(What’s Left of) Our Economy: Live by the Caterpillar…?


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Especially as this jaw-dropping presidential campaign enters its final two weeks, it’s important to remember that to a great (and probably predominant) extent, the U.S. economy rises and falls independent of election results and politicians’ decisions. One recent non-political sign that something of an inflection point is nearing could be coming from Caterpillar, the U.S. manufacturing giant that’s the world’s biggest maker of mining and construction equipment.

I was skeptical in early 2010 when The Wall Street Journal reported that then Caterpillar CEO Jim Owens had decided that the American and global economies had started to stabilize after the Great Recession, and that the company needed to restock it shelves in order to prepare for an impending return to growth. As a result, explained Journal correspondent Timothy Aeppel, Caterpillar was ramping up orders throughout its enormous national and international supply chain. In tandem with similar decisions by other big manufacturers, Caterpillar’s move was likely to spark a big surge in industrial output that could create a much broader virtuous growth circle and put a nascent economic recovery on solid ground.

As it turned out, I was wrong and Aeppel was right. From that point on, inflation-adjusted American manufacturing production – which had cratered during the recession – rebounded by 14.20 percent through this past January, when it hit its most recent peak. And nearly two-thirds of that growth took place in the two years following the article.

Fast forward to last week.  Here’s how the Journal (in an article by a different reporter) then described Caterpillar’s situation:

“Doug Oberhelman spent his first years as Caterpillar Inc.’s chief executive plowing billions of dollars into factories to build more of its familiar yellow machines and move the company deeper into mining equipment.

It was a bold bet, spectacularly mistimed. On Monday, Mr. Oberhelman [who had helped Owens plan the rebound six years ago] announced plans to step down as chief executive by year’s end.

“[W]hen he took charge [in mid-2010], the world was gripped by a global commodities boom, along with strong postrecession demand from developing markets and the energy industry. The world was ordering excavators and bulldozers and giant dump trucks at a rapid clip.”

And indeed this week, when announcing its third quarter financial results, Caterpillar not only reported significantly declining revenues, but changed its predictions for 2016 by forecasting that this year would be its fourth straight of falling sales. Perhaps worst of all, the company said next year will bring more of the same. The reasons?

Executives pointed to persistent weak demand for its construction, mining and oil equipment around the world amid a continued slump in commodities prices, idle locomotives and trucks and a glut of used machines.”

Something they didn’t mention. In 2010, the United States enjoyed a $7.595 billion trade surplus in construction equipment. By 2014, it was running a deficit of nearly $992 million, and the shortfall is on a $5 billion pace this year. In mining machinery and equipment, the numbers are better in absolute terms, but deteriorating sharply as well. Whereas the trade surplus in 2010 was $2.069 billion, it’s unlikely to top $600 million for 2016.

Oberhelman told investors that “We’ve been through an awful, rough period the last four years. But I do think we’re set up for the future.” Given his performance as an economist, though, it looks like America had better not count on Caterpillar – or the rest of its manufacturing sector – to be powering much growth for the time being.

(What’s Left of) Our Economy: So Much for Wage Inflation?


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Serves me right! Although I keep warning about the risks of over-interpreting short-term trends in economic data, shortly after I started growing optimistic that wages in America were finally starting to rise at an historically acceptable rate, evidence came in last week suggesting that this development might be ending.

First came the release last Tuesday of the September figures on real hourly wages. For private sector workers overall, they fell on a monthly basis by 0.09 percent – their fourth sequential drop in the last six months, along with a flat performance in May. (This statistical series doesn’t track government workers’ wages because they’re set by politicians’ decisions, not market forces, and therefore reveal relatively little about the health of the labor market or the larger economy.)

At least as bad were the year-on-year numbers. Between September, 2015 and September, 2016, inflation-adjusted wages rose by only 1.04 percent – their slowest pace of the year. Further, this improvement was also much slower than the 2.42 percent advance recorded for the previous Septembers, although it beat the previous few annual increases. (The August and September results are still preliminary.)

As a result, since the current economic recovery began in the middle of 2009, real wages for the entire private sector are up only 3.78 percent – a pretty paltry rate over a more than seven-year stretch. Unfortunately, it’s not possible to compare this expansion’s wage performance with that of its predecessors, since these numbers only go back to 2006.

