Scott Sumner  

Pop macroeconomics in an era of unprecedented non-change

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About 90% of the macroeconomics you read in the media is pop macro, which basically caters to the prejudices and ignorance of the average reader. For instance, I recently did a post discussing the media's focus on "currency manipulation" (as if there are any countries in the world central banks that do not manipulate the value of their currencies.)

Today I'd like to talk about the data on change. How fast are things changing today? Are we in a period of unprecedented change? Can we no longer expect to work for the same company throughout our entire career? Are jobs rapidly being displaced by robots?

There's lots of data one could bring to bear on these questions, and I don't have all of the answers. But the data I have been able to find suggests the economy is increasingly inertial, or slow to change. One type of change is moving to a new residence, perhaps associated with a job change:

Screen Shot 2015-05-16 at 9.49.50 AM.png
So we are moving less frequently than ever before. But what about the fact that companies no longer have any loyalty to workers, and lay them off at the drop of a hat? In the past few weeks the rate of new claims for unemployment (as a share of total employment) has reached an all-time low since records began in the mid-1960s. Indeed much lower than in 1969, which was the strongest job market in my lifetime.

As far as those robots are concerned, we don't see any job market impact in the productivity data. For reasons not well understood, productivity growth has slowed sharply in the past few years. The very low long-term bond yields suggests that market participants expect slower RGDP growth going forward.

Last year the US saw a 0.73% increase in its population, the slowest since 1937.

My grandma was born in 1890 into a middle class family in small town Wisconsin. Her home probably lacked indoor plumbing, most home appliances, electric lights, telephone, TV, radio, car, etc., etc. Slightly improved from life in ancient Rome. She lived to see jet air travel, computers, atomic bombs, antibiotics, and died the week they landed on the moon.

I was born in a world of indoor plumbing, atomic bombs, jet air travel, home appliances, computers, cars, telephones, TV, radio, antibiotics. I'll turn 60 this year, and live in a world of indoor plumbing, atomic bombs, jet air travel, home appliances, computers, cars telephones, TV, radio, antibiotics, plus the internet and cell phones. Yeah, I'd say change is slowing down, really fast.

I look forward to the comment section where you'll tell me I'm hopelessly wrong.

PS. Yes, my "ancient Rome" comment was an exaggeration. She had access to trains and the telegraph.


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COMMENTS (34 to date)
Tom West writes:

I suspect wide-spread use of the internal combustion engine and electricity are two big sui generis technological jumps that fundamentally transformed society.

I do not expect to see any other such jumps. We've got the low-hanging fruit and physics likely doesn't have any more cheap, universally applicable surprises for us to exploit.

Since those jumps are behind us, it can look like progress is slowing down, but I'd say the evolutionary changes in technology are accelerating over time. I'd claim (without any data) that the technological changes from 2000-2010 dwarfed, for example, 1960-1970.

Matt Moore writes:

Only 90%?

And "plus the internet"? Just because it fits in a single word, doesn't mean it is on the same order as the others. Try "the universal ability to access on demand, and at low cost, 99% of useful information ever assembled by man". We're only beginning to scratch the surface of what the pooling of this information means for education, healthcare, democracy and logistics, to name a few.

Except for antibiotics, I'd give up all the others first.

Brent writes:

I agree with your implicit point that there's nothing really obvious that screams huge numbers of people will somehow be jobless and destitute by the changes occurring today. But I think you are wrong to say there aren't big changes that have happened recently and are continuing to happen. The Internet thing and cell phones, and the combination, are pretty big deals. What's wrong and always will be is the overzealous worry that somehow people won't find jobs in the "new economy"... it's a bad joke... if high numbers of people don't have jobs, it's not the market economy's fault.

Philo writes:

I second Matt Moore. It's too hard to measure "change" (measuring, e.g., *happiness* is, comparatively speaking, a snap). Seat-of-the-pants impressions about the amount of change in this or that period aren't worth much.

You didn't mention convenient, effective, readily available contraception, which has been a big social change, the effects of which are still working themselves out.

Kevin Erdmann writes:

It's ironic that there are public conversations about both secular stagnation and debates about the dangers of AI and genetic modification in humans.

