Productivity Growth

Growth of economic productivity underlies improvements in well-being of the economy’s participants. This occurs because the price of goods and services decline in real terms, even as incomes rise.

Thus if you want to know how the participants of an economy are faring over the long term, the most important number to look at is productivity. GDP growth alone can be misleading because growth may come simply from increases in the working age population.

This chart from JP Morgan’s 4Q 2015 Guide to the Markets, showing that US productivity growth in the last decade is the lowest in the post-war period,  is the most concerning in the entire document.

Microsoft_PowerPoint_-_MI-GTM_4Q15_pptx_-_j_p_-morgan-guide-to-the-markets-u_s_-4q2015What is not yet clear is whether this is an anomaly or a trend. What is also not clear are the causes:

  • Declines in productivity improving investments?
  • Demographic changes?
  • Declines in quality or adaptability of worker skills?
  • Shifts from manufacturing to services?
  • Failure of investments in Information Technology?
  • Failure of capital markets to correctly allocate capital?

Or is this simply a bookkeeping or measurement problem? Are we simply unable to measure some forms of value creation, such as from open source software or “free” services such as Facebook or Twitter?

Science and Politics

Science is knowledge. Knowledge is power. And power is inherently political.

I am currently reading Fool Me Twice: Fighting the Assault on Science in America, by Shawn Lawrence Otto, which has been on my bookshelf for a couple years. I should have read it two years ago. Otto doesn’t fail to deliver dozens of quotable moments. Nor does he pull any punches.

In the years following Sagan’s drubbing by the very National Academy whose president had called for increased science outreach, the public’s one-shining perception of science continued to erode. By 1999, less than half of all Americans–just 47 percent–said that scientific advances were one of the country’s most important achievements. By 2009 that number had fallen to only 27 percent.

Sagan’s rejection became a poignant and symbolic example of how scientists had lost a sense of the value of their relationship to the society around the, a relationship that was critical to their future and the future of the country–but that was slipping through their fingers even as they voted against him…

Science has delivered more than half of US economic growth since the end of WWII, and has contributed to solving important global challenges, including global health and feeding the world. Moreover, today science plays a central role in solving the world’s most important challenges, including global climate change and destruction of the oceans (acidification and overfishing). Meanwhile, US Congress as scientifically deficient as ever in history.

Tempting as it is to blame this horrendous situation on religious leaders, lawyers, economists, politicians, and corporate executives, scientists have to direct some of the blame at themselves.

11-Year-Old Boy Played in His Yard. CPS Took Him, Felony Charge for Parents. – Hit & Run : Reason.com

Another state to cross off my list. Let’s be clear about some facts. My eleven year old daughter does all these things by herself:

  • Walks to school (daily with group, but sometimes alone)
  • Walks to the park to meet friends
  • Shops at the local stores
  • Takes the train to the mall (mostly with friends the same age)
  • Walks to the swimming pool
  • Walks to cram school
  • Walks to Aikido class

Yes, eleven year old children can do these things — in Japan most kids do. Parents here aren’t negligent. We don’t hate our children. We are raising them to be independent, responsible adults.

An interview with two parents who lost their kids… over nothing.

Source: 11-Year-Old Boy Played in His Yard. CPS Took Him, Felony Charge for Parents. – Hit & Run : Reason.com

How a private-sector transformation could revive Japan | McKinsey & Company

With its working-age population shrinking, Japan will need to focus on productivity as never before. A major private-sector initiative to accelerate productivity growth could create a “fourth arrow” of economic reform. A McKinsey Global Institute article.

Source: How a private-sector transformation could revive Japan | McKinsey & Company

South Dakota Residency for Citizens Living Abroad

For US citizens living abroad, participating in domestic business and society can be challenging. One of the most challenging aspects can be obtaining a driver’s license in a state where you no longer reside. All states require demonstration of residency, and nearly all states mail your new or renewed driver’s license to your address on file.

The State of South Dakota caters to a subset of the US population who “travel full time” by relaxing several requirements. People who travel full time are only required to maintain a Personal Mail Box (PMB)1 service in South Dakota, and only need to provide a receipt from a local hotel, motel, or camping ground when applying for a license.2 The Driver Exam Station creates and hands over the license immediately.