As has been the case lately, the wage picture was a little better for manufacturing. There, constant-dollar inflation-adjusted wages flat-lined in September for the second straight month. But on-month, they’d improved for most of the year.

The September year-on-year rise of 1.40 percent bested the rate both for the overall private sector and for industry in January (1.13 percent). But earlier in 2016, after-inflation manufacturing wages really took off. By June, they were surging at a 2.46 percent yearly pace. Inflation-adjusted manufacturing wages increased at a faster rate between the previous Septembers, also (by 2.39 percent). But for years before then, the sector’s hourly pay actually fell slightly when adjusted for prices. So even with that recent (and now concluded?) burst, real manufacturing wages during this recovery are up only 1.21 percent.

The second reason for wondering if any significant U.S. wage inflation might have already come and gone can be found in the data for inflation-adjusted weekly earnings that came out last Thursday. The latest figures are for the third quarter of this year, and they show that, since the first quarter, this pay is up just 0.29 percent. And this pace is slightly slower than those registered for the first three quarters of the previous few years.

Even worse, these earnings – which cover government workers, too, but don’t break out manufacturing – are up only 0.58 percent since the current recovery began.

Should American workers, and others who’d like to see much higher U.S. wages – be grateful that pay is still rising faster than early in the recovery? Or concerned about the latest slowdown? Given that overall economic growth is stalling out, too, you needn’t be a died-in-the-wool bear to feel pessimistic.

Those Stubborn Facts: Lowering the Bar for Booms


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The nation’s manufacturing sector is actually booming, even if many people don’t realize it.”

CNN Money, October 20, 2016

U.S. real manufacturing production since 2007 pre-recession peak: -4.29%

U.S. real manufacturing value-added since 2007 pre-recession peak: -1.12%

(Sources: “The manufacturing boom that Donald Trump ignores,” by Chris Isidore and John Ostrower, CNN Money, October 20, 2016; “Industrial Production, Seasonally Adjusted, Data from January 1986 to September 2016, Industrial Production: Market, Industry Groups, and Individual Series, Historical Data: Tables 1,2, and 10, Industrial Production and Capacity Utilization, Statistical Releases and Historical Data, Economic Research and Data, Board of Governors of the Federal Reserve System, http://www.federalreserve.gov/releases/g17/ipdisk/ip_sa.txt; “Real Value-Added by Industry, [Billions of chained 2009 dollars], Seasonally adjusted at annual rates,” GDP-by-industry, Industry Data, Bureau of Economic Analysis, U.S. Department of Commerce, http://bea.gov/iTable/iTable.cfm?ReqID=51&step=1#reqid=51&step=51&isuri=1&5101=1&5114=q&5113=31gva&5112=1&5111=2007&5102=10)

Im-Politic: A Preview of Trump-ism without Trump?


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Throughout this circus of a presidential campaign, I’ve emphasized the importance of distinguishing between Donald Trump’s myriad personal failings and the Republican presidential nominee’s campaign positions – which I remain convinced can form the basis of an urgently needed, sensible, and therefore, enduring new American populism. This week, substantial support for this proposition has come from Wall Street Journal columnist Peggy Noonan and, more surprisingly, from Trump himself.

In an October 20 essay, Noonan – long one of the most effective critics of the corporate-funded Republican establishment that Trump thoroughly trounced during the primaries – described the pillars of “Trump-ism without Trump” with her usual wit and grace. Among the highlights:

>He “would have spoken at great and compelling length of how the huge, complicated trade agreements created the past quarter-century can be improved upon with an eye to helping the American worker”:

>He “would have argued that controlling entitlement spending is a necessary thing but not, in fact, this moment’s priority. People have been battered since the crash, in many ways, and nothing feels stable now”:

>And he “would have known of America’s hidden fractures, and would have insisted that a healthy moderate-populist movement cannot begin as or devolve into a nationalist, identity-politics movement.”