BrianH writes:

I too was "... born in a world of indoor plumbing, atomic bombs, jet air travel, home appliances, computers, cars, telephones, TV, radio, antibiotics."

I turn 40 this year, and when I was at Georgetown 20 years ago, no one, except for sons and daughters of European royalty (not an exaggeration), had cell phones. Email was just emerging - i got a simple account when I was a junior. It was pretty basic, and I mean that literally (it looked like the old "basic" programming). The internet was just starting.

Now, I can read and have access to what the brightest economists are mulling over via blogs, see global and local news instantly, and find information at the tip of my fingers. Our 5 year old asked this morning where lightning comes from. After our simple one sentence rehash of a geology lesson from years ago, the more apt, "google it" helped fill in many (most) of the gaps.

Knowing the uses of electricity were discovered 20 or 30 years before widescale economic growth emerged from its applications (the 1920s).

Perhaps it will take some time existing in this current state of "primordial internet soup" before the next "life" comes about.

Once those changes sprint forward, it will bring along with it new and undiscovered industries. But, we probably are in a kind of purgatory waiting for the dash forward.

Thomas writes:

I think the best single measure would be real income per capita. Sure you could have lots of relative price change that led to changes in the composition of consumption but not it's level, but that seems implausible. The

Rafal Smigrodzki writes:

When you were born, the number of known human genes was 0, now we know almost all of them. The technology to engineer single genes in vitro was still 20 years in the future, now we have the technology to edit multiple genes in living organisms. The cost of gene sequencing was infinite (impossible), now it's approaching $1000 per human genome. And yet, there are yet not that many conveniences stemming from this massive progress.

Looking at conveniences as a measure of progress is the wrong metric: What you need to look at is the number of obstacles overcome on the way to future conveniences.

There were few obstacles that could be addressed by a few moving parts to create the conveniences of telegraph or early automobile. There are thousands of distinct obstacles that have to be overcome, in multiple interlinked areas of industry, before the convenience of, say, a cure for aging, or massive intelligence increase, become available.

We are making insanely rapid progress, it's just our challenges are now insanely more complex.

Glen writes:

We are at the infancy of radical change to be brought about by the invention of the Internet.

For the first time in all of humanity, it is now possible to undertake endeavors of any size without the coordinating command and control of a hierarchical bureaucracy. This capability has the power to unleash heretofore unheard of levels of human productivity — and reorganize society in ways that may very well cause violent revolutions (bureaucrats won't give up their power without a fight).

However, none of this means we can't be in a temporary period of stagnation, likely caused by too much well-intended central planning.

BC writes:

Agreed, that the labor force mobility seems to be falling, which is curious given the improvements in transportation and communications. Maybe, people are wealthy enough that they don't feel the need to move for employment. Also, no risk that robots will replace workers since lack of jobs is caused by lack of money. (That's what 1990s Krugman used to tell us: [http://www.slate.com/articles/business/the_dismal_science/1997/01/the_accidental_theorist.2.html].)

Technology, though, has probably changed at about the same pace as in your grandma's lifetime (consistent with similar rates of GDP per capita growth). TV at your birth does not compare to TV now. You were born with 3 channels, and 3%/yr growth corresponds to about 18 channels 60 years later. Obviously, we have far more channels than that, not to mention DVRs and internet streaming. Computers are also not comparable. Moore's Law represents a growth rate of about 59%/yr (2x every 18 mos), which is why your smartphone is probably more powerful than the most powerful 60-yr old mainframe. Medicine is also not characterized as having antibiotics now just like having antibiotics 60 years ago. Today, we have prosthetic legs that allow amputees to run marathons. We also have ubiquitous LASIK, which is not comparable to glasses from 60 years ago. We are also debating the ethics, rather than the feasibility, of genetic engineering. You were born with atomic bombs, but we now have smart bombs, which has led to the bombing of military rather than civilian targets. Agreed that indoor plumbing and home appliances have probably stagnated.

