January 27, 2003
The View from 2023

THE VIEW FROM 2023: WSJ.com

Economists Failed to Predict
Shift as the Poor Get Richer

By J. BRADFORD DELONG

It is extraordinary how few people back in, say, 2003, foresaw the economic changes that the past two decades have brought. I certainly did not.

There were plenty of clues. Some visionaries said the biotechnology revolution was about to arrive. Others trumpeted the positive effects of computers and telecommunications. Economists like Dale Jorgenson, studying productivity growth, noted the rapid fall in the prices of information-technology goods was without precedent for a sector that made up such a large share of demand. At such a pace, he predicted, the world economy's stock of real capital would expand at a record rate.

Robert Reich, a Labor Secretary in the Clinton administration, chimed in that the communications revolution helped bring freer trade to the international service sector. A similar trend occurred in the 19th-century revolution in ocean transportation during which products of farms and factories could be traded globally.

There have always been worries about just what the consequences of rapid urbanization and industrialization, coupled with political upheaval and mass disappointment, would mean for great-power wannabes.

Golden Era

But nobody foresaw how these trends would change the world. We didn't predict they would drive fabulous economic growth, creating a golden era for the world's rich in the industrial core and elsewhere, and raising the living standards of the middle classes and the poor in developing countries at a record rate. Nor did we anticipate that income redistribution would make the developing world richer, and the middle classes and the poor in the developed world angrier.

First, consider the economic growth. The industrial revolution of the 19th century saw technological progress of maybe 5% per year in industries that made up 3% of total production -- a direct leading-sector boost to economic growth of 0.15% per year. The industrial revolutions of the 20th century (internal combustion engines and mass production, among them) saw technological progress of maybe 10% per year in industries that made up 5% of total production -- a direct leading-sector boost to economic growth of 0.5% per year. Today's ongoing revolutions in biotechnology-and-information technology see technological progress of at least 15% per year in industries that make up 13% of total production -- a direct leading-sector boost to economic growth of 2% per year. Indeed, today's world economy packs more structural change and technological progress into a decade than the 20th century packed into a generation.

Next, came the shift in world incomes. We had such change before but not at this scale. Iron-hulled steamships of the late 19th century were indirectly responsible for the extraordinary rise in purchasing power of immigrants in the New World, who bought cheap European-made goods. That income shift coincided with a swing to political right on the Continent, where elites saw that free trade and industrial growth weren't necessarily in their best interests.

In the late 20th century, the advent of fiber-optic cable and the satellite spurred a similar sea change. Now any literate European-language speaker, living anywhere in the world, can compete for information-technology jobs that were once the exclusive property of the European and American middle classes.

The consequent boom in developing countries has seen them converge toward the developed-world norm at twice the pace seen in the late 20th century. International trade in white-color jobs is growing as competitive as trade in blue-collar jobs. That fact was underscored when Chicago Business School fired its faculty a decade ago and thereafter taught its courses via teleconference by professors from the Jakarta School of Economics. The resulting wage shifts in the U.S. gives it a relative income distribution of late 20th-century Brazil.

To be sure, that has caused political problems. The status insult, say, of not being able to afford tickets to basketball games and the express lanes of freeways has given First World politics its increasingly vicious character. Western European countries have tried to compensate by expanding their social-insurance systems; but they were already overloaded by the pension crisis. In the U.S., politics has oscillated between action and inaction. Some claim that rising inequality doesn't matter because even the middle class is sharing -- somewhat -- in expanded real incomes. But there have also been outbursts of protectionism, such as Florida Gov. Noelle Bush's short-lived executive order outlawing use of the Internet to communicate outside the U.S. during the Depression of 2018.

In the developing world, by contrast, the economic boom has solidified democracy and created a spirit of optimism that was unmatched by anything except the boom decades in Western Europe after World War II. Even sub-Saharan Africa's future looks bright: cheap, biotechnology-derived pharmaceuticals have flooded the continent; AIDS is conquered; and computers-and-communications technologies bring the possibility, at least, of a first-class education to nearly every village.

Everyone Is Uneasy

During the 19th century, per-capita world income grew at maybe 0.5% a year. Last century that figure was about 1.5% per year, and world-income distribution worsened. But so far during the 21st century, per-capita world income has grown 3% per year, and for the first time world-income distribution has become more equal.

But looking forward, almost everyone is uneasy. With the exception of the middle classes of the developed world, the past two decades shimmer as a peaceful economic golden age that is about to come to an end. Global warming is still unsolved, and the problems it creates are about to become very large very quickly. Nobody has confidence in world peace. At the end of the 19th century, Germany under Kaiser Wilhelm II had seen a ruling class fearful of democracy turn militaristic and seek foreign conquest. Today, China has failed to move toward democracy: So do we face a Wilhelmine China, with the Spratly Islands and Taiwan playing the role of Alsace and Lorraine? Or are we faced with a Weimar Russia or a Weimar India? And then there is the unfinished business of the Islamic Reformation ...

-- J. Bradford DeLong is professor of economics at the University of California, Berkeley, a research associate of the National Bureau of Economic Research, co-editor of the Journal of Economic Perspectives, and was from 1993-1995 deputy assistant secretary for economic policy at the U.S. Treasury Department.

Posted by DeLong at January 27, 2003 01:35 PM | Trackback

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Comments

The day the University of Chicago starts firing US economic professors and replacing them with Indonesian tele-commuters will be the day the academic consensus starts to shift away from glorifying free trade.

Posted by: billmon on January 26, 2003 03:52 PM

Ah, but the academics will be great beneficiaries of free trade, probably having significantly better jobs from the U.S. than they could find in Indonesia!

Really, quite an interesting article.

