Summary

Economics is a soft science being treated like a hard one and thus has a communication problem – nuances need to be accounted for. Immigration and free trade are generally good if displaced individuals are supported. Contextual preferences are important. GDP is extremely complex, slowing, and hard to spur but fixing mis-allocation of resources is a good start. Globalization and automation are winner-take-all and capital-intensive, leading to a drop in GDP and the great uncoupling. UBI provides universal income but we need a universal right to a productive life for fulfillment.

Key Takeaways

• Economics has a communication problem
• Immigration isn’t a problem, more complex than supply and demand curves
• Free trade is generally beneficial but affected industries need to be supported
  • Autarky: GDP ↓ only 1-4% (8% of GDP is imports)
  • Why no autarchical cities? states? Obviously not, therefore beneficial at all levels
• Causes for rapid GDP growth:
  • 15%: higher education, 19%: capital investment, 64%: total factor productivity (TFP)
  • Total factor productivity: (TFP) what’s left after everything we can measure
  • Little can be done to spur economic growth
• Climate change is massively inequitable, clashes with short-term political nature
• Globalization, tech → winner-take-all → rise in inequality / the great uncoupling
• Need a universal right to a productive life for fulfillment, not just UBI
  • Hard for us to figure out how to provide meaning to our own lives
  • 5h free time / day, socializing (30m) ↑ rewarding than TV (2.5h), internet etc.
  • Work provides structure, meaning

Notes

1: Economics’ trust issue

• Public trust deficit in economists and politicians
• 35% avg. difference in survey between economists and public
• Economics has a communication problem
• IMF world economy growth prediction off by 2.8% on average
  • As good as predicting constant 4% yearly
• Talking heads vs. actual economists
• Economics: soft science but treated like hard
• Need to describe the gray uncertainty rather than making black/white statements

2: Immigration

• Fear immigration despite low rate, high education + incomes etc.
• Immigrants often leave due to war, disaster rather than economic incentives
• Long-term impacts of immigration on native wages is very small, even for low skill labor (non-overlapping pools)
• More complex than supply and demand curves
• Stickiness of labor: high switching cost for labor
• Components of risk: quantifiable risk + unknown unknowns (uncertainty)
• Loss aversion
• US labor market increasingly segregated by skill level since 1990s, low skill migrating to low income
• High switching cost for immigrants themselves
• Rise of the rest: chicken and egg problem
  • Amenities, cohort, etc.
• Right way to encourage migration:
  • Streamline process
  • Clearly communicate cost + rewards
  • Make it easier to send money back
  • Ease integration (eg. job matching)

3: Trade

• Autarky vs free trade
• Comparative advantage: do what you’re best at (vs. absolute advantage)
  • The reason pure free trade can’t work
• Stolper-Samuelson theorem: free trade should increase global wealth
  • Poor countries ↑ wealth equality, rich countries ↓
• Study: free trade slows poverty reduction
• Hard to usurp cheap China manufacturing:
  • Fragility of acquiring a reputation
  • Importance of the right connections
  • All the other lucky breaks needed
• China shock: (’91-’13) world manufacturing exports 2.3% → 18.8%
• Free trade is overall beneficial, but need to properly support affected clusters
• Study: only 2.5% of US GDP due to imports
  • Autarky: GDP ↓ only 1-4% (8% of GDP is imports)
  • Cross-price elasticity
• What about autarchical cities? states?
  • Obviously not, therefore beneficial at any level
• TAA: trade adjustment assistance
  • Flawed but effective

4: Preferences

• Preferences: individuals’ objective taste
• Informational cascades and herd behavior
• Folk theorem: objective power of communal norms, values
• Stereotypes (identity preference) leads to objective changes in outcomes
• Self-stereotyping (identity)
• Motivated beliefs: contextual preferences
• Sharp increase in partisanship since 1990s
• Social media echo chambers
  • Can’t determine slant of every account on feeds → seems like popular opinion
• Contact reduces prejudice
• Tipping point: 12-15% minority

5: Productivity and growth

• ’50-’73: yearly GDP growth of 2.5%, highest in history (previously ~1.8%) (TFP 4x higher)
• 0.8% average growth rate since 1700s
• Causes for rapid GDP growth:
  • 15%: higher education
  • 19%: capital investment (machines)
  • 64%: total factor productivity (TFP)
• Total factor productivity: (TFP) what’s left after everything we can measure
  • Eg. Innovation, worker health
• Now basically back to pre-1950 GDP, TFP growth despite perception of innovation
• GDP is just economic output, not happiness
• GDP growth: balance of capital and labor
  • Poor countries: ↑ labor, ↓ capital
• Convergence: poor countries should catch up as capital → optimal per-capita balance
• Diminishing returns vs economies of scale
• Need a balance of patent protection to maximize GDP growth
• Tax cuts for wealthy does not result in economic growth
• Increased, monopolization/concentration could contribute to slow economic growth
• Cannot simply replicate policies of past countries’ booms
• Main avenue for GDP growth is fixing mis-allocation of resources
  • How China, India experienced such rapid growth

6: Climate change

• Climate change is massively inequitable
  • Rich countries produce, poor countries most acutely impacted
• 1 degree Celsius rise in world temp → 1.4% drop in GDP for poor countries
• 25x larger increase in mortality for high temps in poor countries vs wealthy
• Politics incentivize short-term thinking
• Energy efficiency could reduce worldwide energy use by 49%, actually 10-20%
• Carbon tax and carbon credits
• Habits need to be changed
• Incentive to reduce pollution: cleaner, happier residents

7: Employment and inequality

• 45% of jobs replaceable by technology / AI
• Took 60+ years for blue-collar wages to recover after industrial revolution
• Automation so far has led to a ↓ in GDP
• Automation: outsized cost savings due to capital write offs, no labor benefits etc.
• Robot tax
• Rise of inequality: 2/3 between-company, 1/3 within-company
• Globalization, tech → winner-take-all → rise in inequality / the great uncoupling
• Financial industry could account for 50-60% of increase in inequality
• Tax competition amongst countries
• Downwards spiral of working class wellness
• Growth at all costs largely captured by wealthy → downwards spiral of inequality, distrust in government

8: Government legitimacy

• US taxes: 27% of GDP
  • Average OECD country: 34%
  • Median, low income, country: 15%
• Swiss tax holiday: taxes do not stop people from working
• Government exists in part to solve problems no other institution can tackle
• Corruption is inherent in the roles the government has to take on
• Viscous cycle of mistrust in government and wrong people in gov’t / corruption

9: Government assistance programs

• UBI vs conditional assistance programs
• Best to trust beneficiaries, reduce friction
• SNAP → EBT to reduce stigma
• Assistance does not lead to working less
• Negative income tax (NIT)
• Ultra-basic UBI (UUBI): ↓ amount, ↑ friction
• Workers displaced / fired at middle-age lose an average of 1-1.5 years of life expectancy
• Hard for us to figure out how to provide meaning to our own lives
  • 5-5.5 hours of free time per day on average
  • Socializing (30m) is more rewarding than TV (2.5h), sleeping, internet etc.
  • Work provides structure, meaning
• Need a universal right to a productive life for fulfillment, not just UBI
• Focus should be on better job matching
• Social protection