For myself the process was relatively fast and smooth. I arrived approximately 8:15am and was handed a number and application form. I had to wait only 15 minutes for my number to be called, and the process of reviewing documents, taking the photo and digitized signature, and printing the card required only about 20 minutes. The following documents were required:

  1. Residency Affidavit
  2. Driver’s license application form
  3. Passport for proof of US citizenship3
  4. Social security card for proof of taxpayer status3
  5. One letter or postage addressed to the PMB4

Because I held a valid license from another state, the Driver Exam Station did not require either the written or driving portions of the exam.

Moreover, voter registration was relatively painless. People who travel full time using a PMB service must appear in person at the county auditor’s office. There was no line at the voter registration section and the application form required about five minutes.5 The person who verified the application only needed to check my South Dakota identification.

Less than a week later my registration has still not appeared in the online registration database. I have not yet attempted South Dakota’s absentee voting process, but I suspect it will be inferior to Oregon’s absentee ballot that I used in the last election.


  1. My PMB is Your Best Address, but there are several alternatives. 
  2. The receipt must contain the address of the PMB service. 
  3. Alternative documents are accepted. See the South Dakota Department of Public Safety website
  4. A copy of the PMB contract is would also be accepted in lieu of a letter. 
  5. The residence address is that of the hotel I stayed the prior night. The form contains a separate section for mailing address, in which I used my PMB address. 

Living Our Values

Living our values means understanding. It means we have to think about our values and understand what are their effects.

It means analyzing why we hold them.

It means deciding how to apply those values to our lives. It means eliminating old habits and creating new ones.

It means eliminating the distractions and focusing on what is most important and consistent with those values.

It means doing, changing. Not talking, not pretending.

It means destroying and creating. It is creativity. It means where you end up may be nothing like you imagined at the start.

Fighting for our values means forcing others to live our values within the cross-hairs of our loaded guns. Whether they like it or not.

When discussing values, most people get busy loading and aiming.

Nikkei: Drying up, flaming out

Japan’s population is just over 127 million at present, about 1.04 million less than its historical peak in 2008. But this decline masks drastic shifts in the country’s demography. The number of people between the ages of 15 and 64 has declined by nearly 4 million, while the 65 and older cohort has shot up by more than 4 million.

More…

On China, On America

Rob England, under the name “IT Skeptic” has posted an important reminder on how much progress China has made in the last few decades.

  • China used more cement in 2011-2013 than did the United States in the entire 20th century.
  • China will have more skyscrapers than the United States by 2017.
  • China has seven of the 10 longest bridges and seven of the 10 busiest container ports.

You owe it to yourself to review his article. China’s economy overtook Japan’s in 2010. It will  overtake the the US economy in the early 2020’s and double that of the US a decade later, by the early 2030’s. The timing of these trends depends on how consistently China maintains economic growth. Arguably China will continue to grow, but not without pains. A large build-up of infrastructure cannot take place without some over-investment and hence the need for recessions to reallocate resources. The arguments begets wrangling over dates,  but not over the underlying trends.

Outwardly a rising China is worrying, particularly for its neighbors with whom they share overlapping territorial claims. For the United States such worries are more abstract, but may include:

  • Attacks against nations with whom the United States maintains security treaties (Japan, South Korea, Philippines).
  • Denial of access to shipping lanes in the East China or South China Seas.
  • Creation of global financial and economic institutions, such as the Shanghai-based New Development Bank, of which the BRICs are members, and the Asian Infrastructure Investment Bank, to replace the IMF or Asian Development Bank.
  • Replacing the US Dollar end the Euro with the RMB in international trade settlements, which would raise transaction costs and interest rates for the United States (and countries with pegs).

Nevertheless, China’s rise does not worry me, for several reasons:

  • China is a civilization pretending to be a nation, in an era of nation states. (How much longer will this era last?) As a civilization, China doesn’t seek to dominate beyond it’s immediate vicinity.
  • China has never intervened in the sovereignty of its neighbors, nor seeks to do so now. In the worst case, China will seek to restore the “tributary system”, but this is unlikely to come to pass.
  • China’s foreign policy does not seek to impose hypocritical “Chinese values” in the same ways as colonial Europe of Japan, or as modern United States. China’s culture is not a missionary one.
  • For all it’s resistance to international institutions, China’s rise is highly dependent on them. The Chinese just wants (and deserves) respect within the frameworks of those institutions, and control within them as befits its stature and contributions.
  • China’s population will peak in 2026 at 1.45 billion and will decline after 2030. The demographic decline will nearly rival that of Japan’s, as a result of it’s one child policy. China’s demographic challenge is exacerbated by the gender imbalance, given the preference for male children. (More United Nations data here.)
  • China is highly dependent on oil from the Middle East through shipping lanes to which the United States can still deny access, should China’s threats become too literal.

