Home > Economics - General > The end of US decline

The end of US decline

January 31st, 2011

There was another round of the more-or-less endless debate about the decline of the US not long ago, focused on the weak employment growth that has characterized the current ‘recovery’. I expect that the obvious inability of the US to exert significant influence, in either direction, over the fate of client regimes in North Africa and the Middle East will provoke some more discussion among similar lines.

As a public service, I’d like to bring an end to this tiresome debate by observing that the decline of the US from its 1945 position of global pre-eminence has already happened. The US is now a fairly typical advanced/developed country, distinguished primarily by its large population[1]. Precisely because the US is comparable to other advanced countries in many crucial respects, there is no reason to expect any further decline. [2]

As I’ve observed before, the US is similar to other leading countries in terms of key economic variables like output per hour worked and employment/population ratio. Like other countries it has some distinctive features, that can make it look good or bad on particular measures. Features on which the US is an outlier, in economic terms, include long average hours of work per employed person (particularly notable for women), high levels of inequality in wages and other incomes, low levels of public expenditure and taxation, an exchange rate that has typically been well below most estimates of purchasing power parity, and an international balance characterized by large deficits on the goods and services account, matched by large surpluses on the capital account.

In geopolitical terms, the US spends a lot more on its military than anyone else (in fact, more than everyone else put together) and (contrary to the beliefs of most Americans) hardly anything on development aid or other efforts at promoting global public goods. The amount of sustainable influence generated as a result appears pretty trivial. The number of places in the world where the US can directly determine, or even substantially influence, political outcomes is approximately zero – nothing like what might be associated with an old style Great Power, let alone a superpower or “hyperpower”.As I’ve observed before, Americans of all classes (except those directly connected to the military-industrial complex) get very little payoff for their military expenditure – trillions of dollars of expenditure has been unable to produce positive outcomes in a couple of relatively insignificant countries, or even to put paid to a bunch of pirates in the Indian Ocean.

On the other hand, it has to be conceded that the record of non-military aid and public good promotion is not exactly one of stellar success either. The fact is that the world is a complicated and intractable place, and running your own country is hard enough – the fact that international efforts work as well as they do is more surprising than the fact that so many fail.

I suppose it’s necessary to mention that the US has the capacity to destroy the world at a moment’s notice. But unfortunately for the world, so can Russia, probably China and maybe France or Britain. If the nuclear winter analysis is correct, even the regional nuclear powers could bring a rapid end to civilisation as we know it. And lots of other countries could easily acquire such a capacity if they were silly enough to want it.

Like other developed countries, the US has some notable areas of economic and cultural strength (IT, Hollywood) as well as areas of relative weakness (consumer goods, fashion and so on). While the precise pattern may change, I don’t see any reason to suppose that the US will either decline or advance dramatically in comparison to other developed countries.

The main implication of all this, for me, is that Americans should stop worrying about relative “decline”, “competitiveness” and so on, and start focusing on making the US a better place to live. This advice may seem gratuitous coming from an outsider. I can only respond that Australia had its own period of concern about relative decline (relative to Singapore and other Asian countries) back in the 1980s, and I said exactly the same thing then.

fn1. That effect is amplified for English-speakers. The US accounts for something like 75 per cent of developed-country native English speakers, and this is reflected in the attention it gets on blogs like this one.

fn2. As other countries catch up to the advanced group that includes the US, those in that group might be said to have declined in relative terms. But this doesn’t seem to me to constitute “decline” in any important sense.

Posted via email from John’s posterous

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  1. conrad
    January 31st, 2011 at 07:02 | #1

    I guess an alternative view is that essentially all developed countries are in relative decline, and that’s the way it will have to be if the majority of humanity want and are going to try to achieve similar lifestyles to the current set of rich countries (and it’s hard to see why they wouldn’t and won’t).

    I also don’t think that worrying about this and making the place better (potentially for everyone) are orthogonal goals — you can quite happily do both. Indeed, one can imagine using the first to drive the second in some places, as Obama was trying to do just a few days ago.

  2. BilB
    January 31st, 2011 at 08:05 | #2

    The US’s ace up the sleeve was for many years its nation la degree of automation, the key underpinning of modern day productivity. Some 20 years ago when I last knew what this factor was the US was first with Japan second but a long way behind. I don’t know how this stacks up today. The two best ways to have a national high standard of living is to live on land that is an absolute resources gold mine, have lots of machines doing producing product that can be exported for good return, (three things) have a highly creative populous who generate lots of sought after intellectual property.

