Whoo! Killer piece. And I think ultimately, the basis for why we need a more liberal immigration policy over the coming decades. An interesting follow up is also listening to Jason Furman on the Plain English podcast talk about his perspective on the conundrum over this new interest rate paradigm.
First, good overview of some current thinking about macro, growth and trends. Nicely done, Milan. What follows isn't a criticism, but an idea for further exploration the next time you are talking with these economists.
I'd be interested in a follow-up to what Larry Summer said here, from your essay: "Government provides for national security, invests in science, supports the aged, and deals with inequality and its various consequences”, he told me. “And all of those things have become more necessary relative to other things than has been true historically."
It's the "more necessary" part that doesn't ring true to me. More possible, perhaps. Though I would argue it is only more possible due to a richer and more dynamic economy primarily as a result of private investment, which seems to be underexplored by the economists you spoke with. They all seem quite focused on government actions -- taxing, redistributing, spending -- with little discussion of how to encourage more private investment.
>>So, I wasn’t contradicting myself when I went from worrying about secular stagnation to worrying about fiscal policy. I was responding to a radically changed world.<<
“When the facts change, I change my mind. What do you do, sir?”
Apr 18Liked by Matthew Yglesias, Ben Krauss, Milan Singh
Super interesting piece, Milan.
I had always theorized that population growth must surely drive productivity, in that expanding production *mechanically* involves installing newer plant and equipment (after all, if you're building a new office building or food processing plant or water purification system—all of these are the kinds of physical plant you need more of as your population grows—you're going to implement today's technical standards, not 1987's). And I figured economists must have looked into this topic in depth. But I'd never bothered to look into it. Like Milan and Matt, I, too, lack an Econ Phd. And I must confess I wasn't overly familiar with the name "Alvin Hansen." Well, now I have something to go on.
In political economy, “the worse the better” really is a thing. It took the great depression to get the government to experiment with stimulus, it took COVID to get family allowances (briefly). If inequality gets bad enough, Congress will find some way to address it. However, it’s utterly impossible to know what the breaking point will be. Many people, including me, thought Obama’s election would decrease the political salience of race and boy were we wrong. Thirty year old David never thought the Democratic party would prioritize identity and climate change over kitchen table issues. But maybe Republican orthodoxy will shift once the white working class (and perhaps the black and Latino lower middle classes) begin to punch their weight within the Republican coalition. The system is so complicated that it’s hard to predict. Nate Silver doesn’t put his models up til a few months before an election and that is a very wise choice.
Great piece, Milan. Wonkier pieces about fundamental economic concepts are among my favorite topics to read and to think about.
If Summers isn't worried about secular stagnation anymore, then it seems to me that he shouldn't have been worried about it in the first place. The problem with the economy in the 2010s, imo, wasn't stagnation, but rather insufficient stimulus following the worst recession since the Great Depression. Covid provided an opportunity to get the economy back to a "true" normal.
That said, I do agree with you and the other economists that secular stagnation is still an issue. As I was reading the piece, I was thinking "more immigration" so I'm glad you mentioned it. While I understand the political challenges around inflation, those problems are fixable (at least in theory - I'd like to think that the public would be more pro-immigration if said immigration is more orderly). Additionally, I'm less inclined to put much weight on the possibility of global population peaking in about 62 years. I think there is a lot of value in increasing immigration, even if it does ultimately only delay the problem.
I tend to think it's a bad idea to structure policy to maximize growth predicated on population growth, even to the extent it's possible to do so. I think the evidence is pretty overwhelming that the birth rate is largely beyond the ability of policy to dictate. The risk of creating a pyramid scheme where the whole deal collapses due to uncontrollable drops in the working age population is too great. Good policy maximizes productivity per capita that scales with the population regardless of the birth rate/immigration trend. Gains from population growth should be considered a bonus that accrues as an externality of sound policy.
Well done in characterizing the topology of secular stagnation. It's a timely reminder that this issue is still very much alive and well, whether we are focused on it or not.
“Economic theories are not like physics theories” I find this bizarre, and the way Larry Summers is talking about a "secular stagnation" as a passing trend not to be an useful framework. Maybe this is because I am a physicist! But I think we should talk of "secular stagnation" as three distinct effects:
1) Long-term (decades and centuries), developed countries have a slowing productivity growth rate as a fairly universal rule. They are starting from a higher base number, and trying to improve on a higher standard for quality of life. There is no shame in this, it's just setting a high bar for a succesful society.
2) Long-term (years and decades), the US has an aging population and insufficient fertility to replace the loss of their labor. Demographic decline is a very difficult trend to fight without immigration, and will adversely impact our living standards if we don't do something about it.
3) Short-term (months and years), the US economy is macroeconomically stimulated after decades of understimulation. We're seeing a lot latent potential unleashed, a lot of attention on previously neglected bottlenecks, a reorientation of the economy towards building, a distribution from capital to labor, but the economy does not have unlimited bandwidth to transform overnight.
On Summers ... I thought this was an interesting paper on how the cost of money is overlooked today. If we use the pre-1983 inflation formula - which measured monthly mortgage payments, instead of rental prices - then inflation in 2022 topped out at 15% vs. 9.1% and has had a much slower decline.
Did you miss me?
Whoo! Killer piece. And I think ultimately, the basis for why we need a more liberal immigration policy over the coming decades. An interesting follow up is also listening to Jason Furman on the Plain English podcast talk about his perspective on the conundrum over this new interest rate paradigm.
