Monopoly in history

Timothy Taylor, the Conversable Economist, tracks down the oft-told story of William Lee and his knitting machine.

...the 2019 World Development Report from the World Bank has a mention near the start of Chapter 1: "In 1589, Queen Elizabeth I of England was alarmed when clergyman William Lee applied for a royal patent for a knitting machine: `Consider thou what the invention would do to my poor subjects,' she pointed out. `It would assuredly bring them to ruin by depriving them of employment.'” 

It's really a lovely story, presaging this fallacy passed down through the ages, to Milton Friedman's famous "let them use spoons" story (on being told a Chinese dam was being made by hand and shovel rather than bulldozers to provide employment) to the current hullabaloo that AI will take all the jobs. (And today. On a KQED (NPR) "forum," show last week, on while I was shaving, a caller expressed just how great it is that Mexico uses people not machines to sweep streets, thereby providing employment, and we should do the same. Fallacies live a long time.)

Lovely as it is, Taylor is "inherently dubious about direct quotations from conversations held in 1589," took a  "journey through libraries and archives," to track down the actual story.  It is an interesting note on the very beginnings of the industrial revolution.

As I read Taylor, it seems the story is actually pretty suspect.

"The underlying source seems to be in an 1831 book, History of the Framework Knitters, written by Gravenor Henson....Henson was an important British trade union leader in the early 19th century. As Stanley D. Chapman notes in his "Introduction" about Henson's purpose in writing the book: "His main theme was that hosiery, lace and all other industries should be regulated by the government so as to maintain a decent living standard for the workers and fair conditions of trade. British industries must be protected from direct foreign competition and, more particularly, from industrial espionage, migration of skilled workmen to other countries, and export of machinery."  

So, as I gather indirectly, the story passed on from a source was definitely trying to make a point, and (again reading only Tim) has precious little primary evidence for the famous conversation.

The first lesson: beware these apocryphal stories passed on through secondary, tertiary and ultimately gossipy sources.  

This lesson was brought home to me by Peter Garber's great "Famous First Bubbles" book (I had a lot of fun reviewing it). Garber went back to look at actual primary sources behind stories that though apocryphal are passed around as true among economists, such as the famous tulip "bubble." They aren't true either. Though they make good stories.

I got a deeper lesson, on just how economies worked in early modern Europe. Early economies were so pervasively regulated, that the only thing to do with an innovation was to run to get a Royal monopoly. 

William Lee invented a stocking-making machine. (Apparently, to put out of employment a woman who spurned his advances while knitting stockings.) So, what does he do with his newfound knowledge?

Having now discovered the method of knitting by machinery, his next effort was directed to obtain the golden harvest which had flattered his imagination. He removed his invention to London for the purpose presenting it to the Queen,...Lee now imagined himself certain of a handsome remuneration,...[but]  she refused to make either a grant of money or secure him a monopoly or patent. 

Here is where the famous quote enters

Her answer is said to have been to the following purport: -- My Lord, I have too much love to my poor people, who obtain their bread by the employment of knitting, to give my money to forward an invention which will tend to their ruin, by depriving them of employment, and thus make them beggars. 

It goes on, interestingly. The Queen was interested in cheaper silk stockings, which she wore:

Had Mr. Lee made a machine that would have made silk stockings, I should, I think, have been somewhat justified in granting him a patent for that monopoly, which would have affected only a small number of my subjects. but to enjoy the exclusive privilege of making stockings for the whole of my subjects is too important to grant to any individual."

