Welcome back to Sunday reading. This week, the US elections are over. So is the US, probably. If there’s one thing that history teaches us, it’s that countries taken over by authoritarian strongmen who are willing to subvert democratic norms and destroy public institutions to maintain power frequently don’t recover from it. Think Venezuela under Chavez or Russia under Putin.
But we’re not going to talk about that. We’re going to talk about where some big-picture economic trends are taking us.
First, Binyamin Appelbaum at the NY Times’ Upshot blog points out “a little noticed fact about trade: it’s no longer rising“:
The Walmart revolution is over. During the 1990s, global trade grew more than twice as fast as the global economy. Europe united. China became a factory town. Tariffs came down. Transportation costs plummeted. It was the Walmart Era.
But those changes have played out. Europe is fraying around the edges; low tariffs and transportation costs cannot get much lower. And China’s role in the global economy is changing. The country is making more of what it consumes, and consuming more of what it makes. In addition, China’s maturing industrial sector increasingly makes its own parts. The International Monetary Fund reported last year that the share of imported components in products “Made in China” has fallen to 35 percent from 60 percent in the 1990s.
The result: The I.M.F. study calculated that a 1 percent increase in global growth increased trade volumes by 2.5 percent in the 1990s, while in recent years, the same growth has increased trade by just 0.7 percent.
Worth watching carefully – if this trend continues, it will have big implications for many places.
Sorry Australia. We love you, but this is funny pic.twitter.com/Tj7BukIpmI
— Jocasta (@UKBizpromotion) November 4, 2016
Second, Conor Sen argues (in Bloomberg View) that so-called ‘disruptive tech’ has in fact disrupted very little: “Tech has not shaken basic economics“:
This isn’t to deny the impact technology has had this decade. Facebook and Netflix have transformed media and entertainment. Amazon continues to reshape commerce. Ad dollars continue to move from print and television to digital, particularly mobile. But for economists and academics concerned with the big drivers of the economy — employment, productivity, housing and big-ticket consumer purchases — the late 2010s are not a glimpse of the new economy. They are textbook examples of the old economy.
Sen has a point: trends in car ownership and first home purchases are, in the short run, probably best explained by sudden changes in income rather than sudden changes in preferences. Young people have done badly out of the post-GFC economy, and purchases of big expensive things tend to go down as a result. But I also think that it’s possible to under-sell some of the long term impacts of technological change. Watch this space, basically.
Photographer @LoesHeerink spends hours on bridges to capture colorful overhead portraits of street vendors https://t.co/Cs5B7OL9UA pic.twitter.com/PDdsReFrv6
— My Modern Met (@mymodernmet) October 30, 2016
Third, the Niskanen Centre’s Will Wilkinson raises an interesting question for people on the libertarian/small-government end of the political spectrum: “What if we can’t make government smaller?”
“Wagner’s Law” says that as an economy’s per capita output grows larger over time, government spending consumes a larger share of that output. There’s no reason to believe Wagner’s Law is a real social-scientific law—that it captures a real relationship of strict if-this-then-that causal necessity. Which is to say, it wouldn’t be a miracle if GDP increased for a few decades, but the government’s share of GDP didn’t. Yet that never happens in countries with political systems like ours.
As Andreas Bergh, an economist at the University of Lund, puts it, “Given how rare laws are in the social sciences, the positive correlation between the public sector’s share of GDP and real GDP per capita remains an important regularity.” Peter Lindert says that “[t]he notion that income growth will raise taxes and government spending, including social spending, is the most durable black box in the whole rise-of-the-state literature.”
[…] There’s an abiding faith on the right that there must be policy levers that can be pulled to reduce political demand for government spending. The idea that it is possible to “starve the beast”—to reduce the size of government by starving the government of tax revenue—springs from this hope. But the actual effect of cutting taxes below the amount necessary to sustain current levels of government spending only underscores the unforgiving lawlikeness of Wagner’s Law. As our namesake Bill Niskanen showed, tax cuts that lead to budget shortfalls don’t lead to corresponding cuts in government spending. On the contrary, financing government spending through debt rather than taxes makes voters feel that government spending is cheaper than it really is, which makes them want even more of it.