  3. Jill Rush
    January 31st, 2011 at 09:42 | #3

    Decline is relative to countries like China where the ability to undertake nation building has been created by a far stronger and more disciplined populace. The problem for the United States is that while the military industrial complex rules their weapons tend to end up in the hands of the enemy via arms dealing or are undermined by superior weapons like the Kalishnikov which seems to work better in rough conditions. It seems however that the vice like grip of weapons manufacturers in the USA is only getting stronger while the inequalities are seen by those like the tea partiers as fundamental to the society.

  4. BilB
    January 31st, 2011 at 10:01 | #4

    Yes, Jill R.

    This

    “inequalities are seen ……as fundamental to the society.”

    is very true. Sadly this is seen as being essential for competitiveness. They try it on here as well, but with less success.

  5. wilful
    January 31st, 2011 at 10:35 | #5

    Spending time on US focused group blogs, the sense that the US middle class is in a crisis of confidence about their place in the world is quite palpable.

    Oh well, it took the poms several decades to get over their loss of empire.

  6. Ikonoclast
    January 31st, 2011 at 10:51 | #6

    Decline of the US from its 1945 position of global pre-eminence has already happened TO SOME EXTENT. We cannot presume that the US has settled into some kind of position of stasis relative to the rest of the world. Decline can be both relative and absolute.
    The first point to note is that world civilization in its entirety is on the brink of decline. Limits to growth including resource depletion and pollution are inescapable physical facts which will force this decline. Countries and regions will run into these forcing factors at different times. It is clear that Egypt, for example, has run into these limits right about now. See the link I posted in the Egypt debate.
    Within this global decline, different countries and regions will decline at different rates. Some countries might even seem immune to the general decline for a time. However, all countries will inevitably decline in output and eventually in population. The attendant unrest and conflicts will be severe.
    The position of the US in geo-strategic terms is ambiguous. The US seems to do nothing by halves and both its advantages and its problems are gargantuan. The US has an enormous need for resources if it is to maintain its economic and military status even in relative terms. Its military power might yet guarantee its ability to strip those resources from other regions. Yet the cost of its military machine and its position of extreme strategic overstretch will ensure that this is still a net loss game for the US. The losses to the rest of the world will be even greater. However, the US will not retrench its imperial ambitions and will continue on its present course, beggaring both itself and the world.

    China and India will not be able to complete their transition to first world consumer status. There are not enough resources left in the world for this process to be completed. However, it is possible that China and India with their large peasant bases might actually be able to slump back to a low energy, low resource world better than the US can and with less unrest. Countries most dependent on fossil fuels may well suffer faster relative declines than countries still geared to peasant economies at their base. High population, low energy use, mass peasant economies could become the new powers in a resource depleted world.

  7. conrad
    January 31st, 2011 at 15:48 | #7

    “China and India will not be able to complete their transition to first world consumer status.”

    I don’t see why not. It will just mean that some rich countries will have to give up on some things, whether they like it or not. It’s already happening in ways that are not very pleasant — look at all the countries going broke in Europe, and worse still, all the poor people that can’t afford food.

    For example, if the Chinese, say, push fuel and food prices to twice what they are now because they want to have more meat and cars, then this will simply mean that people in rich countries will either need to work out how to become much richer to compensate for this (unlikely) or put up with spending a greater amount on these things (assuming the supply of these things doesn’t increase at the same rate).

  8. Salient Green
    January 31st, 2011 at 17:19 | #8

    conrad, you’re on the right track. Just take those thought processes a bit further. What will happen to the people in rich nations disposable income with a doubling of fuel and food prices? What will happen to poor people in developing nation’s disposable income with a doubling of fuel and food prices? What happened to the world economic system when oil prices were $145 per barrel?

  9. Alice
    January 31st, 2011 at 18:36 | #9

    @Ikonoclast
    Ikono – you forget the might of the US military machine is no longer in its armies but in expensive high tech equipment and planes that deliver only destruction. I doubt the ?? “U.S.” can commandeer resources from foreign nations. I suspect like a nation with pockets of powerful hit and run pirates, the latter actually commandeer greater resources from their own feebly controlled government budget budgets and even more enfeebled civilians (US), plus the odd few tanker loads of foreign oil they may get by attempting to support by questionable means what they hope are US friendly foreign despot style regimes.

