Friday, February 11, 2011

Hitting the Wall 2:

At some point I will learn to stick with one font.  But that point will not be today.  This post will eventually be topical to  Greatest Generation 2, from a couple of days ago, as I have attached a continuation of that subject on the next part of this series.

I wrote about the economic stagnation of our economy previously (Hitting the Wall).  Where you set the turning point will vary depending on which set of data you care to look at, and what particular axe you haveto grind.  In my opinion, most economists have some form of the “where we will be in the future will be some form of continuum from where we are today.”  They take this viewpoint even thought their methods have proven to be extremely poor predictors of future economic reality.  None the less, if you understand their point of view, they can show some interesting results when they start crunching the numbers.
The setup:
I’m also persuaded by the median income numbers because they are supported by related measurements of other magnitudes. For example, another way to study economic growth is to look not at median income but at national income, gdp, or gross domestic product, the total production of goods and services.  Charles I. Jones, an economist at Stanford University, has “disassembled” American economic growth into component parts, such as increases in capital investment, increases in work hours, increases in research and development, and other factors…
The alarming conclusion:
Looking at 1950–1993, he found that 80 percent of the growth from that period came from the application of previously discovered ideas, combined with heavy additional investment in education and research, in a manner that cannot be easily repeated for the future. In other words, we’ve been riding off the past. Even more worryingly, he finds that now that we are done exhausting this accumulated stock of benefits, we are discovering new ideas at a speed that will drive a future growth rate of less than one-third of a percent (that’s a rough estimate, not an exact one, but it is consistent with the basic message here). It could be worse yet if the idea-generating countries continue to lose population, as we are seeing in Western Europe and Japan.
You can order the eBook; the Amazon link is here, Barnes & Noble here, $4.00.  information on the book is  here.
Mr. Cowen does not believe that the current economic stagnation will continue forever, but that it will last 37 years.  I agree that it might last 37 years, but I believe I am of the opposite opinion as to where it will go at the end of this intermediate period.

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