But it gets much more s economically interesting

Apparently Lee ran into a different problem: Queen Elizabeth has been granting lots of monopolies to court favorites, and there was a widespread sense that it had gotten out of hand. Thus, the granting of unwarranted monopolies became a reason to deny Lee a monopoly as well. Henson writes:

"The time which Mr. Lee had chosen to make an application to the government, though to his sanguine mind very propitious for remuneration. was in reality the reverse; the treasury of Elizabeth was extremely low, owing to the enormous expenses which she had incurred in preparations to meet the Spanish armada in the preceding year. Already had the Parliament begun to express their decided umbrage at the grant of the privileges of patents for monopolies; which, as they were then conducted, were justly considered national evils, and the most odious means of rewarding court favorites, by an excessively tyrannical mode of private taxation. Nearly all the nobles enjoyed a patent for the most useful and general articles of consumption, such as iron, lead, saltpetre, salt, oil, glasses, &c. &c., to the amount of more than one hundred articles, which were sold, imported, or exported by virtue of letters patent. These patent rights, were sold to persons who farmed the profits, and thus demanded what prices they thought prudent for their commodities. [my emphasis] When the general list was read over in the House of Commons in 1601, a member, indignant at the the extortions, exclaimed, " Is bread amongst the number?" "Bread?" cried the house, with astonishment, "Yes I assure you," he sarcastically replied, "if we go on at this rate, we shall have a monopoly of bread before next Parliament." 

Actually, I believe they did. Most trades were restricted to guild members and you couldn't just bake bread and sell it. (Historians, let me know if I'm confusing place and time here.)  "Patent" in 16th century England also seems to mean more a general monopoly right than our current understanding, as in a "patent" to sell iron. Lee went on to the French court, to try to get a patent and monopoly there too.

Lee never, apparently, made a bundle actually making stockings. He died unhappily in France, though his machine did get adopted. Just how long it took a simple stocking machine to be adopted may tell us something interesting about why economic growth was so slow to break out.

The interesting observation here: it's 1589, and you invent a cool new machine, say for making stockings. What do you do with it? You and I might answer, "start making stockings." You can undersell the competition and make a bundle. Or, we might answer, "start selling stocking-making machines." Sure, others will follow, but you have a big first-mover advantage. Yes, if a modern patent system were up and running it might be useful to get a patent and try to slow down competitors. But first and foremost, get the business going.

That Lee did not do this -- that it seems not even to have occurred to him - is telling about just how controlled and regulated economies apparently were at the time.

It brings to mind two other recent histories I read, Dava Sobel's Longitude and Charles Coulston Gillispies' book on the  Montgolfier Brothers.

Longitude: In the 1700s, it was a major problem to know how far east or west a ship was. After painstaking work, John Harrison came up with a solution: a clock that could tell time accurately, even at sea. What did he do with it? Start selling clocks to ship captains, you might say! And you would be wrong. He spent his life trying to get the prize established for that purpose, mostly unsuccessfully.

Balloons: The Montgolfier Brothers invent the balloon. What do they do with it? Start selling balloons? Start selling balloon rides? No, immediately off to Paris to get royal dispensation.

I don't know enough about these early economies, but that running off to get a Royal monopoly seems to be the only thing anyone even considers to do with a new invention seems interesting evidence on just how rigidly controlled economic affairs were.

Guilds, patents, monopolies, and the primary function of economic regulation being to create rents in return for political support, seems a pattern with deep roots.

Intellectual property and China

Let's transfer more technology to China, writes Scott Sumner, with approving comments from Don Boudreaux. They're exactly right, skewering one of the common backstop defenses of protectionists on both left and right.

The question is whether China can buy US technology, or require technology transfer to Chinese partners as a condition of the US firm entering China. Scott and Don have sophisticated versions of my reaction: If Chinese access isn't worth it to you, don't do the deal.

It stands to reason that stealing technology and IP is bad, and should be stopped. Whether imposing tariffs is the smart way to do that, we will discuss another day. But on an economic basis, even that is questionable!

A key point: Selling technology is not like selling a car. If you sell a car, you can't use it. If someone steals your car, you can't use it. But everyone can use knowledge. Scott:

The beauty of information is that use by one person does not preclude use by others

If I know how to wax my car in half the time it takes you, and you sneak in to my house to learn my secret, you wax your car in half the time too. But so do I.