Rajat writes:

Maybe the real issue is the stagnation between ancient Rome and 1890 rather than between the 1970s and now. That later period (my lifetime) has seen what feels to me to be enormous changes in lifestyle. Internet, mobile technology, electronic entertainment and computing power seem to be so vastly improved from the early 1980s. Probably three-quarters of what I do during my waking hours is radically different to what a similar person would have done in 1980. Yes, I still commute and cook in pretty much the same way, but what I do at work, how I enjoy my leisure time, how I communicate with others, how I plan my holiday, how I relax watching movies on demand on a 60" high-definition TV is all very different. The typical western welfare recipient would now have a vastly better view of a contemporary moon landing than the US President would have had in 1969.

Some things that have stuck in my mind: When I was travelling in London in 1996, a fellow-Australian who was a keen Australian Rules football fan would buy the Sunday Times to learn Saturday's football results - a delay of about 24 hours, but much cheaper than calling home on a pay-phone. Now of course he could follow the game or even watch it live on his phone. Also in the mid '90s, I recall watching a business news program on Sunday morning to find our how the US sharemarket closed on Friday night. There was no other way for a layperson to find out! Now I can follow every move in the market live while having Saturday morning breakfast at a cafe (I don't BTW).

I think the biggest problem is that we are discouraging private non-residential investment by raising taxes, increasing regulation, and devaluing the dollar while we are encouraging consumption (including residential investment, which, although nice, doesn't improve productivity).

Marcus Rugger writes:

I have to agree with the others concerning your apparent confusion with the Internet not being much change because, apparently, it's been reduced to a single word.

By that same standard, our lives probably aren't much different than ancient hunter/gathers. They had fire and we have fire and technology. Not much difference at all.

I am sympathetic to your argument, though. I'm 51. In my 40's I started having trouble reading close up. So, I went to the optometrist and he gave me the same solution they gave my grandfather 50 years ago: a pair of glasses.

Sure, the materials have changed. Lighter, thinner lenses. Better coatings. Etc. But, it's still the same solution given to my grandfather, just tweaked a bit.

I brought this up with an optometrist recently (about 5-years ago). He told me that in the next 20 years fixing the lenses in the eye will be standard practice. We'll see.

John Fembup writes:

Changes I occasionally ponder are those my father saw, compressed within a single lifetime.

He was born in 1898, before the Wright Brothers' flight at Kitty Hawk. He lived to witness Neil Armstrong's first step onto the Moon. Research into further extraterrestrial missions does not seem to be slowing down.

He was a young man before radio existed - and lived to see television broadcast worldwide via satellite. Communications technology does not seem to be slowing down.

He was also a young man before the "Great War" - and then lived thru yet another Great War, then Korea, then Viet Nam. Wars seem to have become more, not less, frequent although that may be in part a media phenomenon.

There are multitudes of examples like these - you get the idea.

I think as new knowledge emerges and makes the world more complex, the pace of change is bound to accelerate, not slow. In fact, Henry Adams made this observation a century ago, based on history. Adams also theorized that the exception to ever-accelerating growth is catastrophic interruption - which theory he also based on history.

Jon Murphy writes:

Yes, perhaps this is still the world of "indoor plumbing, atomic bombs, jet air travel, home appliances, computers, cars telephones, TV, radio, antibiotics" but the items of today do not compare to those of your birthday.

Indoor plumbing, ok, that one probably hasn't changed much.

Atomic bombs are way deadlier and faster now.

Jet air travel is cheap! So much so the average person can do it and do it frequently.

Home appliances are significantly improved, not only in terms of price, but in terms of efficiency.

The computers of your time cannot hold a candle to the computers of today. My TI-83 graphic calculator has more power than Apollo 11.

Cars are considerably more efficient and carry many more standard options that weren't even options when you were born.

The telephones of today are mini-super computers.

TV is colorful, cheap, and interactive.

Radio is...well, it is what it is.

Antibiotics now exist for things that were deadly when you were born.

Maybe we aren't getting "new" things, but the things we do have are vastly improving. To lump the 2014 Dodge Charger in with a Belair is to do a huge disservice to both.

mico writes:

I re-watched the Back to the Future series the other day.

As all of you know, in Back to the Future the present is 1985, the past is 1955, and the future is 2015. Feels odd living in the future, but more about that in a moment.

What is striking is that 1985 still feels much like the present and 1955 doesn't feel much more remote to me than it seems to feel to the characters. (Also, as a Briton, 1955 US feels stupendously rich to me. I wouldn't mind living there today.)