The only matter on which I believe Noonan is seriously off-base is immigration. I certainly agree with her that Trump should have “explained his immigration proposals with a kind of loving logic—we must secure our borders for a host of serious reasons, and here they are. But we are grateful for our legal immigrants….” The problem is with her apparent belief that “In time, after we’ve fully secured our borders and the air of emergency is gone, we will turn to regularizing the situation of everyone here….”

As I’ve written, this popular (with both wings of the establishment) version of amnesty inevitably will supercharge America’s “immigration magnet.” The perceived likelihood of eventual legalization can only bring millions more impoverished third world-ers to the nation’s various doorsteps. It’s inconceivable that even a President Trump would take the measures needed – which would surely involve some use of force – to keep these masses, and especially the women and children, at bay.

The far better, indeed only realistic, approach is one that Trump himself has unfortunately barely mentioned: a stout refusal to legalize in any form accompanied by a strategy of attrition – i.e., encouraging illegals to leave both by boosting efforts to keep them out of the workplace, and by denying them (and their anchor children) public benefits.

But it’s almost like Trump was listening. Two days later, he came out with a “Contract for the American Voter” that echoed much of Noonan’s column. He promised that in his first hundred days in office, he would announce his “intention to renegotiate NAFTA or withdraw from the deal,” along with withdrawal from the Trans-Pacific Partnership (TPP) trade deal. Both measures should draw strong support from Democrats and independents. In addition, Trump would designate China a currency manipulator, and order an inventory of predatory foreign trade practices.

On immigration, he omitted any reference to blanket deportation of all illegals and instead focused on starting to remove “the more than 2 million criminal illegal immigrants from the country and cancel visas to foreign countries that won’t take them back”; to de-fund Sanctuary Cities; and to “suspend immigration from terror-prone regions where vetting cannot safely occur. All vetting of people coming into our country will be considered extreme vetting.” Especially in the political climate that would result from a Trump victory, would most Democrats on Capitol Hill fall on their swords to prevent any of this?

And what did Trump vow re entitlement reforms? The phrase doesn’t appear at all in the Contract, although the list of legislative proposals does include the repeal of Obamacare and replacement with a system (described only generally, to be sure) that could well appeal to most Republicans and many independents, and that in combination with other measures mentioned could bend the national healthcare cost curve down further.

Couple these ideas with Trump’s support for a big infrastructure build-out and repair program; his broadly non-interventionist foreign policy stance combined with a big (job-creating) defense buildup; new government ethics reforms that seek to halt the corrupting revolving door between government and private sector; and any kind of serious middle class tax relief, and it looks to me like a (mandate-sized) winning formula – for a politician who can pass the interlocking personality, character, and temperament tests.

Can such leaders emerge from the current political system, as I recently asked? Are American politicians who rise up through this system simply too beholden to special interests, or too thoroughly imbued with the “If you want to get along go along” ethos to favor rocking any big boats? I still can’t say I know the answer. But I’m as confident as ever that unless and until this kind of candidate emerges, American politics is going to remain one very angry space.

Im-Politic: America Keeps Importing Corruption from China


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Sorry for the recent hiatus! Those darned computer problems!

Luckily, although today’s subject is based on a news story more than a week old, it will be incredibly timely for as long as the problem it describes is with us. Simply put, Reuters has reported – complete with devastating evidence – that China is corrupting the U.S. college admissions process. And the findings should prompt Americans and especially their leaders to start asking much more searching questions about the People’s Republic’s growing role in the nation’s economy and society than they’ve been posing so far.

As is no doubt known by anyone who’s sent a kid to college lately (or who keeps up with China-related developments), the population of students from the PRC on American college and university campuses has been surging for years. China’s nouveaux riches and Communist Party leaders (two classes with lots of overlap) increasingly want to give their kids the benefit of an American education. And since they’re able to pay full freight, American higher education has been only to happy to welcome them.

This practice has disturbing enough overtones – especially when you find it in taxpayer-supported public institutions. But assuming that the Chinese students involved meet a school’s academic standards, or come close, it’s not outright corrupt – at least no more so than the longstanding admission of children of wealthy actual or prospective American donors or influential alumni even when they’d otherwise be uncompelling candidates.