Debt Oped

An oped on debt in the Washington Post. Growing debt and deficits are a danger. If interest rates rise, debt service will rise, and can provoke a crisis. Really the only solution is greater long-run economic growth and to reform -- reform, not "cut" -- entitlements. And the sooner the better, as the size and pain of the adjustment is much less if we do it now.

This is written with Mike Boskin, John Cogan, George Shultz, and John Taylor. George Shultz was the inspiration, and wrote the first draft. He radiates an ethic of government as responsible stewardship, and displeasure when he does not see such. It is a pleasure of my job at Hoover to work with such distinguished colleagues.

The Post gave it two headlines, in one "horizon" and in the other "doorstep," in different versions. The latter is a bit more alarmist than we care for.  Like living above an earthquake fault, living on a mountain of debt can be quiet for a long time. Until all of a sudden it isn't.  A pdf version

***

A Debt Crisis is on the Horizon

By Michael J. Boskin, John H. Cochrane, John F. Cogan, George P. Shultz and John B. Taylor

We live in a time of extraordinary promise. Breakthroughs in artificial intelligence, 3D manufacturing, medical science and other areas have the potential to dramatically raise living standards in coming decades. But a major obstacle stands squarely in the way of this promise: high and sharply rising government debt.

Truck automation

Two bits from Marginal Revolution on truck automation are so good they merit passing on here. Dan Hanson writes this amazing comment

I wonder how many of the people making predictions about the future of truck drivers have ever ridden with one to see what they do?

One of the big failings of high-level analyses of future trends is that in general they either ignore or seriously underestimate the complexity of the job at a detailed level. Lots of jobs look simple or rote from a think tank or government office, but turn out to be quite complex when you dive into the details.

For example, truck drivers don’t just drive trucks. They also secure loads, including determining what to load first and last and how to tie it all down securely. They act as agents for the trunking company. They verify that what they are picking up is what is on the manifest. They are the early warning system for vehicle maintenance. They deal with the government and others at weighing stations. When sleeping in the cab, they act as security for the load. If the vehicle breaks down, they set up road flares and contact authorities. If the vehicle doesn’t handle correctly, the driver has to stop and analyze what’s wrong – blown tire, shifting load, whatever.

Boot Camp

Hoover has just announced the 2018 Summer Boot Camp August 19-25 2018

The Hoover Institution’s Summer Policy Boot Camp (HISPBC) is an intensive, one week residential immersion program in the essentials of today’s national and international United States policy. The program is intended to instruct college students and recent graduates on the economic, political, and social aspects of United States public policy. The goal is to teach students how to think critically about public policy formulation and its results.

Using a highly interactive, tutorial-style model designed to foster fact-based critical thinking on the most important policy issues, students will have a unique chance to interact directly with the faculty of Stanford University’s Hoover Institution, comprised of world-renowned scholars in economics, government, political science, and related fields.  Each half-day will be dedicated to one topic, chosen because of its immediate relevance to today’s and tomorrow’s challenges. Participants will collaborate through class discussions, study groups, and team projects that encourage diverse perspectives. Enrollment is limited, in order to facilitate maximum interaction with the faculty and other participants.

This was a big success last year. I taught one section of the bootcamp, and I thought the students were a great cross section of really interesting smart people.

Oh, and it's free.

Exceptionalism

Law and the Regulatory State is a little essay, my contribution to American Exceptionalism in a new Era, a volume of such essays by Hoover Fellows. It takes up where Rule of Law in the Regulatory State left off.

A few snippets:

To be a conservative—or, as in my case, an empirical, Pax-Americana, rule-of-law, constitutionalist, conservative libertarian—is pretty much by definition to believe that America is “exceptional”—and that it is perpetually in danger of losing that precious characteristic.  

So why is America exceptional, in the good sense? Here, I think, economics provides a crucial answer. The ideas that American exceptionalism propounds have led to the most dramatic improvement in widely shared well-being in human history.... Without this economic success, I doubt that anyone would call America exceptional. 