One thing I might wonder about is the abundance of information processing jobs that is supposed and the ability of such jobs to pull up third world standards of living. As they become more productive, shouldn't they use less labor per unit of data processed? Much of the third-world work in informatics, for example, would be unnecessary of computers had the processing power to read bad handwriting, and we all know how quickly computers are getting more powerful... (or are you assuming that, as has been the wont of computers for a quarter century, they'll keep getting faster at moving bits around, but no better at doing genuinely smart things?)

Now it sounds like I'm subscribing to the lump of labor fallacy or something, doesn't it? Really, though, it seems to me that processing information doesn't really do any good for the economy other than as an intermediary between two genuinely productive parties, somewhat like financial institutions, so if a large part of the world's labor were tied in information processing, I'd be inclined to call that wasteful. Of course, if it is productive information processing like customer support, and not intermediate information processing like informatics, then never mind this whole paragraph.

You know infinitely more about this than I do, Brad, but where are all these white collar jobs coming from.

BTW, I go to the University of Chicago, and as far as I'm concerned, their B-school profs can get replaced by a bunch of Indonesians! (Just kidding, maybe!)

Julian Elson

Posted by: Julian Elson on January 26, 2003 04:15 PM

Heh. I've had a chronic suspicion that Brad DeLong will always be too optimistic to be much of a hell-raising radical (whatever right-wing Republicans might think) but this nicely written article just confirms it. Just a few small attempts to pop his bubble:

(1) If any country is in danger of succumbing to Wilhelmine disease sometime this century, it is the U.S., not China. Whatever its deep-seated problems, including corruption, authoritarianism, and a deep geographic imbalance in its development model, China does not have the following problems: (a) a deeply oligarchic political system, which (surprise) has led to a bare handful of families (the Bushes foremost) regarding the presidency as their private property, (b) a pre-emptive security doctrine which rides roughshod over the rights of smaller states whether or not they deserve it. The current ultimatum to Iraq, supposedly in response to 9/11, reminds one of Austria-Hungary's (and Germany's)ultimatum to Serbia following the Archduke's assassination.
In turn, U.S. aggressiveness will lead to a backlash. Many people in Russia are already thinking in terms of revanchism, making the Russians the potential French to America's Wilhelmine Germany. And let's not even start on the Islamic countries.

(2) The problem of capital flow imbalances and sovereign bankruptcies has still not been solved. I doubt if we'll get any solution as well thought-out as Taylor's sovereign bankruptcy proposal, which right now seems to have a fart's chance in a windstorm of being adopted. So, large financial institutions will continue to regard emerging markets as their playground, will ride herdlike to the next model developing economy (anyone in 2023 remember Argentina? Or has it been annexed by Brazil?), and will pull out herdlike as soon as financial fragility and relative price imbalances rear their ugly heads. In short, I doubt that the larger developing countries that are open to capital flows will be able to avoid confidence-induced business cycles and their debilitating effects.

(3) The pension and medical system and crises worldwide will continue to get worse as the population age structure becomes top-heavy, leading to spiralling medical costs (mostly cancer and circulatory-related illnesses, which I don't see biotechnology addressing in any significant way just yet). All of this will lead to politically unpalatable choices such as raising retirement ages, increasing payroll tax rates, etc. Considering the instability of worldwide capital flows, I doubt that privatizing pension systems will be politically feasible either.

(4) The stupidity of politicians in rich country can be reliably exceeded only by the stupidity of politicians in poor countries, who will most likely fritter away the consequences of trade-induced economic growth through some combination of authoritarianism, corruption, factional infighting leading to violence, and in many countries, the standard cycle of populism, right-wing backlash, and dictatorship (e.g., Peru and Venezuela).

(5) While I really hope that Africa's 21st century is better than its 20th, I'm not sanguine. Arms dealers will continue to pour fuel into the fire of civil conflicts, corruption is as endemic as ever and emphatically not curable by technology, and the brand-name patents of anti-retroviral drugs will only be pried away from the cold, dead, claw-like fingers of pharmaceutical corporations.

(6) There will continue to be a growing contradiction in the improvement of people's standard of living compared to their quality of life. For the average poor third world family, life will be a little more livable thanks to plentiful low-skill jobs in the textile, data entry, and electronic service industries; but at the same time this increased income will have to be stretched further as time for available household labor declines and there are fewer adults left to watch over what kind of trouble the kids get into.

In short, DeLong reflects the (non-political) economist's almost religious faith in the benefits of technological progress. But as usual, as long as the social and psychological outlook of the people making both policy and business decisions remains unchanged, the benefits of technology will not make the mass of the human race better off, only a small part of the upper pyramid.

Posted by: Andres on January 26, 2003 05:15 PM

Each new wave of technology seems to use less and less labour per GDP contribution (I've no evidence to back this up - might make a good economic history paper ;-), so I can't see information technology employing that many more workers in the next two decades. To the contrary, based on developments I'm seeing, as an analyst-programmer myself, I would see less and less developers needed as code becomes more standardised (this can be seen with J2EE which removes the need for alot of systems programmers) - the counter-trend that may negate this would be a significant and sustained rise in new software development.

To my mind, the leading area of employment will be in luxury products and services. Already the number of niche luxury products seems to be exploding - how many stories have you heard of people quitting office jobs and starting up businesses to make herbal remedies/beauty care products/hand-crafted furniture etc? (I've heard dozens.) More and more the developed world's economies will be consumer-driven with the emphasis on consumables over durables.

Posted by: Kerry Nitz on January 26, 2003 09:21 PM

The article is reminiscent (purposely perhaps?) of one of the best things the Economist ever published, where they excerpt a history book from 2992 looking at democracy's post-1991 failure.

Posted by: Dan Kohn on January 26, 2003 09:33 PM

The link: http://www.dankohn.com/archives/000273.html

Posted by: Dan Kohn on January 26, 2003 09:48 PM

I think you forgot to mention the terrorist attacks which would most certainly have been the result of the society you describe. Surely the loss of a major city on the Atlantic seaboard would be worth mentioning in any such review article?