[…] Giving up on the quixotic quest to find the magic words or the magic policy lever that would finally and decisively falsify Wagner’s Law would also lead us to distinguish more clearly between the welfare state and the regulatory state, and to focus our energy on removing regulatory barriers to economic participation, innovation, and growth. We’ll see more clearly that a small government and a limited government that reliably protects rights and promotes freedom aren’t really the same thing. And we’ll begin to recognize that sowing antagonism to the welfare state hasn’t accomplished anything very constructive. The war against the welfare state hasn’t slowed growth in welfare-state spending so much as it has made our system unusually loathed and unusually shoddy. Mostly, it has fostered a divisive, racially-tinged “makers vs. takers” narrative while encouraging opposition to reform measures that might have made our safety net fairer, more efficient, and better at minimizing the economic anxieties that drive populist political sentiments fundamentally at odds with an open society of free markets, free trade, liberal migration, and peace.
Whether you’re left, right, or centre, it’s worth considering Wilkinson’s case that our main focus should be on having a government that does things well, rather than a government of a particular size. He draws an important distinction between the ‘welfare state’, which aims to ensure that everyone has access to the things that they need to live a good life, like education, healthcare, and unemployment/disability insurance, and the ‘regulatory state’, which aims to manage and direct private economic activity. People often conflate these two things, but they’re very different in practice.
Before and after picture a multi-modal street. By @GlobalStreets #UrbanTransport #TransportSystems #Bike pic.twitter.com/3UT7GAWI4t
— Brayan González (@bragohe) November 11, 2016
On a separate note, Brad Plumer at Vox makes the case for more urban trees:
…urban trees do at least two important things for public health:
1) They can soak up fine particle pollution from cars, power plants, and factories — an important job, given that particulates wreak havoc on human lungs and kill some 3.2 million people worldwide each year. The precise effect varies from city to city, but generally trees do improve air quality.
2) Urban trees can also cool down neighborhoods anywhere from 0.5 degrees Celsius to 2 degrees Celsius on the hottest summer days, which is vital during deadly heat waves. (Studies have found that every additional 1 degree Celsius in a heat wave leads to a 3 percent or more increase in mortality.)
The new Nature Conservancy report sifts through all this research and lays out some global scenarios. At the high end, a massive new tree-planting campaign in the world’s 245 largest cities, costing around $3.2 billion in all, could save between 11,000 and 36,000 lives per year worldwide from lower pollution. Those trees would also prevent between 200 and 700 heat-wave deaths per year — with that number presumably going up over time as global warming unfolds.
On a similar note, Charlie Sorrel at Fastcoexist reviews some new research showing that “the well-designed city is a healthy city, all over the world“:
If you design a city to get people walking, then people will do more physical activity. A new global study has found that a well-designed neighborhood not only keeps people fit but can reduce obesity, diabetes, and heart disease.
The correlation between walkability and public health has been made before, but this study, published in the Lancet, looked at 14 cities in 10 countries, all of which had a similar design, in order to determine whether or not the cities’ layouts themselves were the reason for increased health, as opposed to different lifestyles in different countries…
The biggest design factors affecting the amount of “moderate to vigorous intensity physical activity,” including walking, were: residential density, park and public transport density, and intersection density. Parks are obvious in their effect—people take walks in parks. Residential density is important because if you live in a compact neighborhood, you can easily walk to do your errands. And public transit density is important because not only does it obviate car use, but people have to walk to their nearest station instead of their driveway.
One thing I would like to see out of this study is a clearer account of causality. The correlation is very strong, but there’s also a possibility that some people select into more walkable places because they want to walk more. However, this is unlikely to overturn the findings, given the fact that the same relationships were observed in many different contexts.
