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PaperclipPerfector  2mo ago (text post)   2901 thread views

Small-Scale Question Sunday for September 15, 2024

Do you have a dumb question that you're kind of embarrassed to ask in the main thread? Is there something you're just not sure about?

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There’s an idea, rarely expressed explicitly, that seems to underpin some of our commenters’ idea of the world- and considerably more popular among DR twitterati- wherein recent economic growth in the west is not representative of an increase in the quality and quantity of stuff, it’s reflecting accounting tricks and rising real estate prices. Seemingly a right wing corollary to the socialist/socdem idea that western economies are like South Africa where everything goes to the top 1/5/10%.

I’m not really looking for a steelman, so much as a when do these people think ‘real’ GDP started to decline. Hourly compensation became uncoupled from productivity in the 70’s but we’re much richer now than we were then.

wherein recent economic growth in the west is not representative of an increase in the quality and quantity of stuff, it’s reflecting accounting tricks and rising real estate prices.

I've recently encountered a somewhat similar narrative, pointing to a similar stagnation and decline, but, rather than being purely "accounting tricks and rising real estate prices," it's, to put it succinctly, software isn't stuff.

The example given was to consider if you took every modern electronic screen out of your house. Get rid of your flatscreen TV, and maybe replace it with an old CRT set. Toss out the laptops, the tablets, the smartphones, the GPS and other "screen" electronics in your car, etc.

Now, how does your stuff, your surroundings, your life differ from someone of similar class, job, etc. back in the 70s or 80s? What has gotten better in terms of material stuff, rather than telecommunications, internet, and software, software, software? It's the whole "flying cars vs. cyberpunk dystopia" thing, the building of the virtual "layer" atop a stagnating, even declining material one.

(I'm reminded here again of the likes of Tyler Cowen's Average is Over and the future he projects, where ~80% of the population lives in third-world style favelas, concentrated in the narrow latitude/climate band that minimizes annual heating+AC costs, eating beans, making pennies on Amazon Turk; but most people will be fine with that because VR will have become so good they won't care about their conditions in the material world (and for those who don't, there will be better psych drugs and cops with omnipresent surveillance drones).)

Now, how does your stuff, your surroundings, your life differ from someone of similar class, job, etc. back in the 70s or 80s? What has gotten better in terms of material stuff, rather than telecommunications, internet, and software, software, software?

My car is much nicer. My house is probably not that different, but it’s definitely not worse. My diet is probably mildly better; my parents remember eating liver, franks and beans, etc, and I certainly don’t have to do that. I have more options for vacationing within my price range even if I prefer to spend my money on things other than flights(and tradesmen in the 70’s or even 80’s did not get to fly places). Most of my minor chattels are mildly better or about the same.

And, for two new technologies- cell phones and the microwave are a massive improvement in the quality of life for ‘white van men’- the cell phone, because I’m no longer confined to my house when I’m on call, and microwaves because I can now eat a hot lunch at any gas station without having to either a) eat a 7/11 hot dog or b) go to McDonald’s. It seems fair to also note that the internet and Amazon are large improvements in QoL in middle class suburbs, even lower middle class ones.

Oh, and I get all that working fewer hours.

Software is stuff, very much so. Or at least something worth caring about.

The boardgames I used to play as a kid? Replaced by videogames. Mail chess? Chess.com. TV? Streaming. Notebooks for planning, notes, recipes? An app. Physical maps? An app. The Encyclopedia? Replaced by Wikipedia, plus I can for the most part freely access scientific papers as they're published on pubmed, arxiv, etc.

How do I learn things like cooking, sewing, gardening, woodworking, chemistry, or look up information? Used to be a trip to a library, asking around, searching for experts in the phonebook, etc. Now I can google stuff, youtube is full of how tos and instructional videos, and LLMs can spit out semi accurate answers to common problems that are hard to find on google.

People complain how newer appliances are crappier, but the price to income ratio nosedived.

All that said, I agree that we lost things, and that some things got worse. Replacing physical buttons with touch controls in cars springs to mind. Architecture is another common example.

Architecture is another common example.

Architecture has certainly got worse in the last 100 years, but in the last 15, I'd say we've probably seen an improvement. New Traditional Architecture is picking up steam as a movement. Governments and developers are realising that building nice-looking buildings isn't an esoteric mystery lost to the sands of time. I predict in another century people will looking back on C20th architecture with embarrassment.

Okay, that first article calls out Beijing’s CCTV building, which is…actually really cool? Or insane, or futurist in a way that makes people think “we can do that?”

Something similar goes for the Guangzhou opera house. It’s not as physically impressive, but it does make me think of Halo: Reach’s vision of the future. Maybe the builders want to send a transhumanist or utopian message. Maybe nice cornices just aren’t the right tool for that.

I’m not offering a blanket defense of modernist slabs. The London National Theatre sucks, and there are plenty more where that came from. And when we consider the mass-produced architecture which trickles down to our houses and shops and parks, I expect the traditionalist language scales much better than exotic futurism. More ways to screw up a design which doesn’t fall back on the familiar. More ways to crawl up one’s own chimney.