    This isnt the sort of commandeering we can ascribe to the “entire US” but to a few powerful corporate friends of the corporate military complex that the US has spawned inside itself.

  10. conrad
    January 31st, 2011 at 19:09 | #10

    Salient Green,

    this is why you want to be a rich country — and sure, I understand the consequences — that’s why my first comment was that things are looking rather poorly for developed countries (especially the big ones incidentally), many of which will have almost no competitive advantages against China. It seems to me that if you can’t out manufacture or out think poor people, then poor people will become rich people, and in a limited resource and rather populated world, that means they will get to eat meat and be profligate, and you won’t. At least Obama understands that, but I don’t think most white people do — I think most white people still think that China is some backwards country with no technology making poor quality knick knacks — which is of course just a silly stereotype that white people once had about Japan, Korea, Taiwan and all the other countries they once felt superior too.

    As it happens, on the bright side, if things like cheap energy become reality (say, solar cells decrease in price like computer chips did, or nuclear fusion ends up working, both of which I assume are quite possible), at least there will be a big overall benefit, so the decline in people’s actual living standards might not too bad.

  11. Salient Green
    January 31st, 2011 at 20:53 | #11

    conrad, believe me, China still makes poor quality knick knacks, I could write a book about them. I have dumped a shed full of them.

    That’s beside my point however. I just can’t see how you could think that developing countries could become like first world consumers. The shortages of vital energy and other resources will raise prices out of reach of the poor and progressively up the food chain.

  12. Ikonoclast
    January 31st, 2011 at 21:02 | #12

    The fundamental issues are not about prices and the financial system any more. The fundamental issue is physics (in the form of available energy and materials). The world has hit its limits. (I’m willing to call Egypt the canary in the coal mine.)

    Economic product (or “wealth”) is not created ex nihilo. It is created using available energy and materials. We have hit the limiting factors in a number of cases. The prime one is high EROEI (energy return on energy invested) energy sources. These are dwindling and we are not making the transition to renewable enrgy fast enough. Renewable energy is also more diffuse and will thus require a larger infrastructure to collect it. Progress in that direction is fatally slow.

    BET OFFERED WITH PROF QUIGGIN

    I’m willing to make a bet with JQ and only JQ. Hopefully he will see it here.

    This bet is for A$ 100.00 (One hundred dollars Australian) inflation adjusted from a base at 1/1/2011 and payable on or after 1/1/2021 at adjusted value at that date.

    The bet is that Gross World Product for the year ending 2020 will be less than Gross World Product for the year ending 2010. Both parties must be alive at 1/1/2021 and the Australian dollar must still be legal tender for the bet to be valid. No other events will be considered to invalidate the bet. Thus any form of force majeure will not invalidate the bet apart from the exceptions made above re death of either or both parties or the failure of legal tender as above.

  13. jquiggin
    January 31st, 2011 at 21:34 | #13

    Ikonoklast, I’m happy to take this bet, though I’d prefer Net World Income, and I would say you should too.

  14. Ernestine Gross
    February 1st, 2011 at 05:06 | #14

    Iconoclast, macro-economic aggregates such as gross world product (or income and various versions thereof) measure only recorded exchange values. These measures are theoretically meaningful if and only if all ‘stuff’ of interest to humans is marketable and all stuff is consumed only if it goes through an exchange (ie market) at all times. The theoretical condition is not fulfilled. For example, the replacement of home cooked meals (off market activity) by take-away food (market activity) results in an increase of gross world product. If every person hires (ie recorded transaction) someone to brush their teeth then gross world product increases. And the elephant in the room is environmental degradations and resource depletion (the values of macro-economic aggregates can grow for quite some time before the state you have in mind (negative feedback) becomes apparent in the macro-economic aggregates..

  15. conrad
    February 1st, 2011 at 06:05 | #15

    “I just can’t see how you could think that developing countries could become like first world consumers.”

    Some first world consumer will become third world consumers, and cheaper energy will allow more people overall to become better off. Obviously this second one is based on hypothetical (but certainly not pie-in-the-sky) technological innovations that will occur.

  16. Ernestine Gross
    February 1st, 2011 at 06:10 | #16

    “Some first world consumer will become third world consumers” – thus rendering the national macro-economic aggregates and the notions of ‘a country’ and ‘first’, ‘second’ and ‘third world’ economically meaningless.