As the Reuters investigation shows, however, at least one Chinese “education company” has paid thousands of dollars in perks or cash to admissions officers at top U.S. universities “to help students apply to American schools.” The perks consisted of travel expenses for “workshops” held in China to advise students whose families are clients of Shanghai-based Dipont Education Management Group “on how to successfully apply to U.S. colleges.”

In theory, that can be excused. (Although one Boston University researcher quoted in the article claimed that such behavior, too, raises major ethical problems.) But not the payments – which consisted of “honoraria” for attendance that went right into the pockets of U.S. admissions officers, which amounted to $4,500 per head in the last two years, and typically in the form of hundred-dollar bills.

Moreover, the seven schools that have confirmed that their employees have been on the take from China aren’t only or even mostly smaller private institutions that, especially since the Great Recession, have been struggling financially. They’re Carleton College, Hamilton College, Lafayette College, Rensselaer Polytechnic Institute, Tulane University, the University of Vermont, and the University of Rochester.

In addition, the following schools declined to comment or did not respond at all about the travel expenses or the honoria when contacted by Reuters about the article’s allegations: Davidson College, Wesleyan University, Claremont McKenna College, Colorado College, Harvey Mudd College, Syracuse University, and Texas Christian University.

Nothing reported by Reuters about the Chinese practices should surprise any knowledgeable readers. After all, a perfect storm of skyrocketing national wealth, the Communist Party’s monopoly on political power, and the millennia-old absence of rule of law has produced in China a society that arguably is the most corrupt in contemporary history. Nor should it be news that the United States is full of individuals, organizations, and institutions that are happy to play along.

Here’s what Americans should be asking, though: Given the undeniable reality of systemic Chinese corruption, why are any Chinese organizations permitted any contact with the admissions offices of any American institutions of higher learning? Indeed, given Chinese corruption and the importance of fund-raising in U.S. higher education, why are any Chinese organizations permitted any contact with any American colleges or universities that may have an impact on admissions.

And, as suggested, the main reason for barring the Chinese has nothing to do with the supposed purity of American morals. Instead, it’s a matter of recognizing how extensively home-grown pollution has already stained this supposedly meritocratic system, and wondering why a well-known foreign source of corruption needs to be invited in.

In fact, the same question should be raised about China’s growing economic footprint in the United States (on top of crucial national security and economic concerns). For any Chinese actor large enough to consider buying into America has surely succeeded at least in part due to its mastery of the country’s kleptocratic politics. Does business in the United States really need immense new injections of graft and cronyism from abroad?

Openness to foreign individuals, organizations, capital, goods, technology, cultures, and other influences unquestionably has been a tremendous boon to the United States throughout its history (and a decisive one when it comes to immigration). But not all foreign countries are created equal, and the example of China strongly suggests that some systems are at best incompatible with and at worst dangerous to America’s well being. China’s undermining of U.S. higher education’s integrity signals loud and clear that the actual downside of permitting Chinese participation is already outweighing any conceivable benefits – and that more wide-ranging official U.S. discrimination is needed in order to choke off similar Chinese threats in other spheres of American life.

Following Up: Why Economists & Establishment Media Should be a Little More Humble on Trade


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A fascinating and revealing coda has just been provided to my brief brush with fame last week, when The New Yorker deemed my views on trade issues not worthy of consideration.  And the source was, of all people, Fed Chair Janet Yellen.

As I wrote on October 13, in a profile of Donald Trump economic adviser Peter Navarro, New Yorker writer Adam Davidson made clear that he considered one glaring weakness of the Republican candidate’s views on trade and other economic policies to be their lack of support among professional economists. As a result, Davidson was completely unimpressed when Navarro noted that I have endorsed them in general – since I lack an economics degree. Nor was his interest piqued when I reminded him by email that my predictions about the outcomes of major trade policy initiatives, like admitting China into the World Trade Organization, were much more accurate than those of most Ph.Ds .

Enter Chair Yellen. In a speech in Boston the very next day, she focused on “some ways in which the events of the past few years [since the outbreak of the financial crisis and Great Recession] have revealed limits in economists’ understanding of the economy….” And despite her understatement, these limits look awfully important. The subjects to which they apply include how demand influences supply, the makeup of the groups of actors economists study (which these scholars’ models assume are completely homogeneous), how finance affects the real economy, and “what determines inflation.”

