adam Smith lived, so his conception of the invisible hand must have included slavery.

    On the one hand you say that you’re not a free market fundamentalist, on the other hand you say that you don’t think that bureaucrats can comprehend what satisfies consumers, what’s good, what’s bad. That latter stance is market fundamentalism.

  24. I want to make myself as clear as I can. I don’t think it’s complicated to figure out what’s good for a society and what isn’t. I think most people know it instinctively. When a group of people commands an economy, the danger isn’t failure to comprehend that drugs, or pollution for example, are bad, or that better-quality shoes would be good. The danger is loyalties to something other than the common good.

    Libertardian utopia has never been seen, but modern examples of relatively unfettered markets produce, by their very nature, lots of negative outcomes for consumers. There’s always money to be made by screwing people over, and the market does not prune that activity much by itself.

  25. I’ll give you a famous example of bureaucrats furthering consumer satisfaction better than the market. The US healthcare system is much more market-oriented than European ones. Yet the European ones produce better life expectancies for much less money than the US system.

    The late Soviet educational system was much better than the Westsrn ones of its time at every level except for the very top, where it was comparable. Obviously, the Soviet system did this with less money.

    There’s generally a trend of more market-oriented systems spending more money to achieve the same or worse results than less market-oriented systems. Of course you have to make these comparisons HDB-neutral. But if you compare the US and Euro pension, education, transportation, healthcare systems, and if you make rough mental HDB-related adjustments, I think you’ll see that the Euros achieve similar results with less money. How? By decreasing the influece of the market.

    You get more of what you pay for. A more market-oriented economy will produce more economic activity, but not necessarily more customer/citizen satisfaction. Many types of economic activity are irrelevant or harmful to consumers and it’s precisely the job of regulators and planners to eliminate the harmful types of economic activity.

    So yes, I think that the GDP tends to overvalue market economies and undervalue command economies, meaning that there’s more consumer satisfaction per monetary unit of command-style GDP.

  26. The introduction of command economies also resulted in deaths and destruction. If we’re comparing transition periods to judge the merits, command economies surely look worse.

    I would not say I’m harmed by junk mail. And the industry of command economies tend to be very polluting, if only because they tend to be less efficient.

    I actually don’t think that centralized command by officials is necessarily worse than centralized command by a few rich people or corporations. I think they have the same basic problem.

    Speaking in generalities about what is harmful and what is good is not the same thing as actually comprehending them in practice and producing them.

    I think in general regulators don’t know that much a priori, and often what they do know comes after people have experimented. It’s impossible to know lots of things without people taking risks and some of them taking drugs and dying or messing around with rockets in their back yard and blowing themselves up.

    Comprehending vague generalities like “pollution is bad” and “better shoes are good” is completely useless from an economic perspective. How exactly does that help someone who needs shoes right now? Different people need different shoes at different times. They lose and wear out shoes at different times. They have different size feet. Etc. How do you account for all this? And for all the other goods?

    It seems like what you’re describing is a theocracy with a priesthood that prescribes what is good and bad for the people. That’s fine for instilling specific morals and values, but burdening the priesthood with actually managing and producing what it deems good seems like an impossible task. Wouldn’t it make more sense to have the government enforce morals but leave production to the market?

  27. Glossy.

    Here is a map of the world by IQ
    https://westhunt.wordpress.com/2016/07/09/our-dumb-world/

    It confirms Karlin’s basic argument, which is really obvious to any reasonable person, that national IQ is the single biggest determiner of wealth. However, there are certain factors that have to be adjusted for, of which the single biggest one is whether a country was communist during the 20th century. There’s your experiment, carried out in dozens of countries over nearly a hundred years. The results are in: you’re wrong.

    The late USSR eliminated gambling, prostitution, drugs, homelessness, unemployment, pornography, lending money on interest, etc. because these things were bad. It funded science and high art because they were good. This stuff isn’t hard to figure out.

    Russia is a mess. Every social indicator shows this. Putin is making it better (to make it clear I just said PUTIN IS MAKING IT BETTER – so leave me along Russophiles), but Russia is still a mess because of the pile of crap he had to inherit. Part of that was down to the chaos of the Yeltsin years, but most of it was down to your amazing late Soviet model which fell apart for no reason whatsoever.

    Libertardian utopia has never been seen, but modern examples of relatively unfettered markets produce, by their very nature, lots of negative outcomes for consumers.

    Say which countries you mean. By definition, a country with a fiat money and central bank does not have “unfettered markets”, so I’m all ears. Then when you’ve done that, I want to hear your solution to the economic calculation problem. You’ll be the greatest thinker in world history, so it’s win-win all round.

  28. John Massey says

    Do you get the sense that the Flynn Effect topped out with the generation who grew up accustomed to using the Internet to learn and get information while they were still kids? I first got access to the Internet when I was over 40. My daughter got it when she was 8, and the amount of knowledge she acquired that way is astounding – by her teens she knew hugely more than I did at the same age, scrabbling around for it in hard copies in libraries.