First, good overview of some current thinking about macro, growth and trends. Nicely done, Milan. What follows isn't a criticism, but an idea for further exploration the next time you are talking with these economists.
I'd be interested in a follow-up to what Larry Summer said here, from your essay: "Government provides for national security, invests in science, supports the aged, and deals with inequality and its various consequences”, he told me. “And all of those things have become more necessary relative to other things than has been true historically."
It's the "more necessary" part that doesn't ring true to me. More possible, perhaps. Though I would argue it is only more possible due to a richer and more dynamic economy primarily as a result of private investment, which seems to be underexplored by the economists you spoke with. They all seem quite focused on government actions -- taxing, redistributing, spending -- with little discussion of how to encourage more private investment.
>>So, I wasn’t contradicting myself when I went from worrying about secular stagnation to worrying about fiscal policy. I was responding to a radically changed world.<<
“When the facts change, I change my mind. What do you do, sir?”
Super interesting piece, Milan.
I had always theorized that population growth must surely drive productivity, in that expanding production *mechanically* involves installing newer plant and equipment (after all, if you're building a new office building or food processing plant or water purification system—all of these are the kinds of physical plant you need more of as your population grows—you're going to implement today's technical standards, not 1987's). And I figured economists must have looked into this topic in depth. But I'd never bothered to look into it. Like Milan and Matt, I, too, lack an Econ Phd. And I must confess I wasn't overly familiar with the name "Alvin Hansen." Well, now I have something to go on.
In political economy, “the worse the better” really is a thing. It took the great depression to get the government to experiment with stimulus, it took COVID to get family allowances (briefly). If inequality gets bad enough, Congress will find some way to address it. However, it’s utterly impossible to know what the breaking point will be. Many people, including me, thought Obama’s election would decrease the political salience of race and boy were we wrong. Thirty year old David never thought the Democratic party would prioritize identity and climate change over kitchen table issues. But maybe Republican orthodoxy will shift once the white working class (and perhaps the black and Latino lower middle classes) begin to punch their weight within the Republican coalition. The system is so complicated that it’s hard to predict. Nate Silver doesn’t put his models up til a few months before an election and that is a very wise choice.
Politics Ain’t Beanbag: Milan’s Down Home Politics and Duck Hunting Blog.
*camo hoodies at sensible prices
Great piece, Milan. Wonkier pieces about fundamental economic concepts are among my favorite topics to read and to think about.
If Summers isn't worried about secular stagnation anymore, then it seems to me that he shouldn't have been worried about it in the first place. The problem with the economy in the 2010s, imo, wasn't stagnation, but rather insufficient stimulus following the worst recession since the Great Depression. Covid provided an opportunity to get the economy back to a "true" normal.
That said, I do agree with you and the other economists that secular stagnation is still an issue. As I was reading the piece, I was thinking "more immigration" so I'm glad you mentioned it. While I understand the political challenges around inflation, those problems are fixable (at least in theory - I'd like to think that the public would be more pro-immigration if said immigration is more orderly). Additionally, I'm less inclined to put much weight on the possibility of global population peaking in about 62 years. I think there is a lot of value in increasing immigration, even if it does ultimately only delay the problem.
>Summers said there is “a substantial chance we’ll have to go beyond the top 1%” to raise the necessary revenue.<
Apparently Larry Summers realizes there's an election this year.
I tend to think it's a bad idea to structure policy to maximize growth predicated on population growth, even to the extent it's possible to do so. I think the evidence is pretty overwhelming that the birth rate is largely beyond the ability of policy to dictate. The risk of creating a pyramid scheme where the whole deal collapses due to uncontrollable drops in the working age population is too great. Good policy maximizes productivity per capita that scales with the population regardless of the birth rate/immigration trend. Gains from population growth should be considered a bonus that accrues as an externality of sound policy.
That was exceptionally well written.
Well done in characterizing the topology of secular stagnation. It's a timely reminder that this issue is still very much alive and well, whether we are focused on it or not.
“Economic theories are not like physics theories” I find this bizarre, and the way Larry Summers is talking about a "secular stagnation" as a passing trend not to be an useful framework. Maybe this is because I am a physicist! But I think we should talk of "secular stagnation" as three distinct effects:
1) Long-term (decades and centuries), developed countries have a slowing productivity growth rate as a fairly universal rule. They are starting from a higher base number, and trying to improve on a higher standard for quality of life. There is no shame in this, it's just setting a high bar for a succesful society.
2) Long-term (years and decades), the US has an aging population and insufficient fertility to replace the loss of their labor. Demographic decline is a very difficult trend to fight without immigration, and will adversely impact our living standards if we don't do something about it.
3) Short-term (months and years), the US economy is macroeconomically stimulated after decades of understimulation. We're seeing a lot latent potential unleashed, a lot of attention on previously neglected bottlenecks, a reorientation of the economy towards building, a distribution from capital to labor, but the economy does not have unlimited bandwidth to transform overnight.
Fantastic piece, Milan.
Well done. Good overview of the topic, judicious snark, and use of the serial comma as befits a civilized man.
Great post Milan.
On Summers ... I thought this was an interesting paper on how the cost of money is overlooked today. If we use the pre-1983 inflation formula - which measured monthly mortgage payments, instead of rental prices - then inflation in 2022 topped out at 15% vs. 9.1% and has had a much slower decline.
https://www.npr.org/2024/02/28/1234554967/inflation-cost-of-living-economy-mortgages-auto-loans-larry-summers