Notes From the Field
By Arnold Kling
That is, from Alexander J. Field’s A Great Leap Forward. I rate the book as must-read. It is about the behavior of productivity in various eras of the twentieth century. He rates the 1930’s the highest (!) and the 1973-1989 period the lowest. Not much argument about the latter, of course.
I am tempted to say that this is what economic methods should be. Addressing important questions with relatively simple models and statistical techniques. I will write a longer review essay for another outlet. I am tempted to write still another review essay to try to submit to a peer-reviewed journal.
Field’s outlook is marred, in my opinion, by what I might term regulatory fundamentalism. If a market fundamentalist always sees costs and ignores benefits of regulation, then Field does quite the opposite. He leaves this reader longing for at least a little bit of balance.
Anyway, the point of this post is not to write the complete review. I want to put some quotes from the book down, mostly for my own future reference.p. 3
The causes of the slowdown in productivity growth during the “dark ages” (1973 through 1989 or 1995) remain an enigma…The decrease in nondefense research and development spending probably played a role…Continued road construction would not necessarily have avoided retardation; by the early 1970s, the low-hanging fruit had largely been harvested. Nevertheless, the exhaustion of potental gains from such infrastructural investments does help us understand why productivity growth slowed after 1973.
The economic and productivity history of the twentieth century up through 1995 can thus be thought of as a tale of two transitions. The first involved the electrification and reconfiguration of the American factory, a development that had its roots in the 1880s but blossomed only in the 1920s…The second transition, involving the movement of goods, peaked later. From the late 1920s through the early 1970s, trucking expanded its share of interstate ton mileage, while the rail sector shrank, specializing as it did so.
we can say that private sector inputs, conventionally measured, grew not at all between 1929 and 1941…But real output was between 33 and 40 percent higher in 1941 compared with 1929.
…between 1929 and 1941, there was no capital deepening (increase in the capital-labor ratio)…virtually all of the increase in both output and output per hour is attributable to growth in total factor productivity
there is relatively limited evidence of beneficial feedback from wartime production to civilian activity in the postwar period.
between 1919 and 1928 inclusive, companies founded an average of 66 R and D labs per year. Between 1929 and 1936 inclusive…such foundings rose to over 73 per year. During the 1930s, industry R and D expenditures more than doubled in real terms, with acceleration in the last years of the decade…employment of research scientists and engineers grew 72.9 percent between 1929 and 1933…Between 1933 and 1940, R and D employment in U.S. manufacturing almost tripled, from 10,918 to 27,777. In the Second World War, in contrast, R and D employment growth slowed
Claudia Goldin and Robert Margo also remarked on the high rate of labor productivity and real wage growth during the Depression years…Their explanation for why wages increased as employment fell has been selective retention…firms laid off their less skilled workers
some older and less productive plants that had persisted in operation during the boom period of the 1920s simply shut down as the economy went into recession between 1929 and 1933, and it was the remaining (and higher-productivity) facilities that supplied output as the economy recovered.
Margo (1991) has documented how much lower was the incidence of Depression unemployment among professional, technical, and managerial occupational classifications as compared, for example, with unskilled or blue-collar labor or workers with fewer years of schooling.
projects administered by the Public Works Administration (1933-1939) and the Works Progress Administration…probably would have been undertaken (with a supply-side rather than a make-work justification) had the economy not headed south.
whatever positive shocks may have been associated with progress in the mass production of airframes, shkps, penicillin, or munitions/fertilizer were largely counterbalanced by…the disruption to the economy resulting from rapid mobilization and demobilization.
during the last decade of the twentieth century, revolutionary technological or organizational change–the sort that shows up in TFP growth–was concentrated within distribution, securities trading, and a narrow range of industries…that included the production of semiconductors, computers, networking, and telecommunications equipment.
hedonic methods yielded end-of-century estimates in the range of -27 percent per year for the rate of decrease of quality-adjusted computer prices…Thus, if I used a laptop in 1999 and another in 2004 selling at the same nominal price (say $2000), the BEA would have concluded…that there had been a fourfold increase in the ratio of capital services to hours in my intellectual work
saving flows would have been congealed in other not quite as good capital goods…
the capital-deepening effect should ultimately be credited to saving behavior and not to the enabling technologies.
The user cost of a warehouse or hotel is largely the same whether it is full or half empty. We can attribute reductions in unit costs as the output gap closes to short-run economies of scale
Twelve percentage points of the more than 30 percent drop in real output between 1929 and 1933 is attributable to downward movement in TFP/
the Garn-St. Germain Depository Institutions Act of 1982, which led directly to the savings and loan crisis less than a decade later
Note: This is the most egregious illustration of Field’s regulatory fundamentalism. The S&L industry was insolvent before 1982. What took place from 1982-1987 were attempts by the industry, its friends in Congress, and regulators to cover up the facts and postpone the inevitable shutdowns by using phony accounting, for which Garn-St. Germain does not deserve chief blame.
Although the disruption to the accumulation of equipment (producer durables) during the Depression was transitory, the retardation in the accumulation of longer-lived structures persisted until after the war
gross equipment investment recovered much more strongly than investment in structures after 1933.
Housing typically generates upward of 10 percent of GDP. The productivity problem in the sector involves translating investment in buildings and residential infrastructure into market-validated rental service flows. Residential construction was much more effective in doing this after World War II, but this was in part due to zoning, land use regulations, and innovations in the design of residential subdivisions pioneered during the Depression but not having their full effect after the war…The success of the Federal Housing Administration (FHA), which laid the foundation for potential output growth in the sector after the war, represents another positive legacy of the New Deal.
This account, which is sourced in part with historical analysis produced by the FHA, is another illustration of Field’s regulatory fundamentalism.
The idea the the New Deal hindered recovery by leading to a capital strike…is questionable given the evidence of strong revival in equipment accumulation and large increases in income to capital. The major problem was in construction.
a financial boom-bust cycle misallocates physical capital in an upswing, in some cases with irreversible or expensively reversible adverse consequences. And the downswing deprives the economy of capital formation that might have taken place in the absence of the recession.
With or without the depression Wallace Carothers would have invented nylon.
I love this line, but when I went back to find it, I could not find it by looking up “nylon” in the index, even though it contains two other entries for nylon. So I went to Google books and found it by doing a search for “nylon.” Advantage: Google.