  29. If we’re comparing transition periods to judge the merits, command economies surely look worse.

    I wouldn’t say surely. I don’t think you realize the extent of the FSU disaster of the 1990s. The number of excess deaths was in many millions. The life expectancy fell by a lot. And stayed down for a long time.

    if only because they tend to be less efficient.

    I don’t think they’re less efficinet. I just gave you a few examples of bureaucrats running more efficinet industries than the market, meaning getting better results for less money: Soviet education vs. American, Euro healthcare vs. American, etc.

    It’s impossible to know lots of things without people taking risks and some of them taking drugs and dying or messing around with rockets in their back yard and blowing themselves up.

    Obviously, the USSR was a lot better with rockets than its Western rivals. And in market economies all significant space exploration has been done by governments. There aren’t that many types of illegal drugs out there. It’s been known that most of them are bad for centuries.

    How do you account for all this? And for all the other goods?

    You appoint artistic people to the appropriate jobs. Late Soviet people were dressed better (I’m talking about style) than Americans of that time. It’s partly cultural – Americans care less about clothes than most peoples, prefer the casual look, sweatpants and sneakers, etc., even young women don’t seem to care about how they look much. Soviet women cared, so they looked better.

    Wouldn’t it make more sense to have the government enforce morals but leave production to the market?

    No, I think the late Soviet production setup was fine. And the market can be fine as well. It all depends on who’s managing it, what their priorities are. All existing markets are managed in some way. The people who are managing the Chinese market now are doing it spectacularly.

  30. Part of that was down to the chaos of the Yeltsin years, but most of it was down to your amazing late Soviet model which fell apart for no reason whatsoever.

    The late Soviet model was doing fine until your amazing capitalist model ruined everything. Well, this particular instance of the capitalist model was run by thieves. Some capitalist models aren’t. But I think that the late Soviet economy was doing fine and didn’t have to be replaced.

    Say which countries you mean. By definition, a country with a fiat money and central bank does not have “unfettered markets”, so I’m all ears.

    You want me to name countries that equate money with precious metals? I don’t know if there are anymore. I seem to half-remember something about Khaddafy maybe threatening to go on the gold standard before he was killed, but I could be mistaken about it. Wouldn’t be snocked if all money was fiat money now. I don’t see anything wrong with the old system of saying that a dollar, a mark, a frank, whatever could always be exchanged for a specified amount of gold. I’m sure that made harder for governments to cheat.

  31. However, there are certain factors that have to be adjusted for, of which the single biggest one is whether a country was communist during the 20th century.

    I think what you’re seeing there are mostly the lingeting effects of the thievish-oligarchic capitalism of the 1990s. There are better kinds of calitalism in the world, but that’s the kind that the FSU got. The late Soviet system wasn’t thievish or oligarchic. Its leaders lived about as well as Western lawyers or dentists, meaning that they didn’t steal.

    Another thing that you’re seeing there is the historic lag of Eastern Europe behind Western Europe. That’s HBD. I think Anatoly made a graph once where he showed the Russian lag behind the West being about as large now as in the late tsarist period. The lag was much worse than that in the 1990s.

  32. HBD isn’t all about IQ. There are conscienciousness, altruism, the capacity for hard work and many other things. Eastern Europe lagged behind Western Europe in 1000 AD, 1250 AD, 1500 AD, 1750 AD and today. The only way to change that relationship quickly is to change the population’s genetics, which Merkel and friends happen to be doing now.

  33. I think what you’re seeing there are mostly the lingeting effects of the thievish-oligarchic capitalism of the 1990s.

    Russia is one of the big discrepancies that is doing far worse than it should be, but an even bigger discrepancy is China. More to the point: every single country that had a communist period is doing worse than it should be.

    You want me to name countries that equate money with precious metals?

    In principle, fiat money would be the best system. The problem is that it is the most susceptible system to abuse and the only reason to actually establish one is to abuse it. However, that is a distraction from my question: name the countries and historical periods which you think represent “unfettered capitalism”?

  34. Truly unfettered capitalism doesn’t really exist, but US capitalism is certainly more unfettered than Euro capitalism. The US healthcare, pension, transportation, education systems are more market-oriented than the European ones.

  35. If your data set is as both simultaneously small and vague as the US and Europe then I can’t imagine what useful results you can imagine to get from it. Certainly one would be hard put to say that healthcare, pensions, transportation and education are better in Europe as a whole than the US, esp, once one factors in the U.S.’s (for now) uniquely large population of low IQ delinquents and the cost of financing a global empire.

    Capitalism is a lot more unfettered in Singapore than the U.S. and not only is the country prosperous, but it is far superior in enforcing decent standards of behaviour than either the US or Europe, which is why the fanatics at ‘Freedom House’ label it “partly free”.

    The idea that free markets are incompatible with cultural conservatism and/or the maintenance of authoritarian (I use the word in a value neutral sense) norms of social organisation has a a certain enduring popularity, but it doesn’t really seem to be based on anything at all. Democracy, on the other hand, really does seem to be a killer of cultures.

  36. Anatoly Karlin says

    The life expectancy fell by a lot.

