danieldwilliam (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
danieldwilliam) wrote2013-04-08 03:12 pm
danieldwilliam) wrote2013-04-08 03:12 pm
On the Chote Unit
I was asked for my opinion on this piece.
http://fistfulofeuros.net/afoe/everything-will-be-fine-in-just-one-chote-unit/
Which is basically saying that our current economic forecasts assume we’ll return to our long run trend of economic growth soonish but that the reality might be that the trend no longer applies because things have changed.
So a couple of questions.
Is there a trend? If so what is it?
And what has been making the trend what it is?
If there was a trend is it a fair assumption that it will continue or has something changed?
I think there is a trend. You can see it in the long term average of UK (or other GDP) figures. An article by Chris Dillow looks at UK GDP with a rolling 20 year average (trying to remove some of the noise). Even those proposing the end of growth think there is a trend growth rate, or rather there was a trend.
Looks to be about 2% per annum. Which broadly means that over the course of a working life you can expect your standard of living to double even if you never get a promotion and just basically turn up.
So, I think there is / was a trend and I think it’s about 2% and it’s been about that for as long as anyone has been counting. (This itself might be a problem, we weren’t counting before the trend was 2%.)
So what’s driving the trend.
Classically, three elements. The amount of labour in productive employment, the amount of capital applied to that labour and technology, which is some measure of the quality of labour, capital and output.
Since the industrial revolution we’ve seen increases in population. Probably since before the industrial revolution and going back to the agricultural revolution of the generations before. Over that time we’ve seen changes in working hours, life expectancy, the borders of the UK retirement ages and gender based participation in the measured economy. The UK population has increased from about 16m in 1801 to about 60m in 2005. Generally speaking the amount of hours worked in the British economy has increased since 1800.
Over that time the amount of capital applied to that labour has increased. We have more roads, looms, drills and spades then we did in 1800.
The quality of that capital and the quality of the organisation of labour and the quality of the outputs of all that work are better. Iphones versus semaphore. Antibiotics versus hoping for the best. Over the last 200 years or so we’ve seen many waves of innovation in production methods and products. Our production technologies have found ways to apply chemical energy to do work or to allow less human supervision of labour or intervention in processes. The amount of work a person can do has increased hugely since 1800. And all the new things we can do that we couldn’t do for any money in 1800. Or 1900 or 1950. Or 2000.
So, more labour, more productive and producing better stuff and that’s been how things have been for the last 200-250 years or so.
So what happens now for the next hundred or so years?
Globally I don’t think we can expect to see populations increasing by the about double every hundred years we’ve seen. Unless we have the same kind of radical increase in food production we saw in the 1750’s and later with the application of chemical fertilizers, transport infrastructure and pest control. (There are some sound suggestions that in fact we’ve taken more out of our agricultural industries than they can provide in the long term and food production might start to decrease in the West). Also, we’ll all have to live in some pretty dense cities. Where is that radical change in food production coming from and is it enough to offset some of the negative factors we might be seeing in agriculture?
What we will see is large numbers of people moving off the land, away from subsistence farming to cities to work in manufacturing and services. We’re already seeing this, not just in China and India but in Africa too. Here in the UK, and Europe generally, we’ve already done that and we’re pretty crowded. We don’t get a surge of new workers streaming out of the fields towards the mills. We do have some projections for healthy population growth in the UK over the coming decades. The ONS estimates about 5m people living in the UK by 2020. But a lot of these people are either coming from somewhere else in Europe or the children of people who came from somewhere else.. Given the global nature of the economy and the fact that much of the population increase are immigrants I don’t think these extra people create much of an additional market. That’s helpful in terms of total UK GDP and helps with some of the shared expense of running our country (like paying Iain Duncan Smith £56 per week). We also have quite a lot of people exiting the labour market by retiring and living for a while after they stop work. Some additional people helps but it doesn’t do much for per capita GDP unless it creates opportunites for sharing infrastructure. How much is the beneficial effect of sharing national infrastructure costs with 5 million more people? Do these people still turn up if our economy isn’t growing at 2% per year?