When we get to the 'future' of 2015 there are a lot of obvious things that didn't happen, like flying cars and hoverboards. There are also some things that resemble what did happen, like giant TVs (sometimes replacing wallpaper or windows) and ubiquitous video conferencing. But that's really all these giant TVs and computers are: dumb input media, or glorified telephones. They didn't predict the internet, despite predicting all the building blocks.

Now feel free to sneer at the internet but it certainly beats sitting in a library on my own grinding through half the non-fiction section, which is probably what I would have spent much of my leisure time doing in 1955. And I don't think it's just intellectuals; everyone seems to have had their niche turbocharged by the internet in some way, even if that niche is RL partying. I would put the increase in quality of life due to the internet higher than that due to home appliances and so forth.

Nathan writes:

How to evaluate the relative worth of different technologies? Look at emerging economies and see what their revealed preference tells you in terms of what they adopt first. Certainly India seems to value internet and cellphones *much* more highly than indoor plumbing.

Also, yes, things like air travel have existed for some time. However now they are *much* cheaper and more accessible than they were. The world immediately before the Wright brothers discovered flight was a lot more similar to the world immediately after than today is.

BC writes:

I like Mico's way of comparing 30-yr periods. I would concede that 1925-1955 was probably the period of greatest change overall. However, 1985-2015 saw by far the most rapid change in communications and information technology (Moore's Law Era).

Interestingly, 1955-1985 now seems like the Era of Greatest Stagnation, space travel being a possible exception. That might make sense when one considers that from the late 60s to 1980 (30-50% of the period), the country was busy using drugs, rioting, and moving out of high-crime neighborhoods instead of innovating. Note that the space travel innovations occurred mostly before this dead period. Even in terms of social change, most of the Civil Rights changes happened between mid-50s (Brown vs. Board) and mid-60s (Civil Rights Act), so late 60s to late 70s seems like the true Lost Decade.

Scott Freelander writes:

Scott,

I will add to the above that sometimes increases in productivity due to new technology can be hard to measure at first. Krugman admits, for example, that for years he completely missed the productivity gains that occurred due to information technology advances and automation in the 90s and earlier 2000s. He was dismissive, but now admits he was quite wrong.

Of course, he is often quite wrong these days, but that's another discussion.

I can't help, but think that advances in areas such as artificial intelligence and biotech(especially stem cells and genetic engineering) well radically not only change how wet live, including life expectancy, but will very much change the philosophies of many. Having "thinking" increasingly automated and vastly decreased mortality will have profound effects, yet probably not as profound as some nerds want.


Tom West writes:

One means of comparison of the importance of the Internet vs. other discoveries is to look at how their non-use effects someone.

The Internet might be important, but a significant group of people choose not to use it, and are not cut off from mainstream society in the same way that cultures that choose to eschew electricity or the internal combustion engine are.

I'm pretty certain that world someone who was frozen in 1965 would function pretty well in 2015. I'm not so certain for someone born in 1905 who woke up in 1955.

BC writes:

In terms of slowing productivity growth, might generational demographics play a role? The late 60s-1980 stagnation corresponded roughly to the Baby Boomers' twenties, not unrelated to their drug use, political activism and rioting, etc. When the Boomers entered their productive 30s and 40s, we had the 1980-2000 economic boom. The most recent 2000-present stagnation corresponds to the Millennials' twenties. While Millennials have not spent the decade on drugs, they have been --- like other generations in their 20s --- exploring and trying to figure out what to do with their lives. (Some might call it drifting.) Now that Millennials are entering their productive years, might we see a productivity boom over the next 2 decades, similar to the 80s and 90s?

Chris writes:

"I was born in a world of indoor plumbing, atomic bombs, jet air travel, home appliances, computers, cars, telephones, TV, radio, antibiotics."

All physical. How do you compare that to the mental changes in the last 30 years? Aren't those changes just as dramatic?

Today I can record events in my life and play it back in SECONDS.

I can transmit those events to anywhere in the world in SECONDS.

I can dream up small objects and print them out in my home.

I have easy access to warehouses of knowledge.

I have easy access to warehouses of entertainment (The only thing holding this back is copyright holders).

I can post this message to you and everyone in the world can read my opinions.