In terms of policy change, it’s also clear that we need to do things differently if we want to have healthier cities. Street trees and public parks are an easy sell, but density, mixed use, and public transport sometimes aren’t. How do we have challenging conversations about change? Laura Bernstein (The Urbanist) has some ideas: “How to talk to your NIMBY parents“:
I despise the acronym NIMBY–‘not in my backyard.’ Does it mean someone wants streets “swept” of people living outside? Does it mean someone is worried about tree canopy and parking spaces, leading to fights over the new microhousing project on their block? Does it mean someone is worried that without owner occupancy rules for “backyard cottages,” developer-run AirBnBs will take over their community? I believe that growing cities are all struggling against the selfish whims of NIMBYs. Many journalists have painted this as a generational squabble. In Seattle, that is not always the case. But I don’t think YIMBYs–‘yes in my backyard’–can fight back if we don’t know what motivates them.
I want you to talk to your NIMBY parents and I want you to listen to them.
Bernstein identifies seven practical steps you can do to have good conversations with people who have different perspectives:
- Listen more than you talk.
- Look for an organic opening.
- Ask open-ended questions.
- Celebrate your shared vision of the future.
- Connect the struggle for walkable, affordable cities to struggles your parents advocated for when they were your age.
- Be open to not winning every discussion.
- Don’t use data if there is an anecdote that tells the same story, (unless your parent is a wonky engineer and gets fired up about data).
Worth thinking about, and not just for urban planning.
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‘He draws an important distinction between the ‘welfare state’, which aims to ensure that everyone has access to the things that they need to live a good life, like education, healthcare, and unemployment/disability insurance, and the ‘regulatory state’, which aims to manage and direct private economic activity. People often conflate these two things, but they’re very different in practice.’
Critical,and as said very often incorrectly conflated.
I’m centre-left on the political spectrum, but I think there is far too much over complication of process and over regulation (traditionally seen as a ‘centre right’ view) in many areas of life, especially in planning/local government.
But on the other hand, I believe there needs to be much more investment in all those ‘welfare state’ sectors – education and healthcare: in better facilities and technologies, more staff / resource, better wages etc. etc.
And more social housing.
I’d definitely be of the same spend-more-regulate-less position. I think this distinction stands out even more clearly in local government in New Zealand. In an effort to cut rates we don’t spend on public transport, don’t design nice streets or even maintain the ones we have. We cut libraries and pools and parks to the bone.
But then, instead of living with our decisions to be cheap, we try to regulate the private sector to make up for it. Urban design standards to try to get beautiful buildings in front of ugly, crumbling traffic sewers. Parking minimums so we don’t have to enforce any on-street parking rules. Requirements to plant your front yard, to make up for us being too cheap to plant trees in the street.
But it doesn’t work in the slightest. Be cheap and live with it, or spend what it takes to do it right. (I prefer the latter).
Actually one of the interesting things about the Scandinavian countries, yes high taxes & spending, but they all score high on economic freedom due to flexible fit for purpose regulation & free trade.
So would rather the Tax & Spend over the Badly Regulate & Fail Economy
“I’d definitely be of the same spend-more-regulate-less position.” Yes
Its the same with inclusionary zoning. This ineffectively tries to use regulation to provide social housing, which should be paid for through broadly applied tax / rates if it is worth paying for.
Re: NIMBYs.
Not that I am a guru at all, but in my experience in urban planning policy the critical things are:
-presenting robust, objective data
– clearly setting out urban planning options, and setting out objectively pros and cons (don’t try and argue that there are only ever great benefits from density: there are cons as well as pros). People can easily read between the lines of pre-determined positions masquerading as consultation
– Appeal to left and right: the appeal to the left are the socio-economic and environmental benefits, the appeal to the right is the economic, social stability and crime implications of worsening housing affordability. Again use research, data
– and….repeat, rinse: present robust, quality evidence: nothing like a good piece of Harvard or OECD research to present: ‘Argue with that Sunshine’
Even with all this kind of stuff, however, my experience is many if not most people just simply will not change their minds.