Similarly, we have a bit of a global problem with energy. With a global population that has at first grown and is now growing richer we face a bit of a shortage of easy to come by energy. (This ignores the side effect that our most readily usable form of easy to come by energy is causing our climate to change in complex but not good ways.) Where is the radical change in energy production coming from that allows us to provide cheap, clean and low carbon energy to billions of people?
We might be able to piggy back some more on industrialisation in the not-West. How much of their industrialisation rubs off on us? Will we see lots of cheaper goods and services and will they want to buy our expensive goods and services?
We seem to have a bit of a dearth of investment opportunities in the West. (Clearly the workers have failed liberal capitalism once again by not being worth investing in.) Is it worth applying any more capital to UK workers over the next few decades? Well maybe, but not if you have access to much faster growing economies in Asia and Africa. Why bother buying a Brit a new ergonomic spade to replace her current one when you can buy the ergonomic spade for a Tanzanian who currently doesn’t have any spades? Or a Romanian? So less new capital applied to UK workers which means that our productivity doesn’t improve. In general. For areas where there are growth opportunites linked to economic growth in the developing world there are investments to be made. There are several new or re-born whisky stills in Scotland.
So, things are looking not so great for economic growth in the UK over the coming decades. Our population is growing but I’m not sure it’s that helpful. Eventually we run out of land and food to grow or to buy. Same with energy. Other places in the world are more attractive places to invest. We can expect our relative productivity advantage to be eroded over the coming decades until it’s worth investing in factories and railways and bridges again.
This is on top of some pretty hefty difficulties with public and private debt.
So things look like they may be a little ropey in the UK for the next ten years or so.
What about the longer term future? Will we see a large, broad range of new production technologies making us more efficient and new products making our lives better? Well, that’s the trillion dollar question. We don’t appear to be in the beginning period of a Kondratief Cycle, but then you never do until you find that you were. There appear to be lots of technologies that might make radical improvements to our productive or our products but they might also turn out to be marginal. (Although I find it heartening to remember that in about 20 years 6 billion will be supporting marginal technological improvements rather than the 600m who have been doing so for the last hundred years.) All the new bits of technology might all work really well together or they might not. We might find there are so many opportunities applying existing technology to the developing world over the next 20-30 years that new stuff doesn’t get as much of a look in. We have a specfic problem with energy, not so much the amount of energy that is accessable but the amount of energy we need to put in to get out the energy that’s either lying around underground or falling newly minted from the sky and consequently the amount left over to do other stuff.
So, it’s really difficult to tell.
To address the specific critisism of the Chote Unit, that everything will be okay once things go back to normal but there is no evidence that the old normal is the new normal I say, well fair enough, there’s not much evidence that the new normal isn’t the same as the old normal. This is essentially a question about technological innovation. We appear to be playing out the last few industrial revolutions. At least here in the West. We might be about to enter another round. If we are it’s likely to be more impressive than the preceding waves of industrial innovation. Every day I see reports of new or improved technologies that might collectively make a big difference to how we make and do things. Or they might not. Difficult to tell.
So that’s where I am. It’s difficult to tell. Prospects for the UK for the next few years, maybe five, maybe ten, look poor. But we might find a boost from trading with developing economies and we might find the next industrial revolution takes off sooner rather than latter.
http://fistfulofeuros.net/afoe/everything-will-be-fine-in-just-one-chote-unit/
Which is basically saying that our current economic forecasts assume we’ll return to our long run trend of economic growth soonish but that the reality might be that the trend no longer applies because things have changed.
So a couple of questions.
Is there a trend? If so what is it?
And what has been making the trend what it is?
If there was a trend is it a fair assumption that it will continue or has something changed?
I think there is a trend. You can see it in the long term average of UK (or other GDP) figures. An article by Chris Dillow looks at UK GDP with a rolling 20 year average (trying to remove some of the noise). Even those proposing the end of growth think there is a trend growth rate, or rather there was a trend.
Looks to be about 2% per annum. Which broadly means that over the course of a working life you can expect your standard of living to double even if you never get a promotion and just basically turn up.
So, I think there is / was a trend and I think it’s about 2% and it’s been about that for as long as anyone has been counting. (This itself might be a problem, we weren’t counting before the trend was 2%.)