Indeed, Yellen’s list raises the question of where economists’ knowledge really is solid – at least in terms of ideas that affect economies’ performance in the real world. And so does the economy’s abysmal performance on net since the outbreak of a near-financial cataclysm that virtually none of its members foresaw.

Yellen did add an international question that she believes deserves much more research: how changes in American monetary policy affect the rest of the world and then feed back to the United States. But even though other aspects of the nation’s relationship with the global economy strictly speaking don’t fall under the Fed’s purview, she still might have noted that major gaps still exist in her profession’s understanding of international trade.

Even more disturbing: Although the trade-fueled global imbalances that built up during the bubble decade have been identified as bearing great responsibility for the crisis’ outbreak, as Davidson’s attitude suggests, international commerce is the one area of economics where no significant thinking has been called for at all since the disaster. Indeed, judging from the reactions to Trump’s trade proposals, the conventional wisdom is more entrenched than ever.

Of course, none of this is to say that economists know nothing useful, whether on trade or elsewhere. But with evidence that those global imbalances are once again nearing pre-crisis peaks (albeit with a somewhat different composition), and with President Obama seemingly more determined than ever to win passage of a trade agreement (the Trans-Pacific Partnership) modeled on a Korea deal that has supercharged the U.S. merchandise deficit, you’d think that both economists and journalists would react to proposals for fundamentally new approaches with at least minimal humility.

Im-Politic: Race, Conspiracies, and Double Standards


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It’s more than a little strange to praise an establishment newspaper column that all but calls Donald Trump a racist. And yet the bar for simple sanity has sunk abysmally low for opinion journalists (who aren’t supposed to be objective – like their increasingly unprofessional counterparts in hard news). So it’s more than appropriate to tout the virtues of Washington Post pundit Courtland Milloy’s October 11 piece on charges that if the Republican presidential nominee loses the presidency, African-Americans and other minorities could face an “apocalypse.”

Milloy’s article contains the by-now standard accusation that Trump’s rhetoric has been “racist” (as well as “misogynist”). But he departs insightfully from the emerging conventional wisdom that many of Trump’s backers are such vicious bigots that they will respond to defeat at the polls by going on a violent rampage that targets non-whites of all kinds. In addition to disputing the claims that all or most or lots or too many of Trump’s supporters are racists, Milloy points to a lesson he argues African-Americans have learned about even seemingly hostile whites over the…centuries:

[F]or those who are racists, their views may not lead to threatening actions. When blacks and whites work on jobs where cooperation is a matter of life and death — such as in the military or on a construction site — people, no matter their beliefs, tend to find a way to get along.”

Along the way, he lampoons contentions that Trump’s campaign is responsible for a significant rise in racism throughout American society.

Even more important, Milloy writes that even many Trump critics are missing “the villain that lurks in the shadows” for both minorities and whites in the middle and working classes, and in the ranks of the poor: “the extremely rich who own the politicians, manipulate Wall Street and exploit cheap labor worldwide at the expense of America’s working class.”

If that last phrase sounds familiar, it should. It revealingly mirrors Trump’s own latest line:

For those who control the levers of power in Washington, and for the global special interests, they partner with these people that don’t have your good in mind. Our campaign represents a true existential threat like they haven’t seen before,” Trump said.

It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities.”

As Milloy observes (approvingly), it also sounds a lot like what we’ve heard from the left wing of American liberalism since the “Occupy Wall Street” movement began (and of course before). In addition, this phenomenon has been the subject of extensive recent study – e.g., in a 2009 book titled Superclass: The Global Power Elite and the World They are Making. And the author in this case is David J. Rothkopf, a quintessential establishmentarian who currently edits FOREIGN POLICY magazine.

Curiously, though, when these words come from Trump’s mouth, they’re simply ridiculed (as in this speech from President Obama last week), or they’re ascribed to historic anti-Semitism (as in this October 13 post).