  17. Ikonoclast
    February 1st, 2011 at 07:03 | #17

    @jquiggin

    I am happy to stay with Gross World Product. I cannot find a definition of Net World Income. I’m quite aware that GWP is fallacious on a number of levels. For example, it ignores destruction of environmental capital and it records a destruction and rebuilding of an infrastructure item as product. On the other hand, if trade collapses and people do more for themselves and less through the market (which I predict) then the measure favours my bet.

    The big question is will one of us (presumably the winner) remember the bet in 10 years time? With a 10 years span set I am a little uncertain of winning. With 20 years I would be quite certain but it seems rather too long to wait.

    If I might use some black humour, I have excluded force majeure so wars, climate change, comets or supervolcanos could just possibly determine the outcome. However, limits to growth is the real barrier. I am quite astonished that it isn’t obvious to more people that we have hit the limits.

  18. Chris Warren
    February 1st, 2011 at 07:35 | #18

    While I like the idea of a bet:

    The bet is that Gross World Product for the year ending 2020 will be less than Gross World Product for the year ending 2010.

    I think John Quiggin is licking his lips.

    Provided product (gross or net) is measured in money, then under capitalism, it will always increase in the long-run.

    Even if the population is halved by a nuclear war, and the amount of food, clothes, and other goods and services falls, capitalists will still only bring goods to a market provided they (on average) get a profit. Workers wages will double in money terms, and prices will double even though the actual commodities have halved in value.

    So if in world 1 – we have sales of 1 million black and white TV’s, but after a nuclear war – in world 2 – we have 500,000 colour TV’s, then the market price (including wages) will adjust, so that it appears the value of 500,000 colour TV’s is greater than 1 million black and white TV’s.

    Of course if the population expands, and we all go from quarter acre blocks of land to less land, then the same logic applies. The market price of the land will increase. If we go to less food, less clothing, either absolutely, or on a per capita basis, capitalists will always base their values on what they call the “subjective theory”, precisely so they can have all the freedom they need to extract profits from their markets.

    This is independent of what is actually going through the market. If capitalists make greater profits polishing the teeth of the rich, than providing homes for the poor, then this is what capitalists will do. They will record the results as growth, even after adjsuting for their measurement of inflation.

    Iconoklast will only win his bet if capitalism collapses in the next ten years. This may happen, but only in a few OECD economies.

    If Iconoklast were to rephrase his bet in non-money terms, and restrict his scope to OECD economies, then he may have a chance. Even if the globe plummets into dire poverty, as it may do, capitalists will always extract their lucre and add it to their balance sheets.

  19. BilB
    February 1st, 2011 at 09:26 | #19

    I don’t share your growth expectation, Chris, though I think that 2030 would be a safer position to be confident of a decline. I think that there is too much momentum in the economies for 10 years to see a decline even if oil started to fail right now. On that basis Ikonoclast will do his dough.

  20. Ikonoclast
    February 1st, 2011 at 09:28 | #20

    @Chris Warren

    All good points mate. I know I’ve taken a risk. However, I like to think of it as a sporting bet. After what JQ has put up with my posts he will, if he wins, have earned it anyway. :)

  21. Ikonoclast
    February 1st, 2011 at 09:48 | #21

    As for “capitalists will always extract their lucre and add it to their balance sheets”, this is true to a point but there are always limits to such a financial process as it diverges further and further from the real economy.

    Percy Bysshe Shelley once wrote something to this effect; “If we suddenly found a horde of gems, the world would not be one grain of wheat richer.”

    I think that sums it up. There are abstract measures of wealth but accrual of them is meaningless if not backed by actual production of real and useable goods and services.

  22. BilB
  23. Nick R
    February 1st, 2011 at 14:35 | #23

    While I am generally sympathetic to the politics of ecological economists (i.e. ecological limits to growth) I can’t help but get the feeling that much of the work is really shoddy. Personally I would be very reluctant to put money on any of their hypotheses being correct. This view comes from reading Prosperity Without Growth by Tim Jackson which I felt was riddled with errors and half truths.

    Jackson’s no-growth position is explained as follows – Stern Review, PWC etc put the costs of climate change at 2-3% of GDP per year which is approximately the same as annual growth in most advanced countries. Therefore, subtracting the costs of climate change will put an end to growth. Unless I am very much mistaken this is incorrect. The annual cost of climate change mitigation is a scalar and should not be compounded. A reduction of 2-3% every year is paid for by a single year of growth, not all growth for all time. As JQ has stated, this means in 2050 we would have the living standards of 2049, not 2011 or whenever the program was implemented.