But at least a reasonable number will start to understand the rationale – which is something.
Those are all really good suggestions!
One thing I think (or hope) is easier in NZ than in the US is the racial dimension. The history of zoning in the US is intertwined with American apartheid. So, for instance, rezoning to enhance housing affordability isn’t necessarily a winning argument because expensive housing is sometimes perceived as a way of keeping black and brown people *out* of the neighbourhood. That seems to be much less important here, fortunately.
Hi Peter,
Apologies as this is not specific to your post but I would value your opinion and don’t know how to contact you any other way.
Whilst in the Barnes and Noble bookshop in Boston recently and intrigued by the title “The Upside of Inequality – How Good Intentions Undermine the Middle Class’ I purchased this book by one Edward Conard who at one stage worked professionally with former Republican presidential candidate Mitt Romney.
Conard argues that higher payoffs for success increases the supply of properly trained talent and that that these higher payoffs motivate innovators,entrepreneurs and investors to take risks allowing the economy to grow faster and so on.
So my question is; have you come across this person and his views? His earlier book which I haven’t read was entitled ‘Unintended Consequences’.
No worries Warren – this is the right venue for a wide-ranging discussion!
I haven’t come across the particular book but I’m broadly familiar with the case he’s making. There definitely is something to say for the argument that a reasonable amount of inequality will tend to spur innovation and entrepreneurship. (Without rewards for innovation, it won’t happen!)
A subtle point is that it can be quite difficult to determine the direction of the causal arrow between inequality and growth. For instance, lower-income countries that are growing rapidly typically experience rapid rises in inequality. This reflects the fact that they are transitioning from being a primarily agricultural economy, where almost everyone gets paid the same subsistence wages, to an economy with a mix of subsistence-wage agricultural workers and higher-wage industrial and urban service workers. So rising inequality goes along with rising economic growth. But it’s not obvious whether the economic growth came first – due to exogenous policy decisions or technological changes like falling international trade costs – or whether increasing inequality (ie increasing returns to urban work) came first. A bit of both, I suspect.
From what I understand, the economic (as opposed to social) case against high levels of inequality is not due to its effect on short-run economic incentives but its potential long-run distorting effect on policy. For instance, very wealthy people may choose to use some of it to ‘capture’ regulators or politicians and get them to implement policies that dissuade potential competitors, or transfer public wealth to private hands via crony privatisation or a lack of adequate environmental regulation.
In the US, the Koch brothers’ (apparently successful) attempt to prevent action on climate change is a classic example of the latter. Effectively, they’ve spent a few tens of millions of dollars lobbying and setting up climate denialist think tanks, which has secured them a licence to pollute that is probably worth billions to them.
Peter – Thank you for your comment. I am sorry I was not able to acknowledge it before now.
Conard’s book is new having just been released this year. Critics may dismiss it as a defence of the ‘1%’ but I found it insightful and well referenced.
Some points:
As the economy grows the pool of customers grows larger so successful innovators, businesses and entertainers can serve more customers than 50 years ago, but if you are a doctor, schoolteacher or tradesman your income is limited by the number of customers you can serve.
Successful innovators can strike it big but many fail and end up in middle age with less income than the successful doctor etc
In the post manufacturing era successful innovators don’t need the same level of capital for plant and machinery and become cash rich very early.
Lone geniuses are not the predominant source of innovation
A discussion of the moral obligation to help those less fortunate noting that America’s poor are wealthy by world poor standards.
Never-ending compassion has demotivated work and current solutions to poverty are likely to be prohibitively expensive.
And much more………………………………all very interesting.
I have issues with your categorisation of the Chavez government. Bringing in a new and more democratic constitution is not the same as undermining an existing democratic one, like Putin has done and Trumpy will no doubt go onto do. Although of course his successor Maduro has moved into all-out dictator mode, due to the crisis in oil prices.