Despite the promises of monarchs, autocrats, dictators, commissars, central planners, socialists, industrial policy makers, progressive nudgers, and assorted dirigistes, it is liberty and rule of law that has led to this enormous progress. 

I locate the core source of America’s exceptional nature in our legal system—the nexus of constitutional government, artfully created with checks and balances, and of the rule of law that guides our affairs. And this is also where I locate the greatest danger at the moment. 

The erosion of rule of law is all around us. I see it most clearly in the explosion of the administrative, regulatory state.

This is the main theme:

the rules are so vague and complex that nobody knows what they really mean..  the “rules” really just mean discretion for the regulators to do what they want—often to coerce the behavior they want out of companies by the threat of an arbitrary adverse decision.

The basic rights that citizens are supposed to have in the face of the law are also vanishing in the regulatory state.

Retroactive decisions are common,..

I fear even more the political impact. ... The drive toward criminalizing regulatory witch hunts and going after the executives means one thing: those executives had better make sure their organizations stay in line.

The key attribute that makes America exceptional—and prosperous—is that candidates and their supporters can afford to lose elections. Grumble, sit back, regroup, and try again next time. They won’t lose their jobs or their businesses. They won’t suddenly encounter trouble getting permits and approvals. They won’t have alphabet soup agencies at their doors with investigations and fines... We are losing that attribute.

In many countries, people can’t afford to lose elections. Those in power do not give it up easily. Those out of power are reduced to violence. American exceptionalism does not mean that all the bad things that happen elsewhere in the world cannot happen here.

Always be optimistic though:

The third article in exceptionalist faith, however, is optimism: that despite the ever-gathering clouds, America will once again face the challenge and reform. There is a reason that lovers of liberty tend to be Chicago Cubs fans.

The other essays are great. Niall Ferguson basically thinks exceptionalism is over.

Automation and jobs

I am often asked to opine about whether automation will destroy all the jobs. Yes, we talk about tractors, which brought farm employment from something like 70% of the country at the beginning of the 20th century to about 3% today. And cars, which put the horse drivers out of business. And trains, which put the canal boats out of business.

A more recent case occurred to me. This is what offices looked like in the 1950s and 1960s:

Embed from Getty Images

Typing Pool. Source: Getty Images

This is a "typing pool." There used to be basketball-court sized rooms that looked like this, all over the place, staffed almost exclusively by  women.

Then along came the copier -- many of these women are copying documents by typing them over again with a few sheets of carbon paper -- the fax machine, the word processor, the PC. And that's just typing. Accounting involved similar roomfuls of women with adding machines. Filing disappeared. Roomfuls of women used to operate telephone switchboards, now all automated.

This memory lives on in the architecture of universities. All the old buildings have empty hutches for secretaries.

If you are prognosticating in about 1970, and someone asks, "what will happen now that women want to join the workforce, but office automation is going to destroy all their jobs?" It would be a pretty gloomy forecast.

What actually happened: Female labor force increased from 20 million to 75 million. The female participation rate increased from below 35% to 60%. Women's wages relative to men rose -- they moved in to higher productivity activities than typing the same memo over a hundred times. Businesses expanded. And no, 55 million men are not out on the streets begging for spare change.

Civilian Labor Force Level: Women

Civilian Labor Force Participation Rate: Women

I'm simplifying of course. And surely some people with specific skills -- shorthand, typing without making mistakes, and so on -- who could not retrain didn't do as well as others. But the magnitude of the phenomenon is pretty impressive.

Update. So did women just take all the men's jobs? As MC points out, the male labor force participation rate did decline, from 87.5 to 70.0. That's a big, worrisome decline. But it's 15 percentage points, while the women's increase was 25 percentage points.

But even if women are moving in and men are moving out of employment, that does make the case that you don't just look at who has what jobs now threatened by automation! The typing pool got better jobs.

Please (please!) keep in mind the point here. No, this is not a post about all the ills of the labor market, and "middle class" America, and all the rest. Yes, there are plenty. The narrow point is, will automation mean that all the jobs vanish. In this case, even combined with a large expansion of the people wanting to work, it did not.