Posted by: dsquared on January 26, 2003 10:37 PM

This is a really small quibble, but was German militarism prior to WWI really caused by a "ruling class fearful of democracy"? From what I've read it was exactly the opposite - the institutionalized prejudices of an increasingly powerful middle class.

German foreign policy at the turn of the 20th century was more democratic than most people realize. Bismarck's constitution had established the country as a federal union of separate states, leading to a continual power struggle between its constitutional monarch and its component parts. The Reichstag fell between the two. Its power to approve all military budgets gave it a virtual veto on German expansion, and made it a critical force in foreign policy making.

And historical evidence suggests that military expansion followed a hardening in the attitudes of the middle class towards Britain rather than a reactionary turn towards imperialism by an upper class fearful of democratization. Before roughly 1890 efforts to fund German naval expansion were repeatedly defeated in the Reichstag due to popular fears of William II's "limitless fleet plans". The shift towards support for naval expansion accompanied an upsurge in German nationalism in the 1890s, a development which cannot be understood in isolation from the growth of a liberal, urban middle-class.

We should be skeptical of claims that the Kaiser and his associates trampled over the Reichstag -- why then his repeated but powerless threats to dissolve it? Post-war critics eager to apportion blame for the Great War understandably painted Wilhelm II as an aggressive and despostic leader whose neuroses led the world to war. They ignore other psychological factors like his belief in the existence of a "natural alliance" between Germany and Britain and his strong outbursts of pro-British sentiment such as his extraordinary show of grief and respect at his grandmother's deathbed. Far from creating it, the Kaiser's emotional vacillations seem to indicate that the temporary moods of his highly charged personality could not have been primarily responsible for the slow and steady spiral of mutual hostility into which Britain and Germany so willingly fell.

What is left? I personally blame the Reichstag and the increasingly middle-class German bureaucracy. Far from being powerless to control military expansion, the Reichstag voted in favour of Tirpitz's Flottengesetz (Risk Fleet Program) no less than five times between 1898 and 1914, even as it became clear the program was backfiring and pushing Britain into an alliance against rather than with Germany. Moreover, the very form naval expansion took ended up being much more aggressive than in the original proposals by the Kaiser. Wilhelm II wanted a cruiser based navy to support German colonialism and foreign trade. He wanted to follow the British model. The Risk Fleet as passed by the Reichstag however funded a fleet of short-range battleships whose only practical use could be against Britain.

Conclusions? It is overly optomistic to argue that political stability follows economic growth. Historically, the social transitions to democratic capitalism have been remarkably destabilizing in the short term, especially when coupled with nationalist sentiment which gains traction due to historical grievances rooted in perceptions of international income and/or power inequalities.

Posted by: david l on January 27, 2003 03:59 AM

Very imaginative. A nice read.

But why don't the political forces in the developed world threatened by all these changes rise up to defeat the transition you describe? And what is it that makes large scale capital transfers to the developing world seem like a good idea to global capital markets, which so far aren't very impressed by the risk adjusted returns available there?

Posted by: Jim Harris on January 27, 2003 06:01 AM

The bulk of the criticism here seems of two sorts. One is that Brad got his goepolitics wrong. The other is where the heck will the tech jobs come from? He opened himself to the first one in his final paragraph, but that seems to miss the point. The fastest growth, remarkable in its extent, is in areas that are prone to force greater trade or its substitute, jobs in country A engaged in production "located" in country B. Huge political changes will result, but Brad doesn't have a strong claim (nor has anyone) to knowing what those changes will be. He offers a future for China that is not necessarily as likely as the global economic future he has in mind.

Asking that Brad identify the jobs that will grow out of technological progress is probably asking too much. That's not the way these things work. Yes, existing jobs will disappear, but the direction that progress will take is not foreseeable, even if a wave of further growth seems inevitable. Nobody knew that there would be a boom in fast food restaurants after cars became ubiquitous.

Posted by: K Harris on January 27, 2003 08:29 AM

Very nice piece. Hard to comment on the overall picture, but one point touched on has bothered me a lot recently, and relates to an interesting "big" question in economic history. Why was the development trajectory so different for the US and Brazil--and what is the likliehood of the US now converging on Brasil? Standard explanations might point to endowments--the interior of the US is as rich as the coast, and so gave rise to competing elites, which reduced rent-seeking. By contrast Brazil long controlled by a coastal elite inclined to rent-seeking. However, natural endowments and unskilled labor matter much less to both economies, fostering dramatic income inequality and populism. This is a discouraging prospect.

Posted by: Roalnd Stephen on January 27, 2003 08:32 AM

I thought I had mistakenly clicked my "FutureFeedForward" bookmark.

Posted by: Jeremy Osner on January 27, 2003 08:39 AM

"Even sub-Saharan Africa's future looks bright: cheap, biotechnology-derived pharmaceuticals have flooded the continent; AIDS is conquered; and computers-and-communications technologies bring the possibility, at least, of a first-class education to nearly every village."

Dear Brad,

Love the article but you must do more to let readers know just how dire is the AIDS epidemic in southern Africa.

http://allafrica.com/stories/200301080529.html
[UN Secretary-General's Special Envoy for HIV/AIDS in Africa]

Stephen Lewis -

...There is absolutely no doubt that hunger and AIDS have come together in a Hecate's brew of horror. We saw it everywhere. How could it be otherwise? In Malawi, for example, analysis of the data shows that 50% of poor households are
affected by chronic illness due to HIV/AIDS. You can't till the soil, grow the crops, feed the family, when disease stalks the land. Add to that the reality of erratic rainfall and drought, and WFP and the broader UN family have a
hugely daunting job.