  24. Chris Warren
    February 1st, 2011 at 17:07 | #24

    @Nick R

    On the other hand, many others have always felt that the dogmas of capitalist economists are extraordinarily shoddy, particularly their conceptions which allocate a return to capital. Of course capitalism is even more unpredictable – noone has managed to predict future turning points in exchange rates nor interest rates.

    Tim Jackson is not much of a guide, and really is only objecting to “the material profligacy of consumer society” and his response is to call for placing limits on this form of capitalism. He wants to regulate capitalism – to produce a new society that is “less capitalistic” (pg200). The rest of his text is a pastiche of well worn shibboleths.

    I don’t think you’ve read Jackson properly for his position is specifically not a “no-growth” position. He only wants to moderate or regulate this growth including increasing the role of public ownership. We have seen these proposals for ages and they all amount to one aim – democratising capitalism. This (supposedly) is a profound, progressive alternative to welfare state capitalism, and many middle class pundits line-up under this banner.

    What page number in Jackson did you find a ‘no-growth’ argument? Or have you committed the cardinal sin, of reinterpreting someones words, and then attacking the reinterpretation?

  25. Alice
    February 1st, 2011 at 18:47 | #25

    @BilB
    Ever heard the words “white trash” BilB. Thats what the Koch Brothers represent. The sort who need to be chased out in their privately owned jets.

  26. NickR
    February 1st, 2011 at 19:18 | #26

    Chris, perhaps I have, but here is some evidence that Jackson adopts a ‘no growth view’. I should point out that I have skimmed over parts of the book, so I may have missed a few things.

    (1) The title ‘Prosperity Without Growth’ is fairly unambiguous’. (2) Jackson repeatedly makes the argument that output cannot grow indefinitely within a finite system. If output must be finite, it must taper towards zero growth. (3) On pages 127 to 128 he discusses reducing working hours as a way of keeping output constant with growing labor productivity. (3) On page 84 he puts forth his incorrect argument that adequate climate change mitigation costs imply zero growth. Surely you would agree that this is a critical mistake. There are also a whole host of other vague ‘motherhood’ statements that seem to imply a necessity of zero growth. I could go on and on if I had the time.

    He may say other things that are more moderate, but these appear (to some degree) self contradictory.

    There are other problems with the book which I believe is representative of the school of thought. For instance the entire issue is concerned with environmental externality. However I found no mention of externalities in the book. The word ‘externality’ does not appear in the index. He argues that there is little evidence of decoupling but does not appear to realize that there is little incentive to decouple without a carbon price. He also repeatedly rails against GDP as a measure of wellbeing, but I found only the vaguest passing reference to the work of Stiglitz and Sen on the issue.

    It frustrates me that many on the left abandon (relatively) rigorous and well accepted standard economic concepts which actually support their point of view. I feel that this weakens the environmental movement that I believe I belong to.

  27. Sam
    February 1st, 2011 at 19:28 | #27

    @Nick R
    I don’t follow your argument there. Let me take a stylized example with concrete numbers so I can illustrate my confusion.

    The end of 2011 sees GDP at some constant C. In 2012 the economy would have grown at 2%, but then climate change costs take it all away, leaving the end of 2012 still at C. In 2013 the economy would have grown at 2%, but then climate change costs take it all away, leaving the end of 2013 still at C etc etc so there is no more growth after 2011.

    Of course you can dispute these facts, but the conclusions based on them seem to me to be sound. I should say I haven’t read Jackson.

  28. Sam
    February 1st, 2011 at 19:34 | #28

    BTW I agree with you RE economically illiterate lefties, they can be very frustrating.

    To (significantly) paraphrase Voltaire, I may agree with what you say, but I really wish it weren’t you saying it.

  29. NickR
    February 1st, 2011 at 21:22 | #29

    Sam – yeah it is frustrating. Anyway for growth with climate costs, let Y be output, A be a multiplicative constant, G is trend economic growth per year, E environmental costs per year and T is time. The formula that Jackson appears to be using is Y=A(1+G-E)^T. If G=E then this is constant at A for all T. Unless I am very much mistaken the correct formula is Y=(1-E)*A*(1+G)^T which is a rescaled exponential in T. The key is to treat E as a scalar not an exponent as it does not compound.