Also the male labor force expanded from 45 million to 82 million. So the idea that there is a fixed number of jobs and if women take them men lose them is not true.

Consumption vs. GDP

Random Critical Analysis has a really interesting blog post from a while ago, on the difference between consumption and income as measures of well being.  The level of data analysis and detail on that blog is really impressive.

The narrow question is whether the US spends "too much" on healthcare. A counterargument has always been, what else should we spend money on? As a society gets wealthier, it's natural to spend more on health care, just as we spend more on art, travel, and so forth.

(The counterargument to that is, whether we spend more or less is beside the point. The point is a dysfunctional regulated oligopoly is charging way too much for what we get. It's not so bad to spend this much, it's bad to get such a bad deal.)

So, the question is not whether the US spends more on health care, the question is whether we spend more on health care relative to a measure of our standard of wealth.  Using GDP as a rough proxy, we spend a lot more on health care relative to GDP than other countries.

But, the larger point of the blog post, on which I'll focus -- consumption is not GDP (income). Americans are far better off relative to other countries than we think we are. See the graph:

Long Run Fed Targets

What should the Fed's long-run interest rate target be? The traditional view is that the glide path should aim at 4% -- 2% real plus 2% inflation.

3%?

One big question being debated right now is whether the "natural'' real rate of interest -- r* or "r-star" in econspeak -- has declined below 2%.

Over the long run, the Fed cannot control the real rate of interest -- that comes from how much people want to save and what opportunities there are for investment, i.e. the marginal product of capital. So, if the real rate of interest is now permanently lower, say 1%, then one might argue that the glide path should aim for 3% long-run interest rate -- 1% real plus 2% inflation target -- not 4%.

Janet Yellen recently came to Stanford and gave a very interesting speech that talked in part about a lower r-star, and seemed to be heading to something like this view. See the picture:

Source: Federal Reserve. 

(She also talked a lot about Taylor Rules, seeming to move much closer to John Taylor's view of how to implement monetary policy. See interesting coverage on John Taylor's blog. On r*, see Measuring the Natural Rate of Interest Redux by Thomas Laubach and John C. Williams for a central paper on r*. Henrike Michaelis and Volker Wieland have an interesting post on r* and Taylor rules, also commenting on Ms. Yellen's speech.)

Of course, cynics will say that it's just the latest excuse not to raise rates. But these are serious arguments which should be considered on their merits.

0%?

Should the glidepath head to 3% interest rates? Maybe not. How about zero?

Miserable 21st Century

Nicholas Eberstadt in Commentary, (HT Marginal Revolution) offers a revealing look at what's wrong with "middle" America's stagnation. Read the whole thing, but the following snapshot jumped out at me.

He starts with a review, probably familiar to readers of this blog, of the sharp decline in work rates, even among prime-age men and women.

As of late 2016, the adult work rate in America was still at its lowest level in more than 30 years. To put things another way: If our nation’s work rate today were back up to its start-of-the-century highs, well over 10 million more Americans would currently have paying jobs.

Why are so many not working, not studying for work, and not even looking for work? What is going on in their lives? One answer:

The opioid epidemic of pain pills and heroin that has been ravaging and shortening lives from coast to coast is a new plague for our new century...

According to [Alan Krueger's] work, nearly half of all prime working-age male labor-force dropouts—an army now totaling roughly 7 million men—currently take pain medication on a daily basis.

I think Krueger had a different idea in mind: that they are in pain, indicated by medication, so can't be expected to work. How the explosion in disability jibes with a much safer workplace is an interesting puzzle to that view. Eberstadt has a different interpretation, and the lovely thing about facts is they are facts, not interpretations.