All told China will settle down after 2030 as respected power in an  multipolar world. China will have as much responsibility in maintaining a peaceful international system after 2030 as it does in challenging those that desire to constrain it today.  Ironically, the greatest obstacle to the peaceful rise of China won’t be its growth, but the questioned legitimacy of the Communist Party if it fails to deliver growth.

What concerns me more is how poorly the United States has invested it’s own capital over the last decade. Since 2001 the United States has committed $4.4 trillion to wars in Iraq, Afghanistan, and Pakistan which have provided zero benefit to the United States, it’s business interests, it’s citizens, or their security. In fact, the primary beneficiaries have been Iran, China, and the ISIS.

Sometimes I dream of what we could have achieved with more wise and inspired investments over the last decade and a half. Would we have landed Americans on Mars? Would we have revitalized our decaying infrastructure, built new infrastructure within Mexico and around the border in order to support expanded trade? Would we have invested in Mexico’s institutions and people in order to end illegal migration once and for all?

Maybe not. The hawks are now calling the ISIS the most imminent national security threat  without offering a shred of evidence. The list includes Congressman Michael McCaul, chair of the Homeland Security Committee, Sen. Marco Rubio, Sen. John McCain and Defense Secretary Chuck Hagel. (Presumably, if pressed their answer would be “if you knew what we know, but can’t tell you for reasons of national security, you would agree with us”. We heard this in Vietnam, and it wasn’t true then, and it isn’t any more true now.) Now they want to trap United States into spending several more years and $100’s of billions directly countering the ISIS in Iraq with American boots on the ground, using classical chains of escalation that are well rehearsed. And in two years they may control all three branches of government again. A few trillion here, a few trillion there…

I suggest that we let China deal with ISIS. Chinese companies will be the primary beneficiaries, due to their investments in Iraq and Iran. I also suggest we open direct dialog with Iran towards a acoordinated solution.

The political establishment of the United States needs to realize that the world is becoming multipolar and there are limits to the its reach and power. The sooner we do this, the sooner we can move forward with a consensus that makes sense in the world we now live in. It is the world we made, after all.

Japan Salaries Extend Slide as Inflation Begins to Take Root – Bloomberg

http://mobile.bloomberg.com/news/2013-12-03/japan-salaries-extend-tumble-as-inflation-begins-to-take-root.html

Stagflation seems to be the inevitable result of Abe’s attempts to restart the economy. Moreover this is apparent even ahead of the economic cliff in April.

Abe needs to press forward with economic reforms and participation in the TPP talks. Raising the sales tax needs to be scrapped in favor of taxes that encourage more investments, i.e., energy efficiency and carbon reduction. Finally Abe needs to take steps to encourage innovation and startups.

Sober Look: 3 key facts about Japan’s deteriorating demographics

http://soberlook.com/2013/11/3-key-facts-about-japans-deteriorating.html

There is an old story about boiling frogs: if you throw one in hot water, he will just jump out. Throw him in cold water instead and turn up the heat gradually. So it is with Japan’s demographic crisis, one that is slowly boiling, and whose impacts weren’t clear until I saw these charts.

Japan has lost 10% of its productive capacity in the last two decades. Nobody should now wonder the cause of the nation’s lost decade, which began in the 90’s is now stretching into its third decade. Even worse, the nation’s younger workforce are underdeveloped in professional roles and are scarcely capable of replacing those lost through retirement.

Moreover it is clear that economic growth can only be maintained through expanding the workforce, or through a drastic increase in productivity, or both. The former can be achieved by expanding participation of women (the world’s most talented), delaying retirement, expanding flexible post-retirement opportunities, and encouraging immigration. Immigration will not happen for a variety of reasons.

There isn’t much evidence that productivity will make the necessary leaps. Reform, the third leg of Abenomics appears to be stalled. The expanded use of robotics will progress but only in fits and starts and will not progress in the neat linear fashion played out by its demographics.

Therefore Abenomics is predicated on stealing from its savers in favor of incumbent business interests. Technically this is achieved by buying JGB’s in order to drive down their value, encourage speculation in equities and reduce the buying power of JPY currently held. The former President of the Bank of Japan saw and said so much.

Where does that leave Japan? In the long term the outlook is good that the nation will retain its unique identity while reducing its population density, currently 2nd behind Bengladesh. In the short term the the nation must brace for reducing its credibility and prestige throughout the world, and for scandalous maltreatment of its retired generation.