I think the nadir was reached for me in the paediatric ward of the University Teaching Hospital in Lusaka. The infants were clustered, stick-thin, three and four to a bed, most so weakened by hunger and ravaged by AIDS (a prevalence rate in the nutrition section of the ward of 56% ... in the respiratory section of the ward, 72%), that they really had no chance. We were there for forty-five minutes. Every fifteen minutes, another child died, awkwardly covered with a sheet, then removed by a nurse, while the ward was filled with the anguished
weeping of the mothers. A scene from hell....

We dearly hope for tomorrow. This is of today.

Posted by: anne on January 27, 2003 10:32 AM

For anyone putting together predictions of the future I recommend German economist Werner Sombart's essay The Economic Life of the Future (written at the start of the 20th century - he died 1941). In it he starts out by stating:

"It can be said with some assurance of a good number of opinions regarding the future development of economic life: that they are wrong."

He then goes on to enumerate the most common mistakes - for more, see my blogged commentary on it.

Posted by: Kerry Nitz on January 27, 2003 12:41 PM

A glimpse of 2018:

"Should the risk of HIV/AIDS infection at
each age group drop by 50% over the next 15
years, in countries with current adult
infection rates of 15% at least 35% of boys
now age 15 will contract AIDS.

"Given a halving of the risks, 25% of Cote
d'Ivoire boys now age 15 will contract AIDS.
30% of Kenyan boys. 40% of Zambian boys.
45% of South African boys. 50% of Zimbabwean
boys. 65% of Botswanan boys."

Source UNAIDS

Posted by: anne on January 27, 2003 01:30 PM

"...was German militarism prior to WWI really caused by a 'ruling class fearful of democracy'? From what I've read it was exactly the opposite - the institutionalized prejudices of an increasingly powerful middle class."

David I is completely correct, but I think that only serves to support my point that the U.S. is succumbing to Wilhelmine disease. Certainly there seems to be no effective opposition in Congress to Bush's headlong rush to war in Iraq, the majority of the American middle class, with the main exception being California and the northeast coast, seem to support Bush in this area. Whatever its results, it looks as though the war in Iraq will have enough popular support from the people who matter: the voters, reduced number that they are. Sooner or later, though, the Kaiser and his nationalist millions will find that they have bitten off more than they can chew.

Posted by: Andres on January 27, 2003 02:45 PM

In a developing country, where there are still some household subsistence resources around, cash incomes aren't a very good proxy for household wealth, even when adjusted for what they will buy. That makes Dollar and Kraay's work an unreliable guide to whether globalisation really is making people in those countries better off, for instance; by itself, it doesn't really tell us one way or the other. Their work is only telling us about cash incomes and not about offsetting down side changes that aren't being measured as they aren't in the cash economy.

In the same vein, it's hard to tell which of the forecasts in this piece here would really imply the inferences that are being drawn. Just what is being left out of the tally, and what does it mean?

Posted by: P.M.Lawrence on January 27, 2003 02:47 PM

In a developing country, where there are still some household subsistence resources around, cash incomes aren't a very good proxy for household wealth, even when adjusted for what they will buy. That makes Dollar and Kraay's work an unreliable guide to whether globalisation really is making people in those countries better off, for instance; by itself, it doesn't really tell us one way or the other. Their work is only telling us about cash incomes and not about offsetting down side changes that aren't being measured as they aren't in the cash economy.

In the same vein, it's hard to tell which of the forecasts in this piece here would really imply the inferences that are being drawn. Just what is being left out of the tally, and what does it mean?

Posted by: P.M.Lawrence on January 27, 2003 02:49 PM

In a developing country, where there are still some household subsistence resources around, cash incomes aren't a very good proxy for household wealth, even when adjusted for what they will buy. That makes Dollar and Kraay's work an unreliable guide to whether globalisation really is making people in those countries better off, for instance; by itself, it doesn't really tell us one way or the other. Their work is only telling us about cash incomes and not about offsetting down side changes that aren't being measured as they aren't in the cash economy.

In the same vein, it's hard to tell which of the forecasts in this piece here would really imply the inferences that are being drawn. Just what is being left out of the tally, and what does it mean?

Posted by: P.M.Lawrence on January 27, 2003 02:59 PM

The world labor force and population are the greatest drivers in world Gross Product.

Two factors in human population are sure to have an impact on the world's future: an aging US, and, in general, developed country populations and a decimated workforce in countries where AIDS takes hold for diverse cultural, political and economic reasons.

I would doubt that we will see great growth over the next twenty years.


Posted by: Tom Loria on January 27, 2003 03:02 PM

Just a quibble about "the poor in developing countries". If you look at the last 40 years of history, some of 1960's PIDC are now middle class in developed countries (Taiwan, So. Korea) and many are worse off than they ever were.

"The poor" and "the developing countries" like "the common people" and other such terms, designates a residual class of non-rich and non-powerful which actually includes many quite dissimiliar groups. Nothing ever happens to such residual classes as a whole. Different things happen to the different members.

I think that optimistic economists have an ingrained tendency to ignore demographics, resource geography, and other concrete studies. Julian Simon is not a fair example, but most economists have a little bit of a Julian Simon tendency in them.

Posted by: Zizka on January 27, 2003 03:03 PM

Sorry about the hiccups that caused multiple postings there. Does anyone know what causes an apparent posting failure like those, so I can watch out for one and not be tempted to repost?

Posted by: P.M.Lawrence on January 27, 2003 04:01 PM

P.M. Lawrence -- I've done this a few times too, and I often see it done.

When you post, it might take a considerable time (several minutes) for the post to "take" and for you to get a success message. It's easy to think "I guess that didn't go through" and nervously reclick. Every click sends a new post.


Since I also have dialup problems and so sometimes a message really doesn't go through, I highlight every message, left-click and copy, and then go do something else. Later when I check to see if it went through and if it didn't, I just resend what I'd copied.

Posted by: Zizka on January 27, 2003 04:09 PM

It takes forever to post even with a broadbank connection, trust me on this. I just go do something else, for a few minutes, as Zizka does.