All in the last 30 years. How are these not incredible changes? These are easily comparable to plumbing, engines and other physical changes.

How is this not dramatic, life changing change?

Tom DeMeo writes:

A lot of important advances require a number of underlying technologies to reach certain thresholds before they become possible.

The biggest bottleneck holding back a lot of technological change, including robotics, is the portability and buffering of electricity - batteries. A certain energy density will be required for things to really take off. That will be happening soon, and it will drive a crazy amount of change.

Nathan W writes:

Now I can buy five TVs for the real wage price of just one TV in the 1950s.

Cell phones and internet change a lot, but neither of them will cook my dinner, clean my house, pick up my groceries, etc. And yeah I know I can find those services online but that's more like a better yellow pages than something revolutionary.

I had high hopes for democracy and social engagement, etc. out of the internet, but in balance it seems that the State may end up making better use of the internet to monitor and surveil people and this could have ultimately subversive effects on efforts to use the internet "for democracy".

I think though, I sort of agree with Chris. A lot of the physical things have seen only marginal improvements or price drops, whereas it's hard to write off the number of people who spend many hours of their days exchanging media produced by no company

W. Peden writes:

Aside from the internet as we know it and mass availability of mobile phones, I'd add the tremendous changes in medicines (HIV is no longer a death sentence) easy travel (no more Iron Curtain except for a very few countries) and a tremendous fall in the cost of data storage (DVDs and CDs are very cheap now). Those are just changes in my lifetime i.e. since 1988.

On the internet, my favourite example of good futurology comes from the early days of WAN networks in the late 1970s, when Herman Kahn predicted mass online RPGs. In fact, with some exceptions, Kahn was better than most of his rivals at the time; the world certainly looks closer to his predictions than to, say, Paul Ehrlich's, e.g. Kahn predicted that an increasing amount of labour activity would be services for the sake of services or direct services, rather than services for the purpose of manufacturing. That's a big structural shift that has taken place.

Clarke McGuire writes:

Ray Kurzweil has much to say about technological change. The rate of technological change is accelerating but has not translated into Keynes' idea that we would have a large leisure class. Instead we have growing economic inequality. Why?

Ron writes:

I wonder how much of the slowdown, if any, has to do with the aging of the population. Intergenerational wealth transfers, plus the lower creativity of elderly people, would seem to necessarily be a drag on change in most areas except perhaps medical care for conditions of the aged. (FWIW, I say this as one soon to join the "aged".)

Mark Bahner writes:
I was born in a world of indoor plumbing, atomic bombs, jet air travel, home appliances, computers, cars, telephones, TV, radio, antibiotics. I'll turn 60 this year, and live in a world of indoor plumbing, atomic bombs, jet air travel, home appliances, computers, cars telephones, TV, radio, antibiotics, plus the internet and cell phones. Yeah, I'd say change is slowing down, really fast.

Assuming you live another ~30 years, by the time you die, you will no longer be in the most intelligent species on the planet. Considering we've been the most intelligent species for 50,000+ years, that's a pretty big change.

Scott Sumner writes:

Lots of good comments, a few random observations:

1. Most people didn't discuss the key points of the post, just the throwaway observation at the end. Why are fewer people being fired, or moving to new places?

2. It may be a generational thing. Cell phones seem utterly trivial to me, I rarely even carry one. The internet does seem like a big thing, but I did all my best research with old fashioned libraries. To me it seems big in the sense that cars, refrigerators or indoor plumbing are very big inventions, but not like all three combined--especially for non-intellectuals.

3. Yes, cars are much better, but the leap from riding horses to cruising down LA freeways at 70 mph in an 1964 Oldsmobile, is much greater than to shift to the current safer and more durable cars (in much worse LA traffic).

4. Big TVs are great for sports, but I prefer movies on the big screen, and the move from film to digital is a step backwards in my view.

5. I have no problem with younger people thinking I'm out of touch, or have my priorities mixed up. That's to be expected, and they may be right. Several mentioned that older people can function just fine without the internet or cell phones--which is correct. I knew older (tenured) professors who barely knew how to read their email.