    If G=2% and E=2% paying 2% of GDP per year results in the loss of approx 1 year of economic growth. The estimates that I have read that I feel are the most credible for G are probably more like 3-4%, so combating climate change permanently will have a similar impact on output as a big but temporary global recession.

  30. Chris Warren
    February 1st, 2011 at 22:20 | #30

    @NickR

    Tim Jackson’s book is very week and should not be taken as representative of the so-called ‘left’ or ‘school of thought’. I do not support or even follow much of his propositions. I don’t even think his text is worth criticising.

    However some may have different views. It is theoretically possible to have prosperity without growth, but it is not possible to have increasing prosperity without growth.

    The fact that he uses such a vague term as ‘prosperity’ indicates a major weakness of the Jackson approach. This is in the tradition of spin we have been getting from the British establishment for some time now. No wonder Giddens says, about Jackson’s tract: “A must-read … Bold, original and comprehensive.” After all Giddens (the mouth of Blair) called for restructuring capitalism along “more environmentally defensive lines” over 10 years ago as part of his “Third Way” [1998 - pg57]. Roberts follows this well beaten path.

    So the school of thought that Roberts follows is the Giddens, Blairite ‘Third Way’, updated for todays spin-meisters. He is not representative of the left.

    I have no problems with his hypothetical simple production function at p127. His statements (you cited) are only presented as part of his development, not as a recommendation. He is tackling a common claim that “continued growth is essential for long-term economic stability”.

    He makes a clear statement that the solution is either “make growth sustainable” or make “de-growth stable”. The rest of the book follows the sustainable growth argument, and the de-growth option is not really developed. But based on his model, he is correct. De-growth is, technically and rigorously, an option (for whoever wants to take it up). There is no implication of any general ‘necessity of zero growth’.

    With pg 84. Jackson is not himself putting forth the argument that adequate mitigation implies zero growth. He precisely says “there’s something very confusing about cost estimates like this”.

    There is little doubt that tackling climate change will reduce GDP in the short-term, but not in the long-run. Recognising that fixing a problem may mean a cut in growth or in consumption, is not a general argument for zero-growth. Once climate problems are properly addressed, then Roberts supports growth.

    It is not obvious that this is a false argument.

    There are certainly many vague ‘motherhood’ statements but these do not imply a general necessity of zero-growth.

    At most, Jackson can be associated with, or interpreted as accepting (or indicating) that zero-growth or de-growth may be needed in the developed world, as a tool, to achieve global climate justice. But, with that said, his long run vision is for growth.

    Your so-called “well accepted economic concepts” may need a shake-up.

    he is demonstrating a dynamic as demonstrating

  31. Chris Warren
    February 1st, 2011 at 22:25 | #31

    Ignore the last line.

  32. NickR
    February 1st, 2011 at 22:45 | #32

    Chris – yeah I think that that is pretty reasonable, although I interpreted Jackson a little differently to you. The point I am trying to make is that you can get sensible environmental policies (ones that I think we both would support) without resorting to dubious economics, something Jackson and other ecological economists seem to do.

  33. sam
    February 1st, 2011 at 22:48 | #33

    Ok, I now understand where you are coming from. Why do you say E doesn’t compound? If a cyclone were to sweep through an area that had few factories and cheap houses, it would not cause much economic damage. If there were many factories and expensive houses it would cost more. So the total economic damage suffered by increased cyclones depends positively (maybe even proportionally) on output Y. If it depends proportionally, then it does compound. Are you saying that the positive relationship is less than proportional?

  34. NickR
    February 1st, 2011 at 23:10 | #34

    Sam – Suppose GDP is $100, there is no growth and 2% must be paid to mitigate climate change every year. My understanding of the models used by Stern etc is that GDP will be $98 in all subsequent years – 2% lower. Alternatively some seem to be under the impression that GDP will follow a geometric progression where Y will be equal to 100*(1-E)^T. This approaches zero and is the compound interest formula with negative E as the interest rate.

  35. Freelander
    February 1st, 2011 at 23:27 | #35

    @Sam and @Nick R earlier

    Seems that’s not double counting, nor is it double subtraction, that’s not even quadruple subtraction. You seem to be subtracting year after year ad nausem and without justification Indeed, how do you justify that?

    How about growth continues but the economy will be 2 to 3 per cent smaller than it otherwise would have been? That is, the costs will be 2 to 3 per cent of GDP each and every year. This means that once adjustments have happened nothing much has happened to the growth rate and that overall, the adjustment will be about one year’s worth of growth off the size of the economy. That is less than the impact of one typical recession where, counting downturn and recovery, there is a significant cost compared with the average growth rate.