So what’s driving the trend.
Classically, three elements. The amount of labour in productive employment, the amount of capital applied to that labour and technology, which is some measure of the quality of labour, capital and output.
Since the industrial revolution we’ve seen increases in population. Probably since before the industrial revolution and going back to the agricultural revolution of the generations before. Over that time we’ve seen changes in working hours, life expectancy, the borders of the UK retirement ages and gender based participation in the measured economy. The UK population has increased from about 16m in 1801 to about 60m in 2005. Generally speaking the amount of hours worked in the British economy has increased since 1800.
Over that time the amount of capital applied to that labour has increased. We have more roads, looms, drills and spades then we did in 1800.
The quality of that capital and the quality of the organisation of labour and the quality of the outputs of all that work are better. Iphones versus semaphore. Antibiotics versus hoping for the best. Over the last 200 years or so we’ve seen many waves of innovation in production methods and products. Our production technologies have found ways to apply chemical energy to do work or to allow less human supervision of labour or intervention in processes. The amount of work a person can do has increased hugely since 1800. And all the new things we can do that we couldn’t do for any money in 1800. Or 1900 or 1950. Or 2000.
So, more labour, more productive and producing better stuff and that’s been how things have been for the last 200-250 years or so.
So what happens now for the next hundred or so years?
Globally I don’t think we can expect to see populations increasing by the about double every hundred years we’ve seen. Unless we have the same kind of radical increase in food production we saw in the 1750’s and later with the application of chemical fertilizers, transport infrastructure and pest control. (There are some sound suggestions that in fact we’ve taken more out of our agricultural industries than they can provide in the long term and food production might start to decrease in the West). Also, we’ll all have to live in some pretty dense cities. Where is that radical change in food production coming from and is it enough to offset some of the negative factors we might be seeing in agriculture?
What we will see is large numbers of people moving off the land, away from subsistence farming to cities to work in manufacturing and services. We’re already seeing this, not just in China and India but in Africa too. Here in the UK, and Europe generally, we’ve already done that and we’re pretty crowded. We don’t get a surge of new workers streaming out of the fields towards the mills. We do have some projections for healthy population growth in the UK over the coming decades. The ONS estimates about 5m people living in the UK by 2020. But a lot of these people are either coming from somewhere else in Europe or the children of people who came from somewhere else.. Given the global nature of the economy and the fact that much of the population increase are immigrants I don’t think these extra people create much of an additional market. That’s helpful in terms of total UK GDP and helps with some of the shared expense of running our country (like paying Iain Duncan Smith £56 per week). We also have quite a lot of people exiting the labour market by retiring and living for a while after they stop work. Some additional people helps but it doesn’t do much for per capita GDP unless it creates opportunites for sharing infrastructure. How much is the beneficial effect of sharing national infrastructure costs with 5 million more people? Do these people still turn up if our economy isn’t growing at 2% per year?
Similarly, we have a bit of a global problem with energy. With a global population that has at first grown and is now growing richer we face a bit of a shortage of easy to come by energy. (This ignores the side effect that our most readily usable form of easy to come by energy is causing our climate to change in complex but not good ways.) Where is the radical change in energy production coming from that allows us to provide cheap, clean and low carbon energy to billions of people?
We might be able to piggy back some more on industrialisation in the not-West. How much of their industrialisation rubs off on us? Will we see lots of cheaper goods and services and will they want to buy our expensive goods and services?
We seem to have a bit of a dearth of investment opportunities in the West. (Clearly the workers have failed liberal capitalism once again by not being worth investing in.) Is it worth applying any more capital to UK workers over the next few decades? Well maybe, but not if you have access to much faster growing economies in Asia and Africa. Why bother buying a Brit a new ergonomic spade to replace her current one when you can buy the ergonomic spade for a Tanzanian who currently doesn’t have any spades? Or a Romanian? So less new capital applied to UK workers which means that our productivity doesn’t improve. In general. For areas where there are growth opportunites linked to economic growth in the developing world there are investments to be made. There are several new or re-born whisky stills in Scotland.