    Because of a very specific reason: The disintegration of the Soviet era vodka monopoly. Not capitalism per se.

    Health achievements is one of the very last things the USSR could boast of.

    http://www.unz.com/wp-content/uploads/2013/01/life_exp.jpg

    So yes, I think that the GDP tends to overvalue market economies and undervalue command economies, meaning that there’s more consumer satisfaction per monetary unit of command-style GDP.

    This is completely backwards. On paper, Soviet production figures were respectable; approximately 50% of the US level per capita.

    Due to all the waste and misallocations, however, consumer needs were satisfied to a far lesser degree than they would have been under market conditions. Why did those (few) Soviet citizens who owned a car carry their windshield wipers with them?

  37. Anatoly Karlin says

    I think Anatoly made a graph once where he showed the Russian lag behind the West being about as large now as in the late tsarist period. The lag was much worse than that in the 1990s.

    This assumes that lag was “natural”/permanent (my assumption is that it is not).

    For most of history Russia – along with everyone else – had been in a Malthusian trap; it just began to escape it a century later than the US and “core Europe.” By the 1900s/1910s literacy and urbanization were soaring, and it had the highest industrial growth rate of any major European country (though from a low base).

    This continued under the USSR, but what happened is that it hit a ceiling at around 50% of US GDP (less in terms of consumer wealth) by the 1970s, and started falling again thereafter. Under a market system, that ceiling might have been 70% or 80%.

  38. Glossy,

    Around 90% of students in the US attend public schools for elementary and high school. About 75% of American college students attend public universities. The government also directs money to private universities, and provides student loans to students attending private universities. In practical terms, education in the US is government run.

    The US space program was another government run program. I would not say it was less successful than the USSR’s program. Furthermore, the private US space industry has made significant progress recently towards reusable rocketry, which is the primary barrier to space exploration and which the US and USSR government space programs did not really make meaningful progress towards. The US and USSR government space programs had large budgets and were political prestige projects without real incentives for producing reusable rocketry.

    At any rate, I would not say that the US government education and space programs were necessarily worse than the USSR’s. I will say that they, like other government programs in wealthy free market economies, tend to be quite wasteful and inefficient because they have a huge surplus generated by the private economy that they can tax. So they tend towards laziness, corruption, and inefficiency. By contrast, the rest of the Soviet economy, not just the education and space sectors, were command economies that did not generate a huge surplus. As a result, they were forced to be more efficient and disciplined in order to produce a decent space program.

    “You appoint artistic people to the appropriate jobs” is not a serious answer. You cannot run an economy that way. If it were that easy, everybody would be wealthy.

  39. Glossy,

    BTW, I agree that the US economy produces all sorts of negative things like low culture and art. But I disagree that this is primarily due to the market. I think it’s primarily due to the command economy aspects of the US economy. The government taxes the bourgeois and cultured segment of the population to pay for the life and reproduction of the segment of the population of lower culture. Furthermore, the government intervenes to reduce the control parents have over their children and their indoctrination, and enforces non-discrimination laws and glorifies and lower elements of the population. There is effectively a command economy in the cultural sphere that effectively prevents competitive subcultures with their own economies being significant.

  40. [Furthermore, the private US space industry has made significant progress recently towards reusable rocketry, which is the primary barrier to space exploration and which the US and USSR government space programs did not really make meaningful progress towards]

    A “muh gabidalizm” fanboy swallowing the hype whole. Never seen that before.

  41. Often using things that are measurable is a benefit to understanding. But GDP seems like a concept that may have outlived its usefulness, given the coagulating stratification creeping in. I think GDP hides more than it reveals now that the Financial Class is having its way with us.

  42. Is that a mutation on Muh Grab-it-all-ism?

  43. Indeed. The financial vampires went off the rails after that.

  44. Reusability is a publicity slogan, not an “objective metric”. Launch costs are whatever a creative accountant declares them to be, which will vary according to context.

  45. Reusability is an objective metric.

    In a market with competitive bidding for contracts, launch costs are determined by bidding. In this case, SpaceX underbid ULA and offered significantly lower launch costs.

  46. In regards to Richard Nixon, also my thought.

    In regards to the internet, it is probably a mixed blessing. More opportunities to find, use, and distribute economically useful info; but also a great distraction of looking at pics of cats on Facebook instead of getting to work.

  47. TomSchmidt says

    Read, or listen, to the book Debt, by David Graeber, if you haven’t already. When the neoliberals come gunning for you, you’ll be mentally armed.

  48. GDP is also heavily dependent upon the GDP deflator that is chosen by the government agency in charge of such things. Not surprisingly, the deflator has generally been unrealistically low, since it is drawn from data that excludes such items as food, energy, college tuition, and taxes. A more realistic deflator would reveal very little or no growth for decades…

  49. The average grocery shopper gets a regular food inflation shock, regardless of the official deflator numbers. Lower gas prices mitigate that only partially. Those are two visible, replicable data points that shoppers see routinely. Shadowstats website lays that out regularly.

    Who are you going to believe, the GDP numbers or the gas pump and cash register lyin’ eyes?