    Now that makes sense to me. And that we have done next to nothing to address the problem makes no sense at all.

  36. Freelander
    February 1st, 2011 at 23:28 | #36

    Apologies. Clearly had not refreshed my browser and was responding to a much earlier post.

  37. plaasmatron
    February 2nd, 2011 at 07:30 | #37

    Seems to me the only way advanced economies are going to get out of their funk is if they reduce the spending on old people; pensions, health-care etc. 30 years ago R&D spending was primarily on natural sciences. Now it is primarily healthcare. This is like the analogy of finding the hoard of gems, that doesn’t contribute one grain of wheat.

    Young Japanese people are refusing to contribute to the pension system that they know they will never get anything out of (I know I won’t see any of my super-pyramid in 30 years). Same goes in the Arab world; revolution to oust the old fogeys by a population with 50% under the age of 25 (recent Der Speigel article). Problem in the developed economies is that young people have no voice in a democracy where most people are reaching retirement age. Just think back to how many risks you took as a youngster and how “spießig” you are now.

    Bring on the euthanasia debate, again. Start a new slogan. “Retiring? Take a shot in the arm for your grandkids.”

  38. plaasmatron
    February 2nd, 2011 at 07:34 | #38

    Seems to me the only way advanced economies are going to get out of their funk is if they reduce the spending on old people; pensions, health-care etc. 30 years ago R&D spending was primarily on natural sciences. Now it is primarily healthcare. This is like the analogy of finding the hoard of gems, that doesn’t contribute one grain of wheat.

    Young Japanese people are refusing to contribute to the pension system that they know they will never get anything out of (I know I won’t see any of my super-pyramid in 30 years). Same goes in the Arab world; revolution to oust the old fogeys by a population with 50% under the age of 25 (recent Der Spiegel article). Problem in the developed economies is that young people have no voice in a democracy where most people are reaching retirement age. Just think back to how many risks you took as a youngster and how “spießig” you are now.

    Bring on the euthanasia debate, again. Start a new slogan. “Retiring? Take a shot in the arm for your grandkids.”

  39. Jim Birch
    February 2nd, 2011 at 10:02 | #39

    @plaasmatron
    You only have to hit the submit button once, even if you are young and impulsive.

  40. February 2nd, 2011 at 11:34 | #40

    I remember talking with friends about oncoming 3rd world status of the USA as far back as 1980, and getting rather tired of it now. Given how we felt then, it’s remarkable I’m still alive and getting adequate calories. Things don’t decline as quickly as you might think at first. But it still looks like it’s going to be a long way down from Peak Everything in the midst of the Total Crisis of Everything that will be occuring meanwhile, during the next 100-1000 years. The only consolation may be our “decline” won’t be relative anymore, we’ll be navigating the same hell as everyone else. That will be only be consoling as long as we continue to ignore that it was mostly our fault.

  41. Sam
    February 2nd, 2011 at 16:25 | #41

    @NickR
    Ok I’ll have to think about this

  42. BilB
    February 2nd, 2011 at 16:29 | #42

    Plaasmatron,

    You can have your 9% superannuation added to your mortgage payments. The catch is that that part of your house becomes your superannuation scheme and cannot be spent if you cash up. It is a genuine concern for young people that they may never see their supperannuation money. With all of the environmental damage being caused by climate change events, and the economic disruption to, in due course, be caused by peak oil, there is a good chance that your supper fund may not survive until you are old.

  43. Alice
    February 2nd, 2011 at 18:48 | #43

    @BilB
    Bilb – super is / was / and remains the greatest rip off from wages we have ever seen. Taxed in, taxed out….fine while sharemarkets are doing OK, which simply cannot be trusted these days…and nor can super be trusted not to be seen as a cash cow for the finance industry and governments to dip into for fees, charges and taxes as they see fit.

    I firmly beleive it contributed to the overbearing weight of the financial services sectors in many countries (to the exclusion of real production and its replacement with pure speculation) and the rampant excess in that sector and governments have been only too happy to help it along, given the tax benefits for governments.

    The idea that they can reduce wages and force people to save how they (government) wants them to save for their retirement is abhorrent.

    Most people are sensible and would save anyway and their decisions re their own money are superior to governments and fund managers.

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