Don't let the de-growth people win

Falling productivity is a bad sign for the tech industry and QE was a big mistake

Photo by Anne Nygård on Unsplash

Hello,

Welcome to Known Unknowns, a newsletter that will always be written by a human.

Did big tech fail us all?

We truly live in extraordinary times. Did you see the text generated by ChatGPT? You can type a difficult question and get a competently-written and thoughtful-sounding AI-generated response. This may put all of us knowledge workers out of a job or mean we never have to read bad writing again, or both. The pace of innovation is truly astounding. Already, my life and work are so different from what they were 15 years ago.

But in spite of this, there is a big-tech winter going on. Public tech firms’ stock prices are falling back to earth, and there are layoffs. It is suddenly much harder to get financing in private markets, and valuations are falling. And poorly run or poorly conceived tech companies (like lots of crypto companies) are going bust. More soon on what brought on the winter. To some extent, we should have expected it. The tech industry is the engine of innovation in our changing economy, and it is going to have cycles that are more pronounced. I wrote in Bloomberg why we need some booms and busts to separate the Googles from the Pet.coms.

But how do we square a blip in the cycle with falling productivity numbers? Maybe there is a more serious problem. Tech was always something of a disappointment when it came to productivity. As much as it is changing our lives, the productivity numbers never matched the phases of the industrial revolution. It raised the question—is all we got out of all this new technology just a lot of wasted time on Twitter?

But there was an argument that maybe it just takes time to adapt to technology. And it seemed like the pandemic accelerated that process. If the industrial revolution meant physical goods could be made at scale and we moved off the farm, tech promised the same for services and to free us from the office. Suddenly, we were using all the technology to do everything remotely: Work, shop, and even socialize. And at first, productivity boomed, but in the last two quarters, it fell! Even if lots of people are quiet quitting, you’d think the productivity benefit would more than cancel them out. Maybe tech is just a bust—that has only made us more isolated and depressed.

I am still optimistic. It sometimes takes decades and some really bad investments to figure it out. And sadly, some lost jobs too. But I promise I will keep writing this newsletter, even if AI could do it better than I could.

Degrowth needs to die

It never ceases to amaze me how many stupid ideas manage to catch on and get dressed up with some really big, fancy, meaningless words. I get we all have different values and priorities, but it seems we should all agree economic growth is a really good thing. It is singularly responsible for relieving us from hard labor, the decline in poverty, an increase in living standards, and longer, healthier lives.

And yet, there is actually a viable degrowth movement. And I don’t just mean people shutting down highways and gluing themselves to famous paintings. I’d lump the “we need equal outcomes” and anti-globalization people in with degrowthers, and they have a mainstream presence in both parties of our government. I think they are well-intentioned, but where they go wrong is their belief that the global economy is zero-sum. They think if someone got richer, it’s because someone else got poorer. If the economy grows, it must come at the expense of the environment.

I’ve been an economist for a long time. And one thing that is central to economic thinking is seeing the economy as non-zero-sum. If you innovate and make the world more productive, everyone will be better off, and over time, humanity has thrived because of growth. And you can grow using fewer resources, which is good for the environment.

I suppose this may not be intuitive, but we need to say it more.

QE was a mistake

In the dark days of the Financial Crisis, things got pretty desperate at the Fed. It seemed cutting the policy rate would not be enough, so it brought back buying long-term bonds too. In the past, this never worked out so well, but these were desperate times, and so we got QE, and then QE II, and then QE III. And then we got QE IV, which was bigger than ever—the Fed bought nearly all the newly issued mortgage-backed bonds, TIPs, and loads and loads of long-term bonds. Now its balance sheet is many trillions of dollars, which may pose financial stability risks as it shrinks.

And what did we get for this? Maybe not much, in terms of growth or employment. So why do we keep doing it? I don’t know. But it is time we ask.

I did not mention it in my Bloomberg column, but a smart person also pointed out another problem with QE. Ideally, policy levers are symmetric; you raise rates when the economy is hot and cut them when it is slow. You spend more in a recession, cut spending in a boom. But QE is not a symmetric policy. There is quantitative tightening, but that is just letting the bonds mature. The pace of which is not determined by economic conditions, just the maturity structure of the Fed’s portfolio, which was set during QE times.

In other news

I spoke to Jon Meer of Texas A&M about the future of labor. How do we train people in a world where the necessary skills are changing so fast? I always have a great time talking to him and learn a ton. I hope you do too!

Until next time, Pension Geeks!

Allison