6. Yes, the next few decades may produce mind-boggling change, so much so that the human race no longer exists in the way we think of it right now. (Man/machine hybrids?) Or maybe not. I'm agnostic on that point.

john hare writes:

@Scott

1.Fewer moves could be from easier ownership of homes, and the straightjacket of ownership making moves more problematic. Another aspect of fewer moves could be from the increase in government subsidized housing, which may not be as easily available in the new location. A lot of lower performance people have been removed from the effective labor force, resulting in lower firings.

2.Different technologies affect different sectors in different ways. My cell phone is critical to my construction business. Inspection red tag, cancel the concrete in seconds king of thing. I remember some extremely expensive problems caused by lack of communication. Libraries are far less effective for research if you have esoteric interests. My hobby is aerospace innovation and the internet allows me to exchange information with people worldwide. I have been able to make minor contributions to the field that would have been impossible decades ago. One bad idea in the early 90s took months and thou$ands to disprove, while now I can eliminate equally bad ideas in minutes for free.

3&4 OK

5.How out of touch are you when masses of people read your ideas here in real time? Much of the recent change is invisible from the outside, and intense inside a particular subject. Your email illiterate professors are probably less able to get away with blustering through subjects due to the tech savvy people around them, so even second-hand, they are more connected than is immediately apparent.

6.Mind boggling change will appear normal to the generation experiencing it.

Jose Romeu Robazzi writes:

What about we have less competition today? A few possible explanations:

1. Higher median wealth level, less incentives to "do something" to improve considerably well being

2. Broad social safety net, those who lag behind have less incentives to "do something" go catch up

3. The size of the state, more resources targeting distribution as opposed to entrepreneurial innovation

4. public policies focused on "resource utilization" (let's do more of what we know), as opposed to "efficiency" (let's find better ways to do what we want to do), which slows innovation

LD Bottorff writes:

I suggest that you suffer from Pessimism Bias. Things have changed incredibly during our lifetime. Yes, there were mobile phones before we were born; mobile phones are not cell phones, and cell phones are not smart phones. The internet may have started in the 1960s when computers were networked together, but the internet is not the World Wide Web.
Smart phones rely on mobile data which is a huge advance that you didn't mention.

But, to your other question, moving is less likely today because in the past most families had a bread winner, and the rest of the family followed the bread winner's career. Now, most families have to consider both partners when considering a career move. In addition, the higher divorce rate makes moving the kids more difficult since another adult has to concede visitation rights in order to make a move feasible.

Mark Bahner writes:
Ray Kurzweil has much to say about technological change. The rate of technological change is accelerating but has not translated into Keynes' idea that we would have a large leisure class. Instead we have growing economic inequality. Why?

One significant reason is that people want to work. For example, I'm too lazy to check, but I'd bet that most of the people on the Forbes 400 list of richest people in America still work.

Or look at Daniel Radcliffe, Emma Watson and Rupert Grint. Their Harry Potter salaries meant they could have easily never worked another day beyond their 18th birthdays. (Or before.) But an entire life of leisure is pretty boring.

Chris writes:

I think you suffer a little bit of a time bias as well. Take the internal combustion engine for example.

The first internal combustion engine was used to power a boat in 1807.

More than 60 years later an internal combustion engine was put onto a handcart in 1870.

A little more quickly than that, after 40-50 years or so the automobile can be commonly seen on the streets.

So it took 110-120 years for autos to be developed.

The early internet was developed in the 60s.
The internet comes into common use in the 90s.
30 years.

As to your other questions, whenever anyone asks questions of trends in society, my first response is WW2. The echoes of that conflict reverberate strongly even today. In this case, it has been long predicted that boomers were going to be retiring in droves by this time. Not only are they actually retiring but many are getting ready for retirement. Many were forced into early retirement due to the recession. This is the brain power that drove the internet revolution in it's prime (70s-90s). Now that's a serious drain on productivity as they leave the workforce and instead of developing new more efficient products, they're playing golf. Why this is news to you is beyond me... maybe because you are a part of it?

Companies right now have long expected the boomer issue, and have laid off as many as they could. The only ones that are cutting now are the ones that are going to go out of business.

Boomers are generally going to want to stay put in their existing houses for awhile as their grandchildren grow. But eventually they will be selling off their assets and moving and housing values are certainly going to suffer for quite a while (as well as other asset types).

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