We already knew from other sources (such as BLS “time use” surveys) that the overwhelming majority of the prime-age men in this un-working army generally don’t “do civil society” (charitable work, religious activities, volunteering), or for that matter much in the way of child care or help for others in the home either, despite the abundance of time on their hands. Their routine, instead, typically centers on watching—watching TV, DVDs, Internet, hand-held devices, etc.—and indeed watching for an average of 2,000 hours a year, as if it were a full-time job. But Krueger’s study adds a poignant and immensely sad detail to this portrait of daily life in 21st-century America: In our mind’s eye we can now picture many millions of un-working men in the prime of life, out of work and not looking for jobs, sitting in front of screens—stoned.

Economies in reverse

How can economies forget? How is it that once we have learned to do something better, that knowledge can be lost and economies move backward? How can productivity decline? Viewing productivity as knowledge, it would seem almost impossible for it to do so -- and real business cycle theory was often derided on that point. Yet middle ages eurpoeans lost the recipe for concrete, and time after time we have seen economies get worse. How can our own productivity be growing so slowly overall when so much we see around us is progressing so fast?

Scott Alexander at Slate Star Codex has an intriguing blog post that illuminates these questions (HT marginal revolution). I'll offer my thoughts on the answers at the end.

Scott starts with education:

Inputs triple, output unchanged. Productivity dropped to a third of its previous level.

Uncommon Knowledge Interview

A broad-ranging interview on economics and policy by Peter Robinson as part of the Hoover "Uncommmon Knowledge" series. Click above for youtube, or

· Hoover Institution: http://www.hoover.org/research/whats-wrong-american-economy

· Twitter: https://twitter.com/uncknowledge/status/823926553058775042

· Facebook: https://www.facebook.com/UncKnowledge/

· Instagram: https://www.instagram.com/p/BPF8TnJgsBz/?taken-by=uncommon_knowledge_show

· Youtube: https://www.youtube.com/watch?v=spe619WX-Q4

· Bitly Link: http://hvr.co/2jqxNkp

The full transcript is available on the episode page at http://www.hoover.org/research/whats-wrong-american-economy.

Growth full oped

Source: Wall Street Journal

On November 7 I wrote "Don't believe the economic pessimists," an oped about growth in the Wall Street Journal. Now that 30 days have passed, I can post the whole thing here. pdf here (my webpage).

Don't Believe the Economic Pessimists

No matter who wins Tuesday’s presidential election, now ought to be the time that policy makers in Washington come together to tackle America’s greatest economic problem: sclerotic growth. The recession ended more than seven years ago. Unemployment has returned to normal levels. Yet gross domestic product is rising at half its postwar average rate. Achieving better growth is possible, but it will require deep structural reforms.

The policy worthies have said for eight years: stimulus today, structural reform tomorrow. Now it’s tomorrow, but novel excuses for stimulus keep coming. “Secular stagnation” or “hysteresis” account for slow growth. Prosperity demands more borrowing and spending—even on bridges to nowhere—or deliberate inflation or negative interest rates. Others advocate surrender. More growth is impossible. Accept and manage mediocrity.

But for those willing to recognize the simple lessons of history, slow growth is not hard to diagnose or to cure. The U.S. economy suffers from complex, arbitrary and politicized regulation. The ridiculous tax system and badly structured social programs discourage work and investment. Even internet giants are now running to Washington for regulatory favors.

If you think robust growth is impossible, consider a serious growth-oriented policy program—one that could even satisfy many of the left’s desires.

Don't Believe the Economic Pessimists

Source: Wall Street Journal

No matter who wins Tuesday’s presidential election, now ought to be the time that policy makers in Washington come together to tackle America’s greatest economic problem: sclerotic growth. The recession ended more than seven years ago. Unemployment has returned to normal levels. Yet gross domestic product is rising at half its postwar average rate. Achieving better growth is possible, but it will require deep structural reforms.

The policy worthies have said for eight years: stimulus today, structural reform tomorrow. Now it’s tomorrow, but novel excuses for stimulus keep coming...

Keep reading here, the Wall Street Journal Oped. I'll post the whole thing in 30 days as usual.