Milloy offers vastly superior advice: urging black and white working-class people [to] come together and stop falling for these political con games….” Clearly, such cooperation is impossible to envision in the near-term future. Is it too much to hope that, by the 2020 campaign cycle, someone who deserves the adjective “presidential” might take on the challenge?

(What’s Left of) Our Economy: Despite a September Uptick, Manufacturing’s Broad-Based Recession Drags On


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The Federal Reserve’s new industrial production data showed that constant-dollar manufacturing output increased by 0.21 percent sequentially in September, but that the sector remained in a technical recession. The downturn extended to both the durable goods and the non-durable goods super-sectors. Total real manufacturing production is still down 0.10 percent since November, 2014.

Mixed revisions included a downgrade (to -0.52 percent) for an August drop-off that was already the worst since wintry January, 2014’s (1.13 percent). After inflation, total manufacturing output is now down 4.29 percent from its level at the end of 2007, when the Great Recession began. In other words, the manufacturing decline triggered by that recession never ended.

Here are the manufacturing highlights of the Federal Reserve’s new release on September industrial production:

>Inflation-adjusted manufacturing output in September rose by 0.21 percent on month but the increase wasn’t enough to end the sector’s technical recession.

>Constant-dollar manufacturing production is 0.10 percent lower than the levels it hit in November, 2014.

>Both the durable goods and non-durables super-sectors remained in recession, too. The former’s real output is now down 0.69 percent since November, 2014. The latter’s is off by 0.14 percent since August, 2015.

>Overall manufacturing revisions were mixed. Especially important: August’s 0.43 percent sequential inflation-adjusted decrease – the biggest since wintry January, 2014’s 1.13 percent – was downgraded to a 0.52 percent drop-off.

>Year-on-year, total manufacturing output inched up by 0.12 percent in September in real terms, but August’s 0.24 percent annual decline is now pegged at a 0.28 percent decrease. Between September, 2014 and September, 2015, after-inflation manufacturing production rose by 0.76 percent.

>In toto, constant-dollar manufacturing output is now 4.29 percent lower than at the end of 2007 – when the Great Recession began. In other words, despite a strong output comeback early in the current economic recovery, the post-2007 manufacturing slump still hasn’t ended.

>In durable goods, which accounts for more than half of domestic manufacturing, real production dipped month-on-month by 0.03 percent – enough to continue its own technical recession. But revisions were positive.

>Durable goods’ yearly real production increased by 0.26 percent in September – an improvement ove the fractional gain recorded between the two previous Septembers. The August annual increase, however, was reduced from a 0.12 percent improvement to one that was fractional.

>Real durable goods production is now up only 0.94 percent since its pre-recession peak at the end of 2007.

>In the also slumping non-durable goods super-sector, growth stayed on a roller-coaster in September. Sequential real output climbed by 0.50 percent on month – its best such showing since the 0.74 gain in January. But August’s 0.22 percent monthly decrease was revised down to 0.52 percent – the worst such performance since April’s 0.57 percent decline.

>Non-durable goods’ real output fell annually in September by 0.06 percent, and August’s 0.40 percent yearly drop is now pegged at a 0.63 percent decrease. From September, 2014 to September, 2015, real non-durables output increased by 1.63 percent.

>Since its pre-recession peak, in July, 2007, real output of non-durable goods is now down 10.49 percent.

(What’s Left of) Our Economy: An All-Too-Convenient “Truth” About Productivity


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As a close friend once sagely told me, “If you take the most cynical possible interpretation of something, you’ll rarely be wrong.” He surely would agree, “That goes double for politics and policy.” So I hope you agree that it’s reasonable to predict that Marc Levinson’s upcoming economics book An Extraordinary Time will attract an inordinate amount of establishment attention – including of course from the Mainstream Media – because it so conveniently absolves that establishment of any significant responsibility for the economic mess in which the nation finds itself. And of course, if American (and, to be sure, other leaders) can’t rightly be blamed for sluggish (at best) economic growth, stagnant wages and incomes, or even (presumably) the financial crisis, then there’s no justification whatever for the populist revolt sweeping America and Western Europe.