Posted by: Ian Welsh on January 27, 2003 04:46 PM

"It takes forever to post even with a broadbank connection, trust me on this. I just go do something else, for a few minutes, as Zizka does."

I have a much better idea. All you have to do is hit the "post" button and make sure that the process has started. Immediately afterwards, simply visit any other discussion on this board and also hit its
"post" button. That should do it.

Posted by: David Thomson on January 27, 2003 05:04 PM

billmon,

The day the University of Chicago starts firing US economic professors and replacing them with Indonesian tele-commuters will be the day the academic consensus starts to shift away from glorifying free trade.

You seem to have been out of the loop for the last fifty years or so... U.S. universities can (and do) hire a very significant number of foreign professors and researchers. The INS even lets them off with an H-1B filing fee of $110 instead of normal $1,600.

A cursory look at the Nobel laureates lists for the past ten years reveals that the following individuals at one time or another "replaced US economic professors" (the year shown is that of Nobel prize award):

Posted by: Nikolai Chuvakhin on January 27, 2003 05:53 PM

Nikolai, I think that what will have a real impact is when its not individuals, but large-scale displacement. Universities moving departments offshore, that sort of thing. We've already seen certain changes (tenure-track positions converted to non-tenured temporary positions, a tendency for native US students to decide that Ph.D. programs were less attractive than professional degrees).


But we haven't seen tenured faculties hit by the sort of 'plant closures' that hit the US heavy manufacturing sector after 1973. And from my knowledge, tenure wouldn't be a protection. When a department is eliminated, it's generally permissible to fire the professors in that department.


PS - that opens up a new way to whack faculties - close a department, re-open it as a separate business entity outside of the university, or even a renamed entity within the university. (Example: eliminate the economics, history, sociology and poli. sci. departments, fire the faculty, then start up a new 'department of social sciences').

Posted by: Barry on January 27, 2003 06:08 PM

While Brad does a fine job of trying to be a prodigy of WW Rostow, I'll take Paul Ekins and Betsy Hartmann's view of the medium-term future, if only so that we might act in order to prevent it from happening.............And why does the response function now ask for my email address?

Posted by: Ian on January 27, 2003 08:18 PM

Actually, the problem with the posting system is that it for some reason takes forever to reload the page once you've submitted your comment. How to deal with it:

1. Hit post. Wait about 5 seconds.
2. Open up a new copy of the page. In IE, you can do this by file->new->window or control-n. Hit refresh(F5), and behold your new post.

Posted by: Jason McCullough on January 27, 2003 08:25 PM

To be completely clear: you're hitting refresh in the new window to make sure it took. If it doesn't show up on the reload, wait a few seconds more and try again.

Posted by: Jason McCullough on January 27, 2003 08:29 PM

"International trade in white-color jobs is growing as competitive as trade in blue-collar jobs"

Is that a typo...?

Posted by: teddy on January 27, 2003 09:53 PM

Interesting article, especially the points about twentieth century economic growth and the poor. Congratulations.

However some fairly big gripes about your optimism for the twenty first century. Firstly it's a pity you missed the opportunity to hammer home the problems likely to be produced by structural demographic changes throughout the G23 countries - I think these alone probably guarantee a low growth environoment in the decades ahead: look at Japan, and now Germany. Following up on Steven Roach's lead on structural imbalances, I would say we ought to be talking about the instabilities associated with developed world saving excesses and thirld world population excess - just as the nineteenth century was a story about New World land surplus and Old World labour surplus - planetary population is about to shoot up to 9 billion plus at a time when the developed countries progressively run out of labour force. So immigration, and our attitudes towards it is pretty much the topic of the century.

Secondly, information is becoming cheap and freely available, the trouble is no-one has yet found a way to make money out of this. The Chicago faculty may face more of a threat from us all learning on a DIY basis at home than from third world outsourcing. After all, the potential increasing returns on first rate course materials are enormous, so who will be the academic Microsoft - the Bangalore Institute of Technology, perhaps?

Lastly the long term AIDS impact is impossible to assess. We know something of the current dimensions of the tragedy. What we don't know is whether it's the first or the last of its kind. Watts and Strogatz type dabbling with random graph theory tends to suggest that as our level of 'connectivity' goes up, so does the risk.

Bottom line: I'm with you on the optimism about the potential welfare raising benefits of all the technology, but I'm not convinced that this will necessarily 'pass-through' to growth in the conventional economic sense.

Posted by: Edward Hugh on January 28, 2003 01:50 AM

Very imaginative. I imagine a thread from the 1950's would emphasize rapid mobility (flying cars) and super telephones. Now we have computers (our super telephones) - but the same energy guzzling and whitebread view of the world. What about water scarcity, the too-late conversion of energy markets away from oil, the thaw of the polar ice caps, and the immense security enterprise to support the health-insured and 15-minute super celebrities? Shouldn't we expect to see some economic impact from a nation that no longer produces its own goods and services? But you didn't forget the ageless stance of the importance of global markets (because the U.S. forgot how to produce anything - except energy hogs and pharmaceuticals).

Posted by: Jerry Eykholt on January 28, 2003 07:28 AM

Chuvakhin: Hiring, through normal channels, Canadians Brits Germans and Israelis who end up getting Nobel prizes isn't what Billmon was talking about. He was talking about getting rid of a whole department and replacing it with more-or-less-equally qualified third-worlders paid at a much lower rate.

BTW, Nicholas Poppe, a great Orientalist at the U of Washington, believed that he and other foreign-born / refugee scholars were systematically underpaid, even in an international field in which foreign born scholars are usually more qualified.

Posted by: Zizka on January 28, 2003 11:21 AM

Zizka,

Hiring, through normal channels, Canadians Brits Germans and Israelis who end up getting Nobel prizes isn't what Billmon was talking about.