So, things are looking not so great for economic growth in the UK over the coming decades. Our population is growing but I’m not sure it’s that helpful. Eventually we run out of land and food to grow or to buy. Same with energy. Other places in the world are more attractive places to invest. We can expect our relative productivity advantage to be eroded over the coming decades until it’s worth investing in factories and railways and bridges again.
This is on top of some pretty hefty difficulties with public and private debt.
So things look like they may be a little ropey in the UK for the next ten years or so.
What about the longer term future? Will we see a large, broad range of new production technologies making us more efficient and new products making our lives better? Well, that’s the trillion dollar question. We don’t appear to be in the beginning period of a Kondratief Cycle, but then you never do until you find that you were. There appear to be lots of technologies that might make radical improvements to our productive or our products but they might also turn out to be marginal. (Although I find it heartening to remember that in about 20 years 6 billion will be supporting marginal technological improvements rather than the 600m who have been doing so for the last hundred years.) All the new bits of technology might all work really well together or they might not. We might find there are so many opportunities applying existing technology to the developing world over the next 20-30 years that new stuff doesn’t get as much of a look in. We have a specfic problem with energy, not so much the amount of energy that is accessable but the amount of energy we need to put in to get out the energy that’s either lying around underground or falling newly minted from the sky and consequently the amount left over to do other stuff.
So, it’s really difficult to tell.
To address the specific critisism of the Chote Unit, that everything will be okay once things go back to normal but there is no evidence that the old normal is the new normal I say, well fair enough, there’s not much evidence that the new normal isn’t the same as the old normal. This is essentially a question about technological innovation. We appear to be playing out the last few industrial revolutions. At least here in the West. We might be about to enter another round. If we are it’s likely to be more impressive than the preceding waves of industrial innovation. Every day I see reports of new or improved technologies that might collectively make a big difference to how we make and do things. Or they might not. Difficult to tell.
So that’s where I am. It’s difficult to tell. Prospects for the UK for the next few years, maybe five, maybe ten, look poor. But we might find a boost from trading with developing economies and we might find the next industrial revolution takes off sooner rather than latter.
no subject
http://andrewducker.livejournal.com/2796880.html
According to a link I read somewhere this morning, most places outside of Africa are now at, or beneath, replenishment rate. The map here agrees:
http://en.wikipedia.org/wiki/Sub-replacement_fertility
I'm not sure we count as crowded though. We're 51st on this list:
http://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependent_territories_by_population_density
My current theory is that we're currently suffering the backlash from globalisation. Which was _great_ when we got cheap things from China, but not so great when this meant they got all of our jobs. After all, why would you pay a UK worker to do something a Chinese worker can do for a vastly lower price. Until this equalises, and China is converted to a middle-class lifestyle, we're going to be slowed somewhat. Hopefully that will just be a generation or two :->
(I don't object to that, of course. I don't see why Chinese workers should be living in poverty so that we can have cheap Playstations.)
no subject
As for Britain, my comments are more about infrastructure than density. I think we have a slightly odd population geography. More people than our infrastructure can comfortably support in the South East and not much money to pay to improve that infrastructure. Not many people in lots of places but quite a lot of those places are, to use a Charles Stross phrase, crinkly.
We do also import a significant amount of our food.
So we could perhaps cram a bunch of people in but I think we'd rather not.
Totatally agree with you re backlash from globalisation. I think it will probably be decades rather than generations before the price adjusted productivity starts tipping back in our favour.
no subject
Interesting meta: I'm more or less entirely convinced by this, whereas I still think you're talking bollocks about raging inflation. Wondering how much of this is that you show your workings very clearly here and how much is that I think this is the kind of thing that can be modelled at a systems level whereas in the current context I don't think the same is true for inflation.
no subject
Important to show ones workings I think. Else how can anyone spot when you are guessing.
What is it you think I've said about raging inflation that you think is bollocks.
(I don't recall saying much about it except that I was worried that it was difficult to predict at the moment and that quite a lot of my personal finances depended on how and when it changed. So I was worried that I didn't have a good handle on something that felt important to me.
It is entirely possible that I may have said something more than than that. My memory for what I've actually said is often poor.)