Although I haven’t read Levinson’s book yet, I’m assuming that the long article-length adaptation published in yesterday’s Wall Street Journal is a representative summary. The author’s main argument is that the American (and other) high income economies don’t “roar anymore” because since the early 1970s, they’ve been experiencing a return to historically normal economic performance that mainly looks terrible because it followed a post-World War II boom that was unique and – most important – irreproduceable.

Worse, the principle reason for this return to normal is a productivity slowdown that’s been inevitable because it results overwhelmingly from the impossibility of recreating that favorable combination of circumstances that era enjoyed. As Levinson writes:

The workforce everywhere became vastly more educated. As millions of laborers shifted from tending sheep and hoeing potatoes to working in factories and construction sites, they could create far more economic value. New motorways boosted productivity in the transportation sector by letting truck drivers cover longer distances with larger vehicles. Faster ground transportation made it practical, in turn, for farms and factories to expand to sell not just locally but regionally or nationally, abandoning craft methods in favor of machinery that could produce more goods at lower cost. Six rounds of tariff reductions brought a massive increase in cross-border trade, putting even stronger competitive pressure on manufacturers to become more efficient.

Above all, technological innovation helped to create new products and offered better ways for workers to do their jobs.”

What both politicians and publics refuse to realize, he continues, is that

Once tens of millions of workers had moved from the farm to the city, they could not do so again. After the drive for universal education in the 1950s and ’60s made it possible for almost everyone in wealthy countries to attend high school and for many to go to university, further improvements in education levels were marginal. Projects to widen and extend expressways didn’t deliver nearly the productivity pop of the initial construction of those roads.”

More fundamentally, however, “Productivity, in historical context, grows in fits and starts. Innovation surely has something to do with it, but we have precious little idea how to stimulate innovation—and no way at all to predict which innovations will lead to higher productivity.

Moreover, the timetable cannot be foreseen.” And there is no “secret sauce that governments can ladle out to make economies grow faster than the norm.”

Not that Levinson’s theory is devoid of virtues. Especially admirable is his willingness to argue that neither Big Government liberalism nor Small Government conservatism has consistently managed to halt, much less reverse, the productivity deterioration over any length of time.

But at least on the basis of this article, he seems to have overlooked America’s historic economic record. Productivity, as RealityChek regulars know, is the area of economic performance about which economists display the least confidence. But the consensus view appears to be that America’s productivity growth glory days started somewhat earlier than Levinson suggests – according to widely accepted data, 1913. (To be fair, this paper in which they appear also suggests that the boom ended in the 1960s, not the 1970s. Moreover, although Levinson is referring to labor productivity, the data cited here present the broader measure of multi-factor productivity, which looks at a broad range of inputs needed to generate a unit of output.)

Further, what’s astonishing about the data in this study (I’m talking about Table 1) is that the era of peak productivity identified (1928-1950) includes both World War II and the Great Depression. Just as you’d expect unusually strong productivity performance during the former, thanks to the numerous major technological innovations generated by the war effort), you’d expect unusually weak performance during the latter, because all economic activity was slumping at historic rates. And yet the net result was productivity advance that puts that of later decades to shame.

In addition, although the return to peace brought multi-factor productivity growth back down to levels not seen since before the 1880s, the falloff from roughly the 1960s to the 1970s was much greater – even though no comparably epochal change took place.

Even more telling is how America’s economic growth performance contrasts with the framework described by Levinson. A recent report from Harvard University economist Robert J. Barro contains historical data on America’s per capita GDP growth – that is, how quickly or slowly the economy has expanded adjusting for population, and therefore the growth improvement that tends to result simply from greater numbers of workers.

According to Barro’s numbers, the 1939-1979 period does represent the nation’s best stretch of creating wealth per person. So that tracks well with Levinson’s argument. But the dropoff is pretty gradual through 1999 – when it really nosedives. That doesn’t bolster the Levinson view. Nor does the fact that lots of pre-1939 decades saw much faster per capital economic growth than either the 1999-2009 period or the the 2009-2015 period.

Levinson supporters can observe that these trends are roughly consistent with his emphasis on the productivity-enhancing role played by demographic movement (from countryside to city). And as a result, they’re consistent with the idea that productivity has been enhanced by the higher rates of high school and college graduation that have resulted.