Somehow the WSJ thinks anyone is interested in growth and serious policy on the eve of the election. Or maybe they were just tired of Trump vs. Clinton and needed to fill space.  At any rate, it might give you a little reprieve from the election coverage.

Levinson on growth

I disagree rather profoundly with crucial parts of Marc Levison's essay "Why the Economy Doesn't Roar Anymore" in the Saturday Wall Street Journal.

Yes, growth is slow. Yes, the ultimate source of growth is productivity. But no, sclerotic productivity is not "just being ordinary." No, our economy is not generating as much productivity growth as is possible, so just get used to it. No, productivity does not fall randomly from the sky no matter what politicians do.

Mark starts well, with a nice and vivid review of the post WWII growth "miracles."

He stumbles a bit at the 1973 Yom Kippur war and oil embargo

"Politicians everywhere responded by putting energy high on their agendas. In the U.S., the crusade for “energy independence” led to energy efficiency standards, the creation of the Strategic Petroleum Reserve, large government investments in solar power and nuclear fusion, and price deregulation. [JC: ?? The 1970s had price controls, not deregulation!] But it wasn’t the price of gasoline that brought the long run of global prosperity to an end. It just diverted attention from a more fundamental problem: Productivity growth had slowed sharply."

"The consequences of the productivity bust were severe.."

More good descriptions of eurosclerosis follow. But you see him veer off course, as  he sees little connection between the litany of ham-handed responses to the oil shock and the decline in productivity.

EconTalk

I did an EconTalk Podcast with Russ Roberts. The general subject is economic growth, the reasons it seems to be slipping away from us and policies (or non-policies) that might help.

As in other recent projects (growth essay, testimony) I'm trying to synthesize, and also to find policies and ways to talk about them that avoid the stale left-right debate, where people just shout base-pleasing spin ever louder. "You're a tax and spend socialist" "You just want tax cuts for your rich buddies" is getting about as far as "You always leave your socks on the floor" "Well, you spend the whole day on the phone to your mother."

We did this as an interview before a live audience, at a Chicago Booth alumni event held at Hoover, so it's a bit lighter than the usual EconTalk. This kind of thought helps the synthesis process a lot for me.  Russ' pointed questions make me think, as did the audience in follow up Q&A (not recorded). Plus, it was fun.

I always leave any interview full of regrets about things I could have said better or differently. The top of the regret pile here was leaving a short joke in response to Russ' question about what the government should spend more on. Russ was kindly teeing up the section of the growth essay "there is good spending" and perhaps "spend more to spend less" ideas in several other recent writings. It would have been a good idea to go there and spend a lot more time on the question.

Testimony 2

On the way back from Washington, I passed the time reformatting my little essay for the Budget committee to html for blog readers. See below. (Short oral remarks here in the last blog post, and pdf version of this post here.)

I learned a few things while in DC.

The Paul Ryan "A better way" plan is serious, detailed, and you will be hearing a lot about it. I read most of it in preparation for my trip, and it's impressive. Expect reviews here soon. I learned that Republicans seem to be uniting behind it and ready to make a major push to publicize it. It is, by design, a document that Senatorial and Congressional candidates will use to define a positive agenda for their campaigns, as well as describing a comprehensive legislative and policy agenda.

"Infrastructure" is bigger in the conversation than I thought. But since there is no case that potholes caused the halving of America's trend growth rate, do not be surprised if infrastructure fails to double the trend growth rate. It's also a bit sad that the most common growth idea in Washington is, acording to my commenters, about 2,500 years old -- employment on public works.

Washington conversation remains in thrall to the latest numbers. There was lots of buzz at my hearing about a recent census report that median family income was up 5%. Chicagoans used to get excited about the 40 degree February thaw.

The quality can be very very good. Congressman Price, the chair of my session, covered just about every topic in my testimony, and possibly better. Congressional staff are really good, and they are paying attention to the latest. If you write policy-related economics, take heart, they really are listening.