Yes and no. I believe the point Billmon was trying to make was that American economics professors like open markets only because they themselves are shielded from international competition. I tried to present anecdotal tip-of-the-iceberg type evidence that this is not the case. Whether I succeeded or not, you be the judge.

American college professors do get a break, but not where Billmon thinks they do. The nice thing about being a college professor in the U.S. is not the government-imposed limitations of the supply side, but, rather, government-mandated and/or government-encouraged expansion of the demand side. Examples are numerous and range from land grants under Morrill Act of 1862 to GI bill and Stafford loan program (to name just a few big-ticket items).

BTW, Nicholas Poppe, a great Orientalist at the U of Washington, believed that he and other foreign-born / refugee scholars were systematically underpaid, even in an international field in which foreign born scholars are usually more qualified.

Which is exactly what textbook economics would predict. A foreign-born scholar "in an international field" is highly unlikely to be hired by Department of State or one of the intelligence agencies, which reduces his/her opportunity set. Working for a supranational (UN, IMF, World Bank) is often a political impossibility (say, you left Zimbabwe because you disagreed with the policies of Mugabe government; this makes you persona non grata in Zimbabwe and thus renders you useless to any supranational cause, because their counterpart in Zimbabwe is, well, Mugabe government, which hates your guts); another reduction in opportunity set. In addition, wage expectations of foreign-born (and especially refugee) scholars are relatively low.

Posted by: Nikolai Chuvakhin on January 28, 2003 12:53 PM

The status insult, say, of not being able to afford tickets to basketball games and the express lanes of freeways has given First World politics its increasingly vicious character.
Is swallowing one's principles the price to be paid to get published in the WSJ? This here distinctly sounds like BDL is saying that misdistribution of American wealth only causes minor envy problems - missing out being courtside at the Knicks or Lakers, not having a Ferrari to go 150 on the highway - when it would seem that the problems caused - such as a concentration in political power - are very serious indeed (and which BDL writes about here).

Posted by: Andrew Boucher on January 28, 2003 02:25 PM

"Thoroughly entertaining reading." MB Blog Review. ;-)

Specific comments:

1) I don't think technological progress in automobiles proceeded anywhere near 10% per year during the 20th century. Maybe from 1915 to 1950. And technological progress in computers actually exceeds 15% per year (e.g. hard drives, LCD displays, RAM, fiber-optic cable capacity). Truly remarkable.

2) I definitely agree that the decade of 2013 to 2023 will see more technological progress than any generation (20-25 years) of the 20th century. And perhaps the entire 20th century...because 2013-2023 will be the decade that personal computers will begin to rival the human brain in processing power. (It always amuses me no end to see futuristic movies...like A.I., and Minority Report...where human beings are driving cars. Completely unrealistic! By 2025, no new car will be sold that's driven by humans.)

3) I also completely agree that, by 2023 (or sooner) white collar workers in India, China, and Russia (as long as they speak the appropriate language...and maybe even that won't be required!) will directly compete with white collar workers in the U.S. and Europe.

4) I certainly hope express lanes around the U.S. will be available to those who pay more, by 2023. (At last, some market principles applied to roads!)

5) If by political "inaction," Dr. DeLong means that the U.S. federal government doesn't do anything, I certainly hope that will also be the case. Nothing worse than an "active" federal government. ;-)

6) The comment about Noelle Bush is an incredibly cheap (and unrealistic) shot. First off, as far as I know, Noelle Bush has never indicated any interest in politics. It's very wrong to draw the sons and daughters of politicians into public discussion, if those sons and daughters haven't indicated any interest in politics. And "executive order outlawing use of the Internet to communicate outside the U.S.!" Drag her into public discussion, and simultaneously make her out to be a fascist dictator! Really, really tacky. Especially amazing from someone who claims to care about the quality of public discourse.

7) AIDs being "conquered" will require both incredibly inexpensive drugs that essentially eliminate the illness, AND a vaccine to prevent contraction of the illness in the first place. I can see both those happening by 2023. But there will still be an awful lot of dead people in Sub-Saharan Africa by then. Especially young adults. So even the "victory" will come only after horrendous suffering.

3) I see Sub-Saharan Africa as trailing the whole world in economic growth in the next 20 years. There simply isn't enough respect for individual freedom there, to expect significant progress.

4) Dr. DeLong's prediction is for per-capita world GDP growth to be 3% per year for the next 20 years. My guess would be more like 2.2-2.7%.

5) "...for the first time, world-income distribution is becoming more equal."--->That's not strictly true, since Dr. DeLong has already noted that world income distribution has already started becoming more equal, with the rapid growth of China and India (1/3rd of the world's population).

6) "Global warming is still unsolved, and the problems it creates are about to become very large very quickly."---->Heh, heh, heh! Stick to economics, Dr. DeLong! :-)

I have a bet for you: I'll bet you $20 that the average world tropospheric (i.e., lower atmospheric) temperature, as measured by satellites, will be LOWER in 2023 than it is in 2003.

Global warming is a hugely overhyped "problem." (It's highly questionable whether it's even a net problem.) See http://pages.prodigy.net/mark.bahner ....for details. :-) (Note: Site isn't finished, but the reader can get the right general impression from reading what's already there.)

7) "Nobody has confidence in world peace."--->Considering that it hasn't existed since the dawn of recorded time, I guess a lack of confidence isn't too surprising. But, to my knowledge, no 2 democracies have ever engaged in a war. And the world trend is towards democracy.

8) China will become a democracy, sometime between 2013 and 2023.

9) "So do we face a Wilhelmine China, with the Spratly Islands and Taiwan playing the role of Alsace and Lorraine?"--->My guess is that there's a 10-50% chance that the communists will attack Taiwan, in order to try to avoid sharing power. If that's the case, China might not make a democracy by 2023, and definitely won't by 2013.

