🚀 Faster, Please! Week in Review #34
The growth race between the US and China; plunging student test scores; the economic pluses of having more kids; remote work; anti-growth safetyism; examining the 'Titanium Economy'
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⚠ Some news: I will be publishing somewhat less regularly in the month of November due to the completion of a time-consuming, long-term project. But I will be back full-time in December.
So, first, I am pausing billing for all paid subscribers until December. Second, all new content during November will free and for everyone. Onward and upward!
Melior Mundus
Essay Highlights:
— America can grow faster than China. Let's make it happen!
— Why isn't the big plunge in student test scores a national emergency?
— The non-insane argument for America having more babiesBest of 5QQ
— 5 Quick Questions for … economist Adam Ozimek on remote work— 5 Quick Questions for … economists Ryan Murphy and Colin O’Reilly on “anti-growth safetyism”
Best of the Faster, Please! — The Podcast
— A conversation with author Gaurav Batra on the 'Titanium Economy' and emerging renaissance of the American industrial sector
Essay Highlights
⤴ America can grow faster than China. Let's make it happen!
Can the US grow at least three percent going forward? Certainly that’s not the baseline forecast of most economists, including those who work at the Congressional Budget Office or the Federal Reserve. But I think it can. There’s nothing wrong with the American economy that cannot be fixed with what’s always been right with the American economy. That means an economy that welcomes and attracts global talent, spends massively on R&D (both public and private), regulates with a consideration to how new rules affect the ability to build and innovate in the physical world, and continues to reward high-impact entrepreneurship. No one policy is a silver bullet, but rather looking at all policies through a growth lens and making sure it all adds up to a holistic, pro-growth economic ecology.
🏫 Why isn't the big plunge in student test scores a national emergency?
If we fundamentally knew how to “catch-up” kids, we would already be implementing such solutions for all the kids struggling before the pandemic and the school closures. And those are largely the exact same kids who were hurt most by the closures — kids from poorer areas, kids with less educated parents, kids with lower existing academic achievement, and younger students. So what is happening right now? Well, not the sort of intensive efforts that might help somewhat. In the NBER working paper “The Consequences of Remote and Hybrid Instruction During the Pandemic,” researchers estimated “that high-poverty districts that went remote in 2020-21 will need to spend nearly all of their federal aid on academic recovery to help students recover from pandemic-related achievement losses.” That paper also predicted only a bit more than a quarter of the nearly $200 billion in federal dough provided to state and local education agencies throughout the pandemic would be spent on “academic recovery,” with the remainder “planned for facilities, technology, staffing, and mental and physical health.” And that’s exactly what is happening.
👶 The non-insane argument for America having more babies
A shrinking population may well say something important about a society. As one demographer puts it, "The birth rate is a barometer of despair. Young people won't make plans to have babies unless they're optimistic about the future." But not just that. Some research suggests that birth rates represent something even more abstract: transcendence. “In this telling,” writes economist Lyman Stone, “the economic calculus takes a back seat. People had more kids in the past not because it was necessary, but because it was their duty: to God, to their family, to their people, or simply to the idea of humanity.” Now more think the future can fend for itself.
There are also numerous economic implications from a shrinking population. Among them: “Keeping labor productivity growth constant, a shrinking working age population reduces the potential GDP level and slows down potential GDP growth,” notes a Goldman Sachs analysis. Moreover, an economy with a greater working-age population is generally assumed to have higher savings rates which would add to GDP growth by boosting investment rates. Some research finds the older a country’s population, the lower its overall rate of entrepreneurship. The fewer people you have, the smaller share of the population that can be devoted to doing scientific and technological research, reducing idea creation. In the 2020 paper “The End of Economic Growth? Unintended Consequences of a Declining Population,” economist Charles I. Jones warns of an “empty planet” scenario of falling population and stagnant incomes.
Best of 5QQ
💡 5 Quick Questions for … economist Adam Ozimek on remote work
Adam Ozimek is chief economist at the Economic Innovation Group. Earlier this year, he and Eric Carlson published “The Uneven Geography of Remote Work.” It’s an important report because remote work has the potential to shake up the geographic distribution of talent and opportunities in the US, perhaps giving “left-behind” localities — or maybe cities with more affordable housing — the ability to benefit from the productivity of superstar metros like Boston, San Francisco, and New York.