The questions at my hearing pushed me to clarify just how will debt problems affect the average American. What I had not said in the prepared remarks needs to be said. If we don't get an explosion of growth, the US will not be able to make good on its promises to social security, health care, government pensions, credit guarantees, taxpayers, and bondholders. Something's got to give. And the growing size of entitlements means they must give. Even a default on the debt, raising taxes to the long-run Laffer limit, will not pay for current pension and health promises. Those will be cut. The question is how. If we wait to a fiscal crisis, they will be cut unexpectedly and by large amounts, leaving people who counted on them in dire straits. Greece is a good example. If we make sensible sustainable promises now, they will be cut less, and people will have decades to adjust.


Ok, on to html testimony:

Growing Risks to the Budget and the Economy.

Testimony of John H. Cochrane before the House Committee on Budget.

September 14 2016

Chairman Price, Ranking Member Van Hollen, and members of the committee: It is an honor to speak to you today.

I am John H. Cochrane. I am a Senior Fellow of the Hoover Institution at Stanford University¹. I speak to you today on my own behalf on not that of any institution with which I am affiliated.

Sclerotic growth is our country's most fundamental economic problem.² From 1950 to 2000, our economy grew at 3.6% per year.³ Since 2000, it has grown at barely half that rate, 1.8% per year. Even starting at the bottom of the recession in 2009, usually a period of super-fast catch-up growth, it has grown at just over 2% per year. Growth per person fell from 2.3% to 0.9%, and since the recession has been 1.3%.

Testimony

I was invited to testify at a hearing of the House budget committee on Sept 14. It's nothing novel or revolutionary, but a chance to put my thoughts together on how to get growth going again, and policy approaches that get past the usual partisan squabbling. Here are my oral remarks. (pdf version here.) The written testimony, with lots of explanation and footnotes, is here. (pdf) (Getting footnotes in html is a pain.)

Chairman Price, Ranking Member Van Hollen, and members of the committee: It is an honor to speak to you today.

Sclerotic growth is our country’s most fundamental economic problem. If we could get back to the three and half percent postwar average, we would, in the next 30 years, triple rather than double the size of the economy—and tax revenues, which would do wonders for our debt problem.

Why has growth halved? The most plausible answer is simple and sensible: Our legal and regulatory system is slowly strangling the golden goose of growth.

How do we fix it? Our national political and economic debate just makes the same points again, louder, and going nowhere. Instead, let us look together for novel and effective policies that can appeal to all sides.

Regulation:

The new voodoo

Scott Sumner sums up contemporary stimulus proposals well

...Old hydraulic Keynesianism from the 1960s was already a pretty implausible model. But what's happened since 2009 involves not just one, but at least five new types of voodoo: 

1. The claim that artificial attempts to force wages higher will boost employment, by boosting AD.

2. The claim that extended unemployment benefits---paying people not to work---will lead to more employment, by boosting AD.

3. The claim that more government spending can actually reduce the budget deficit, by boosting AD and growth. Note that in the simple Keynesian model, even with no crowding out, monetary offset, etc., this is impossible.

4. More aggregate demand will lead to higher productivity. In the old Keynesian model, more AD boosted growth by increasing employment, not productivity.

5. Fiscal stimulus can boost AD when not at the zero bound, because . . . ?

In all five cases there is almost no theoretical or empirical support for the new voodoo claims, and lots of evidence against. There were 5 attempts to push wages higher in the 1930s, and all 5 failed to spur recovery. Job creation sped up when the extended UI benefits ended at the beginning of 2014, contrary to the prediction of Keynesians. The austerity of 2013 failed to slow growth, contrary to the predictions of Keynesians. Britain had perhaps the biggest budget deficits of any major economy during the Great Recession, job growth has been robust, and yet productivity is now actually lower than in the 4th quarter of 2007.

Clinton Plan

The WSJ asked me to review the Hillary Clinton economic plan, motivated by her August 11 speech introducing it.  The Op-Ed is here.

I read a good deal of the "plan" on hillaryclinton.com. What I discovered is that there is so much plan that there really isn't any plan at all.