10) "Or are we faced with a Weimar Russia or a Weimar India?"---->Ouch! That's pretty insulting to India, which has been a democracy over 50 years! But Russia is indeed a precarious democracy. I think one decade of 5+% per year economic growth will solidify Russia as a democracy, though. A couple months ago, I heard a report of Putin saying that Russia needed to lower taxes and improve the Rule of Law, in order to encourage people to immigrate INTO Russia. Pretty remarkable thing for a Russian leader to say.

Posted by: Mark Bahner on January 28, 2003 03:11 PM

Edward: MIT are now publishing all of their course materials online, for free. Things like this will tend to lower the barriers to the opportunity to studying difficult subjects, and tend to push up the quality of potential practitioners of a field and increase competition.

Information itself doesn't "want to be free", but once you've put out free high-quality info of a certain type, it collapses the market for that information, doing all kinds of interesting things to the economics of activities connected to that field.

Posted by: David Mercer on January 28, 2003 03:21 PM

"Is swallowing one's principles the price to be paid to get published in the WSJ?"

It was pretty clear to me that Dr. DeLong was writing "from the left," as they say on Crossfire.

"This here distinctly sounds like BDL is saying that misdistribution of American wealth only causes minor envy problems - missing out being courtside at the Knicks or Lakers, not having a Ferrari to go 150 on the highway - when it would seem that the problems caused - such as a concentration in political power..."

"Concentration in political power?"

What, exactly, is the major problem with that? Is the problem that rich folks somehow arrange things so that the top 5% of incomes are "only" paying paying 45% of income taxes paid...instead of the current 56%?

Posted by: Mark Bahner on January 28, 2003 03:25 PM

Edward: MIT are now publishing all of their course materials online, for free. Things like this will tend to lower the barriers to the opportunity to studying difficult subjects, and tend to push up the quality of potential practitioners of a field and increase competition.

Information itself doesn't "want to be free", but once you've put out free high-quality info of a certain type, it collapses the market for that information, doing all kinds of interesting things to the economics of activities connected to that field.

Posted by: David Mercer on January 28, 2003 03:29 PM


Brad future wrote, er, will have written:


In the late 20th century, the advent of fiber-optic cable and the satellite spurred a similar sea change. Now any literate European-language speaker, living anywhere in the world, can compete for information-technology jobs that were once the exclusive property of the European and American middle classes.

in response to which, I now write:

This is anecdotal evidence, but I've been involved in numerous development projects that tried to use off-shore or distributed development resources. To a one, they failed. It wasn't a failure of bandwidth or lack of appropriate software that brought them low, but a corrolary of Brooks law. (Frederick) Brooks law states that adding manpower to a late software project makes it later. Why? Software development is immaterial and relies on clear communication between between team members; if someone is brought onto a team that's already late, the time spent conveying the implicit knowledge of the existing team members will exceed any possible benefit from adding additional manpower. Hence the title of the collection of essay where this maxim first appeared, The Mythical Man-Month.

Now that's only *late* projects. What about projects that are on schedule, but distributed? Bandwidth and software may keep on getting better and better, but none of that will compensate for timezones and cultural differences. So the communications between team members are degraded from the start. Problems that could be solved by having a five minute talk with someone else at their cube with all parties looking at the same screen can take days, even weeks to resolve--and these delays are now built into the development process.

The fungability and industrialization of software development remains a distant goal. This may not--will not?--jeopardize Brad's overall thesis, but if wealth is to flow to nations outside of the US and Western Europe, I doubt it will run through a radical marketization of software development talent.

Posted by: Curtiss Leung on January 28, 2003 04:24 PM

Curtiss,

the communications between team members are degraded from the start. Problems that could be solved by having a five minute talk with someone else at their cube with all parties looking at the same screen can take days, even weeks to resolve--and these delays are now built into the development process.

It looks like large offshore outsourcing firms are well aware of the problem. Their response to date: (1) formation of dedicated teams working full-time for a particular customer, and/or (2) a full-time customer representative on the offshore developer's site.

Infosys, for example, has formed a 500-strong dedicated team to service one of its major accounts, Aetna. So "five minute talk with someone else at their cube" now has every chance to happen... in Bangalore.

Also, back in September, Aberdeen Group has issued a report on best practices in offshore outsourcing. You might want to take a look at it.

Posted by: Nikolai Chuvakhin on January 28, 2003 10:11 PM

"But, to my knowledge, no 2 democracies have ever engaged in a war."

At least, not since 1865...

"Problems that could be solved by having a five minute talk with someone else at their cube with all parties looking at the same screen can take days, even weeks to resolve--"

I don't know about that. There are products that enable all parties to look at the same screen in real time even if they are on opposite sides of the Earth. Given that, I seriously doubt that geographical distance can turn a 5 minute problem into one taking "days, even weeks to resolve".

Posted by: Ken on January 29, 2003 11:03 AM

ALL ANECDOTAL EVIDENCE, ALL THE TIME!

<stupidGrin>

Ken: What can I say? I've seen it happen. Also, depending on the development/delivery platform, you don't need any special software to have different people in geographically dispersed locations look at the same screen.

Nikolai: I downloaded the Aberdeen report, and I see at least one outsourcing vendor that made a great hash of several projects, including one I was part of. I wouldn't be surprised if the customer only agreed to provide a reference if fees were reduced, etc--I've worked for consultancies and software vendors here in the US that did just that.

Even so, this is just a sidebar to Brad's larger thesis. It might be the case that wealth would still flow to nations outside the EU and North America from software vendors in those nations (as opposed to bespoke software consultancies, which is what the Aberdeen report and Brad referred to). I can see plenty of obstacles to foreign programmers succesfully maintaining legacy applications from a remote location, but few for an Indian start-up making a better word processor than MS Word. In fact, I'd kinda like to see it happen.

Posted by: Curtiss Leung on January 29, 2003 02:12 PM

"But, to my knowledge, no 2 democracies have ever engaged in a war."