But most Americans still don’t graduate college nowadays, and major questions have arisen about the value of a four-year college degree. It’s also widely argued that the typical American high school graduate is more poorly prepared for college than in the past. Isn’t is possible that poor public policies lie behind at least some of these failures? And what about technological progress? Many theories suggest that it should be speeding up, as it feeds on its own momentum. Instead, the opposite seems to be happening, at least in terms of technology’s record in raising living standards. Are there no policy decisions bearing at least some responsibility?

Finally, Levinson pays no attention to a possible explanation for slowing productivity growth that at least deserves some consideration: As I’ve suggested, the problem’s emergence coincides with the American government’s decision to start viewing with at most indifference to major losses suffered by domestic U.S. manufacturing – first due to the predatory trade policies of high-income countries like Germany and Japan, and then due to trade agreements that actually encouraged the offshoring of manufacturing production to super low-cost, low-regulation countries like China and Mexico. Since manufacturing has historically led the economy in productivity growth, is it surprising that official decisions to reduce its domestic footprint has undermined its overall productivity performance?

Levinson is surely right in noting that much about productivity – like much else about the economy – is beyond the control of politicians. As a result, voters should definitely hold realistic expectations about the economic changes that politicians can foster. But can anyone doubt that Levinson’s overarching claim, that the economy’s current overall performance is the best that reasonably can be hoped for, logically lets nearly all of the nation’s leaders off the hook – and will only deepen the despair and cynicism of all those Americans that “ordinary economic performance” is leaving behind?

The Shock of the Old


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The economy stinks, the election is abominable. So why not take a break from the headlines with a post celebrating the power of great historical writing to shed light on our past and, indirectly but no less importantly, on our present?

The three examples I’ll cite come from two works that on the surface don’t seem to have a lot in common: a late 19th century biography of Benjamin Franklin by American John Bach McMaster, and a History of Civilizations – which came out about a century later – from the French scholar Fernand Braudel. Nonetheless, they’re both the products of authors who share a crucial characteristic: They were pioneers of an approach to history that has steadily shifted the discipline from a tight concentration on politics, diplomacy, philosophical concepts, transformational individuals, and discrete events in general to the study of the deeper trends – social, economic, cultural, ecological, and technological – that have driven the evolution (or stagnation) of peoples on the everyday level.

The opening to the Franklin volume is a masterpiece of stage-setting – and a superb example of how history can enlighten by spotlighting the magnitude of change:

The story of the life of Benjamin Franklin begins at a time [1706] when Queen Anne ruled the colonies; when the colonies were but ten in number; and when the population did not sum up to four hundred thousand souls; at a time when witches were plentiful in New England; when foxes troubled the farmers of Lynn [Massachusetts]; when wolves and panthers abounded in Connecticut; when pirates infested the Atlantic coast; when there was no such thing as a stage-coach in the land; when there were but three colleges and one newspaper in the whole of British North America; when no printing press existed south of Philadelphia; when New York was still defended by a high stockade; and when Ann Pollard, the first white woman that ever set foot on the soil of Boston, was still enjoying a hale old age.”

The next paragraph, which includes a description of Boston as barely out of the hamlet stage, is just as good.

Among the many talents exhibited by Braudel is one that’s something of a mirror image of that apparent from McMaster’s first paragraph: illustrating the power (and implications) of continuity. Among the standout instances in his History of Civilizations are these two passages that render much more comprehensible the almost incomprehensible durability of certain traditions – in this case, China’s:

Imagine,” he writes of both China and India, “”the Egypt of the Pharaohs, miraculously preserved, adapted more or less to modern life, but having kep its beliefs and some of its customs.”

Braudel writes in a similar vein about the longstanding official Chinese fondness for grandiose public spectacles – and their longstanding resonance with China’s masses:

To gauge their effect, imagine the impact in Europe of a series of imperial dynasties maintaining the self-same style and significance from Augustus until the First World War.”

In his famous 1991 account of the rise of emergence of modern art, scholar Robert Hughes famously referred to its capacity to deliver “the shock of the new.” McMaster and Braudel make clear the rest of their discipline’s capacity to deliver “the shock of the old.”