1/ What should non-superstar localities be doing to attract remote workers?
We should think about this question in the context of competition between places. Before remote work, some places had a major advantage stemming from their labor markets. Some places had a major competitive advantage because people wanted to live there to have access to the labor markets. In contrast, other places were at a competitive disadvantage because of lack of good jobs.
This represents an increase in competition and also a change in the nature of competition. Competition is changed because remote work helps to level the playing field between places. Places that could formerly count on their strong labor market to outweigh affordability and quality of life problems are less able to do so today. It also means places can compete directly for people instead of being focused on luring in employers.
In practice what this means is that places without significant labor market agglomeration will be more able to compete for residents of superstar cities on affordability and quality of life basis. These places should spend less effort on luring in big businesses with tax incentives and more effort on deregulating housing, providing efficient and quality government services, encouraging good amenities, and addressing quality of life issues. Post remote work, on the margin, places should compete for people more and businesses less.
💡 5 Quick Questions for … economists Ryan Murphy and Colin O’Reilly on “anti-growth safetyism”
“Anti-Growth Safetyism simply stops innovation in its place by erecting barriers in the name of safety (for people or the environment) that are basically impossible to overcome, such that many of our technologies are stuck in the 1970s,” write Ryan Murphy (Southern Methodist University) and Colin O’Reilly (Creighton University) in a recent article titled “Anti-growth safetyism” for Works in Progress. The economist duo go on to explain how risk aversion has stifled innovation and, therefore, economic growth for the past half century.
What is anti-growth safetyism and how is it distinct from the complaints libertarians have been making about overregulation for decades?
Most of the time when people discuss regulation, they mean things like the minimum wage or OSHA (Occupational Safety and Health Administration) rules applied to businesses. Or pointless “red tape.” These kinds of regulations are generally harmful for economic performance on the margin, but it is tough to construct a counterfactual where the world would be drastically different if these individual regulations did not exist in the United States. The minimum wage is relatively low already in the US by international standards. Many things that OSHA requires are codifying safety measures that businesses would already be doing.
What differentiates anti-growth safetyism is the case made by J. Storrs Hall in Where Is My Flying Car? that particular pieces of regulation concerning aviation and energy have effectively shut down innovation in those sectors since the 1970s, which very plausibly had the potential to generate radical improvements in our standard of living. These regulations may have prevented us today from enjoying clean power that is “too cheap to meter.” Literal flying cars would be a luxury affordable by the upper-middle class. And we don’t live in this world because we simply chose not to live in it? That seems a bit more consequential than most regulations — and we say that as people who are rather skeptical of regulation!
The rationale for these rules has been public health or environmental concerns to the exclusion of everything else. Of course, if we had clean, incredibly efficient power, there would be much less particulate matter in the air, and global warming may not be a thing. So, the concerns expressed to justify these regulations aren’t actually about the environment or public health, but that particular risks are salient.
Best of the Faster, Please! — The Podcast
We’ve all heard the stories and statistics about the supposed death of American manufacturing. But America's industrial sector never truly went away. Many, many companies are thriving, and today's guest argues we're experiencing an outright renaissance. In this episode of Faster, Please! — The Podcast, I’m joined by Gaurav Batra, who previously co-led McKinsey & Company’s Advanced Electronics Practice in the Americas. Along with Asutosh Padhi and Nick Santhanam, he's the author of the new book, The Titanium Economy: How Industrial Technology Can Create a Better, Faster, Stronger America.
I think there's a caricature or perhaps a misperception about the US economy—I think you see it in the media—that the US economy is basically Wall Street, Silicon Valley, and big box stores. And that's basically your American economy, and it's certainly an economy that doesn't really make stuff in the physical world—with atoms—anymore. And the book, I think, is a corrective to that view. Why is that view wrong and, as you state, that the US is in the middle of an industrial renaissance?