This very commonly-heard argument is actually so much cow excrement. WWI is the biggest disproof, since all of the main participants were democracies. While it is true that Germany, Austria-Hungary, and Russia were monarchies (as was the U.K) all three countries and the U.K. as well had democratically elected parliaments, and all four parliaments voted to a man to support their government's war effort.

Democratic institutions by themselves are no protection against the type of collective insanity which started WWI. For cases like this it is the spirit of democracy, not the institutions, which matters. In 1914 this spirit was in decline, as I fear it is now.

Posted by: andres on January 31, 2003 01:36 PM

I wrote, "But, to my knowledge, no 2 democracies have ever engaged in a war."

Andres responded, "This very commonly-heard argument is actually so much cow excrement. WWI is the biggest disproof, since all of the main participants were democracies."

No, what's cow excrement is your assessment of the state of democracy in the WWI participants:

1) First of all, a democracy, a *true* democracy, must be "one person, one vote." That is, ALL persons (or at least all adults) must be able to vote. Women were NOT able to vote in ANY of the countries of WWI. The dates of women's suffrage in various countries were:

Russia, 1917; United Kingdom (only women over 30!), in 1918; Germany, 1919; United States, 1920; France, 1945 (chauvanist pigs! ;-)).

http://www.womeninworldhistory.com/factLesson4.html

Therefore, on that basis alone, NONE of the participants in WWI was a true democracy.

2) The idea that Russia was a democracy during WWI (or for 70 years afterword) is complete BS. Simply read the Russian Fundamental Law (constitution) of 1906, that set up the first Duma:

"The All-Russian Emperor possesses the supreme autocratic power. Not only fear and conscience, but God himself, commands obedience to his authority."

"The sovereign emperor possesses the initiative in all legislative matters. The Fundamental Laws may be subject to revision in the State Council and State Duma only on His initiative. The sovereign emperor ratifies the laws. No law can come into force without his approval. . ."

"The Sovereign Emperor alone declares war, concludes peace, and negotiates treaties with foreign states."

http://www.dur.ac.uk/~dml0www/fundlaws.html

So NO Russian law could come into force without the approval of the Tsar's "supreme autocratic power" (which commanded "God himself!" :-0).

If that's a "democracy," then I'm Anastasia. ;-)

3) The idea that Germany was a "democracy" in WWI is also ludicrous. The Kaiser and the military had all the real power. If Germany was a democracy, it's very puzzling that the UAW Daimler-Chrysler website has this comment:

"1918-1919: Germany makes the transition to democracy after WWI."

http://www.uaw-daimlerchryslerntc.org/new/worktog/everyunion.cfm
4) Britain certainly wasn't a democracy...especially considering that some of it's colonies (e.g. Australia) were forced to fight much longer in places (e.g., Gallipoli) where they otherwise would have had the good sense to get out.

Further, after Gallipoli, Australia was forced to conscription to meet London's demands for machine gun fodder.

http://www.geocities.com/CollegePark/Union/8415/aussies.html

Even leaving out the fact that 1/2 of the population of the British empire (i.e., women) couldn't vote, Britain still was an empire in WWI, not a democracy.

In summary, NONE of the participants in WWI was a true democracy. To claim that "all of the main participants were democracies" is complete BS.

Posted by: Mark Bahner on February 3, 2003 03:16 PM

Hmmm. Interesting that I checked this particular thread after all this time.

Mark: If you want to define democracy in the narrowest possible sense as universal suffrage combined with the inability of the monarch to coerce the legislature (by this definition, the U.S. was not a democracy either in 1917, when it decleared war against the central powers) then I fully agree that none of the countries involved were democracies.

However, I find such a definition way too narrow to be useful, and prefer the broader one of simply having an elected legislature with policy-making powers that go beyond insignificant. What matters is that none of the countries involved went to war simply on the whims and say-so of their king/tsar/kaiser/president. In all the countries, the act of going to war was universally supported by their democratically-elected legislatures, which makes the attempt to blame WWI on the monarchs (or the French President) rather dubious.

I think my argument still stands--today, you have the U.S., a full democracy by the narrow definition above, about to launch an unprovoked attack on a foreign country. It's the spirit that matters, not the institutions.

Posted by: andres on February 10, 2003 11:52 AM

"Mark: If you want to define democracy in the narrowest possible sense as universal suffrage combined with the inability of the monarch to coerce the legislature..."

I wouldn't charactize that as the "narrowest possible sense"...I would characterize that as the "only truly legitimate definition."

How can a country be a "democracy" ("rule by the people") if half of the people (women) are deliberately excluded?

Similiarly, if a monarch can "coerce" the legislature, The People can't possibly be ruling...unless the monarch is elected (which happens in Star Wars, but not on Earth).

"However, I find such a definition way too narrow to be useful,..."

It's "too narrow to be useful" because it completely destroys your argument. It's the MOST useful definition, if one is to be true to the word, "democracy" (rule by the people).

"In all the countries, the act of going to war was universally supported by their democratically-elected legislatures, which makes the attempt to blame WWI on the monarchs (or the French President) rather dubious."

No one but yourself has tried to "blame WWI on the monarchs," Andres!

Look what I said, "No two democracies have ever waged war." Then you came back with the claim that WWI proved that my statement was cow excrement...because, you said, "ALL" (my emphasis) the major countries in WWI were "democracies."

I say, NONE of them were. And I'm right. And you're wrong. The only way you can make yourself out to be right is to redefine "democracy" away from "rule by the people."

"I think my argument still stands--..."

Yes, your argument stands. It's just wrong.

"...today, you have the U.S., a full democracy by the narrow definition above, about to launch an unprovoked attack on a foreign country."

That foreign country presumably being Iraq, which is most emphatically NOT a democracy!

Once again, my so far undisproved statement is, "No two democracies have ever waged a war."

Posted by: Mark Bahner on February 13, 2003 10:04 AM
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