I was initially positive about Chavez, because it seemed like he was reforming some pretty corrupt institutions. But I don’t think it ended up in a good place. When the oil price crashed it became apparent that he’d essentially been bribing people with oil money to maintain popularity, and Plan B involved undermining democracy to maintain power.
NZ is one of a handful of free, happy, business friendly, tolerant, democratic, low corrupt countries in the world.
We all must do our best to keep it that way.
Yes, I fully agree! These aren’t things we should take lightly.
Peter I think you have little to fear about authoritarian strongmen in the US. He still needs to get things past two houses of congress. They might be from the same party but I don’t think they are all exactly allies. But you could be right about the US. It appears to be a country where if the candidate you vote for doesn’t win then you go into the streets and riot. WTF is that about?
As for the Democrats they should all take a bow. They managed to find someone so deeply unpopular that she could lose to Donald Trump!
The Republican Party won’t serve as a check on executive power if the executive happens to be from their own party. They have enabled and endorsed Trump the whole way through, and did the same during the Bush administration when he was ramming through wars based on lies and restrictions on civil liberties. It’s going to be really bad.
I think the difference is that George Bush was doing what the congress wanted. They wanted war (lots of Americans love war as you know especially against weaker countries) and the Congress wanted the whole Patriot Act thing. Hell even Hillary voted for war. Trump doesn’t get to decide the budget and can only stay in a war with consent, he can deport people and he can rescind all of Obama’s Executive Orders. But he doesn’t rule the USA, he can only administer it.
You are as deluded about US politics as you are about parking rules.
Thanks in significant part to Bush-era expansions of executive power and Republican law-and-order / anti-terrorism policies, the executive branch has a hell of a lot of power to surveil, arrest, dispossess, and even torture and kill people, without any public checks and balances. And that’s not even talking about the power of the US regulatory state and tax authorities to investigate and harass. The prospect of an authoritarian in charge of the US is frankly terrifying, and people who wish otherwise are fooling themselves.
Don’t get me wrong, it will be awful- but it would be with Hillary as well. My point is simply that Congress regardless of its colour constrains the executive. Most administrations simply dont introduce anything they dont think will pass and that will apply to the next president as well. I personally think the separation of powers is stupid but they have it and it applies. Bush in his extreme moments only did what Congress allowed. Presumably the American people want more of that or they wouldn’t have voted in a Republican majority in both houses (and in most state houses as well). The fact that a number of Obama’s executive orders were struck down by the courts is proof that the executive cant act alone. But the good thing about the US system is they dont whip as strongly as in our system and the President can’t get rid of them the way our PM can. If there is a silver lining in all this it is that the people who voted Trump now have to live with the consequences, perhaps they will learn from it.
I’ve learned not to assume that Americans learn from their mistakes.
Personally, the excesses of the Bush years and the rising extremism of the Republican Party taught me that the US system of constitutional checks and balances does not work as intended. In other words, it doesn’t constrain tyranny, but can exacerbate it. Should have been long since apparent to me given American history – slavery, Jim Crow, Japanese internment, wars of extermination against Native Americans, etc, etc.
At this point, I’m fully convinced that MMP plus parliamentary sovereignty is a far better system than constitutional checks and balances in a presidential system.
The constitution is simply ignored when the powerful believe the public are onside. Both Bush and FDR did that and got away with it. Your point about slavery is important and I think it has defined the US from the beginning. The Grimke sisters were probably right when they thought slavery not only immoral to the slaves but also corrupted the owners and their families. The US has done some amazing things along the way but is probably still totally stuffed up by its slavery history. It is remarkable that the party of Abraham Lincoln could be headed by Donald Trump. I am not as worried about him as Mrs mfwic or most people i know as I think he will basically be lazy. He is there for the glad handing and being important parts and not the doing things part. Clever and lazy is OK by me. Bush on the other hand was stupid and industrious and that is just a disastrous combination in any field.