Gaurav Batra: Jim, you very accurately represented the perception of what's happened in the US economy over the last couple of decades. I think the story, whenever anybody tells it, is mostly about technology companies. It's mostly about financial services, mostly about Wall Street. As we started digging in, not just with the book but our work in the industrial sector, we realized that the reality is actually very disconnected with this perception. The reason we say that is, if you look at just pure numbers, still 20 percent of the US economy is completely dependent on US manufacturing. That number has not gone down. It may not have increased, but that number has sustained pretty well. If you look at employment, this sector still employs the bulk of the US economy's workers today. In terms of pure numbers, in terms of relevance, the sector never went away. It definitely slowed down because other sectors started growing, but manufacturing as a sector in the US still remained pretty staunch. That is at the sector level.
As you unveil that a little bit and go under the hood, you realize that whenever we talk about Wall Street, we talk about the Facebooks, the Alphabets, the Apples of the world delivering incredible stock market growth. Everybody talks about how much of that you own in your portfolio. But the moment you start unraveling the industrial landscape, you actually see several—and the number is actually north of 20, 30—companies who have done actually fairly well over a much longer time period in terms of even delivering value to their shareholders. And these companies have done it not necessarily leveraging outsourcing, but they've done it by just strong, sensible business practices: how they run their companies internally, how they work with their customers, how they potentially create a niche for themselves in particular markets. For us, at least as we started (and I spent about a decade in this particular industry), as I looked at that perception, which was exactly what my idea was coming into the sector, versus what I took away from it after being a practitioner in the segment for about 10, 12 years: the perception and the reality don't match. I think the perception, as you rightly said, is all about Wall Street, all about technology, all about financial services. But the reality tells us that manufacturing has never gone away. Given what's happened over the last two years with the pandemic and the geopolitics of the globe around us, it is only telling us a flashing red [light] that this is actually going to get even more critical for all of us here in the US in the next couple of years.
These are industrial companies. While they may not be classified as technology companies, they use technology. Consultants like talking about 5G and AI and cloud computing. But they're more than buzzwords. Those technologies are diffusing into the economy, and not just at places like Google or Amazon or Apple. Correct me if I'm wrong, I think what we're seeing in this industrial sector is these technologies are part of how they do what they do.
Absolutely right. We think it's an essential ingredient to success going forward. To give you one example, there's a company called Bulk Handling Systems. It's based in Eugene, Oregon. They basically are recycling cardboard, cans, and plastic. Essentially stuff which has food in them. I think if you looked at them a decade earlier, they would tell you about all the manual processes, which is fairly unhygienic, about how somebody would have to pull that piece of food out of a cardboard can or a plastic can, and then put it in the recycling. Today, if you look at that company, it's using artificial intelligence, it's using latest-version technologies, it's using robots to find where these sediments are, getting them off the cardboard can and the plastics, and then essentially putting them through recycling. That's a very tangible example of how technology and the progress we've made there is really impacting the industrial landscape—and for the good. I think while this one might be on a production line—there are several others about how people are using similar techniques to ensure quality and efficiency on the production line—technology actually is also making these companies go to the next level of performance on pure, I would say, business processes.
To give you another example, a place where I've seen technology help a lot of such companies is pricing. A lot of these companies create a lot of complicated engineering equipment. Equipment could be a boiler or a heat exchanger or a mixer for a food processing plant. It's not a standard thing you can buy off of Amazon. There's a lot of specifications going into it: temperature controls, material composition, process tolerances. People used to do all that work manually, in terms of negotiating with the customers, letting them design those kind of products. Today, they can go to a website. There's an electronic configurator, you can click and choose what kind of parameters it wants and it gives you a right outcome. And then similarly, it quickly tells you how much it's going to cost. A process which would have taken multiple weeks, in some cases months as well, is now getting compressed to a matter of days. I think technology will get pervasive. And the good part is, I think there's a very good fusion between what our industrial landscape does and what technology can provide to them to really make them go to the next level of performance, both in terms of meeting customer needs and satisfaction, and then, candidly, being much more robust [financially].