I'm less sympathetic to modernism than most, but I can agree that I'd be basically fine with it if it was limited to a handful of high profile buildings in city centres. There's always the small chance that such a building becomes iconic, like the Sydney Opera House or the Eiffel Tower.

But building this when we could just as cheaply and easily build this is an affront to God.

One imo true part is inflation stats. Basically, we used to use a simple bucket-of-goods based approach, which would compare the same goods in the past to the same goods in the future and calculate inflation based on that. This was deemed not good enough, on the understandable logic that we will want different goods in the future, so over time this fixed bucket will reflect consumer realities less and less.

So we now use a different approach, the CPI, which has a flexible bucket based on the actual goods we buy instead. Sounds good? Well, the problem is twofold. First, it means we aren't comparing like-for-like anymore, so any historic inflation comparison is kind of nonsensical. Second, and imo even worse, it naturally biases inflation estimates downward. For example, back under Corona bell pepper prices shot up 300% or so at my local super market for a while, and we pretty much instantly stopped buying them. Which means that over this time frame, looking at the CPI, the rather extreme inflation of bell pepper would have minimal to no impact on the inflation stats calculated solely on our household, despite being one of my favorite vegetables that I like to eat near-daily if I can. This can easily be generalized to most consumers - if there is a good that was consumed a lot in the past but not anymore, a solid % of that will be an increase in price, and vice-versa any good that was rarely consumed in the past but is now consumed a lot, chances are it got cheaper.

See here for a graph

So if we fully buy into this framing, some time in the 80's official eco stats substantially uncoupled from the real economy. Obviously that doesn't prove that we actually got poorer, though.

Interesting.

I’m used to thinking of inflation as a demand-side phenomenon. The Econ 101 explanation was something about money supply. More dollars in circulation, more thrown at any particular good.

It makes sense that a supply shock across a slice of the market would count as inflation, because people are substituting some kind of produce. What about an isolated shock? If it had somehow just been bell peppers, should it have counted as inflation?

I guess I’m saying the CPI isn’t necessarily wrong to bias downwards. A metric which didn’t account for substitutions would be a bit silly in its own ways.

I have to admit I strongly disagree on the basics of inflation, then. It is agreed that the price of any good is dependent on supply and demand. Inflation, being about the increase in price of everything, necessarily needs to be dependent on both supply and demand as well. Constraining the supply of everything will straightforwardly lead to a price increase of everything.

There are some examples in which ignoring substitutions entirely would be foolish, yes. But imo the CPI goes too far in the other direction.

No, no, we agree on the basics. It’s just not what I’m used to.

Ok so when did standard of living decline.

I think looking for the starting point of real GDP decline is missing the point. We can see the Share of Total Net Worth Held by the Top 1% (99th to 100th Wealth Percentiles): https://fred.stlouisfed.org/series/WFRBST01134. It goes from approximately 23% in 1989 to approximately 30% in 2024. Statistics like that could be calculated for longer periods and/or for different wealth percentiles.

The point is that even if real GDP is growing it disproportionately benefiting the people that were already wealthy instead of being more evenly distributed. You also have other data like how women used to be able to afford to stay at home. It leads to a feeling that the middle class is constantly shrinking as the wealthy figure out how to keep more of the GDP to themselves.

Many people see that their lives are getting economically worse. They can no longer achieve the same results as their parents with the same amount of effort. Manufacturing got outsourced to foreign countries, which eliminated a high-school to middle class path for many people. Then the question becomes why am I worse off economically than my parents even though I have the same or higher education? One explanation could be real GDP declining. A more causative factor seems to be the American system is designed to funnel more and more wealth to the wealthy as time progresses.

I think the point of the economic growth discussion is something more like: If real GDP is growing then something in the system is broken if it isn't making life better off for the majority of Americans.

I think it’s a poor measurement of the general health of the country. It’s useful as a general overview, but it misses the question of whether the economic benefits of the activity measured is beneficial to the country as a whole or if it’s only one segment of the economy. I think much the same of CPI because it doesn’t tell you which items are going higher or whether they’re necessary goods or luxuries.

The idea that GDP is fake is mostly cope (and I say that as an European), but there is a nugget of truth in it as a lot of things rich societies spend money on really is 'fake' in a way:

  • Positional goods. Things that only/mostly benefit you if you have better stuff than everybody else. This includes luxuries like fashion, but also much of higher education, and all ways people price out poor people to e.g. not having to live next to them.

  • Waste. The government spending a gazillion dollars on a 4-year environmental pre-study for some infrastructure project without any tangible result absolutely counts as GDP but doesn't really benefit society much.

  • Paying for results that other people get for free. If you live in a high-crime area and have to spend a bunch of money on replacing stolen goods, security, insurance, fixing vandalism etc. you are contributing to GDP even though somebody living in a low-crime place get that automatically.

This has probably always happened in all societies to some degree or other, but it's just more prevalent in the richer ones that can afford the slack.

I'd like to add one more point:

  • Companies pumping money back and forth that actually does very little besides making lines go up and filling slides in shareholder presentations. If you have advanced financial markets or advanced insurance markets, this is easy to "grow" organically. But all large/"modern" companies like to partake in schemes like that: complex compliance infrastructure, management consulting contracts, software as a service, ect.

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