The Zero-Sum Economy

Suppose, for example, that you cared passionately about the objectives of a particular charity, had a flair for fundraising, and successfully increased that charity’s share of available donations. You would probably feel both motivated and good, even if all you had done was divert money from another charity about which another equally motivated fundraiser was equally passionate.

The crucial economic question, therefore, is not whether individual jobs are “bullshit,” but whether they increasingly perform a zero-sum distributive function, whereby the dedication of ever more skill, effort, and technology cannot increase human welfare, given the skill, effort, and technology applied on the other side of the competitive game.

Numerous jobs fall into that category: cyber criminals and the cyber experts employed by companies to repel their attacks; lawyers (both personal and corporate); much of financial trading and asset management; tax accountants and revenue officials; advertising and marketing to build brand X at the expense of brand Y; rival policy campaigners and think tanks; even teachers seeking to ensure that their students achieve the higher relative grades that underpin future success.

.. But available figures suggest that zero-sum activities have grown significantly.

.. some 17.6% of all US jobs, receiving 30% of all compensation, are in “management and administrative” functions likely to involve significant zero-sum activity.

.. Eventually, almost all human work might be devoted to zero-sum activities.

.. Whether or not robots will ever achieve human-level intelligence, it is illuminating to consider what an economy would look like if we could automate almost all the work required to produce the goods and services human welfare requires. There are two possibilities: one is a dramatic increase in leisure; the other is that ever more work would be devoted to zero-sum competition.

.. As I argued in a recent lecture, such an economy would probably be a very unequal one, with a small number of IT experts, fashion designers, brand creators, lawyers, and financial traders earning enormous incomes.

.. Paradoxically, the most physical thing of all – locationally desirable land – would dominate asset values, and rules on inheritance would be a key determinant of relative wealth.

.. we would have solved “the economic problem” of how to produce as many goods and services as we want , but would face the more difficult and essentially political questions of

  • how to achieve meaning in a world where work is no longer needed,
  • and how to govern fairly the inherent human tendency toward status competition


Are Trump’s Policies Hurting Long-Term US Growth?

When it comes to economic performance, US presidents have considerably more influence over long-term trends than over short-term fluctuations. And it is by this standard that Donald Trump’s administration should be judged.

President Donald Trump regularly thumps his chest and claims credit for each new uptick of the fast-growing US economy. But when it comes to economic performance, US presidents have considerably more influence over long-term trends than over short-term fluctuations.
.. Still, it is not easy to speed up a $20 trillion economy, even by running a budget deficit of nearly $1 trillion, as Trump’s administration is doing.
.. In a cantankerous political environment, it is not easy to think about the long term. But, thanks to the magic of compound interest, measures that marginally raise long-term growth matter a lot. For example,
  • the transportation deregulation policies of President Jimmy Carter’s administration in the late 1970s set the stage for the Internet retail revolution.
  • President Ronald Reagan’s massive tax cuts in the 1980s helped restore US growth in the ensuing decades (but also exacerbated inequality trends). And
  • President Barack Obama’s efforts (and before him President George W. Bush’s) to contain the damage from the 2008 financial crisis underpin the strong economy for which Trump wants to take full credit.
.. The end-2017 corporate tax reform was one of those rare instances where the US Congress comprehensively streamlined and improved the US’s Byzantine tax system, though the corporate tax rate should have been set at 25%, not 21%.
.. Obama would likely have been very happy to pass a similar bill. But, during his presidency, the Republican-controlled Congress insisted that any proposal had to be “revenue neutral” even in the short term, which is a tough political hurdle for any fundamental tax reform.
..  a wide range of studies – from the work of the late economist David Landes to more recent research by MIT’s Daron Acemoglu and the University of Chicago’s James A. Robinson – find that
.. institutions and political culture are the single most important determinants of long-term growth.
.. political culture in the US may take years; if so, the economic costs could be considerable.
.. Moreover, in accordance with the administration’s disdain for science, the proposed budgets for basic research, including for the National Institutes of Health and the National Science Foundation, were reduced sharply (fortunately, the US Congress rejected the cuts).
And anti-trust enforcement, needed to counter excessive monopoly power in many parts of the economy, is essentially dormant.
That will exacerbate inequality over the long term; Trump’s coal mines and trade tariffs are at best band-aids on a bullet wound.
.. many of the regulations that Trump is targeting ought to be strengthened, not eliminated. It is hard to imagine that gutting the Environmental Protection Agency and withdrawing from the Paris climate agreement are helpful for long-run growth, given that the costs of cleaning up pollution later vastly exceed the costs of mitigating it today.
.. As for financial regulation, the reams of new rules adopted after the 2008 financial crisis have been a dream come true for lawyers. Rather than try to micromanage banking, it would be far better to ensure that shareholders have more “skin in the game,” so that big banks are more inclined to avoid excessive risk. On the other hand, neutering existing legislation without putting anything adequate in its place sets the stage for another financial crisis.
.. although the US economy is indeed growing rapidly, the full extent of Trump’s economic legacy might not be felt for a decade or more. In the meantime, should a downturn come, it will not be Trump’s fault – at least according to Trump, who is already gearing up to blame the US Federal Reserve for raising interest rates and ruining all his good work.

Growth Seen Hitting 3% in 2018, But Risks to Outlook Mount After This Year

After 2018, economists in Wall Street Journal survey fret about fading fiscal stimulus, higher Fed rates and trade tensions

“The tax cuts and jump in federal spending will keep the economy buzzing for another 12 months,” said Bernard Baumohl, chief economist of the Economic Outlook Group. “Beyond that, however, I expect to see dark clouds forming that would signal a recession is near.”
.. Mr. Baumohl isn’t alone in a dour outlook after the boost from last year’s tax cuts begins to fade and because rising tariffs between the U.S. and its trading partners could lead to repercussions for the economy. Businesses that were enthused about the tax relief could hold off from hiring and investing in the face of trade uncertainty, several economists said.
.. The average forecast for growth in 2019 was 2.4%, little changed in recent months. By 2020, the average forecaster projects economic growth will slow to 1.8%, down from estimates earlier this year of 2%.
.. Inflation, as measured by the consumer-price index, is forecast to remain above 2% through 2020
.. While the immediate outlook for the rest of 2018 is strong, economists see an 18% chance of a recession beginning in the next 12 months. Those are the highest odds since President Trump’s election 21 months ago.

.. The economists in the survey placed the odds of a Nafta pullout at about 29% and the odds of auto tariffs at 31%.

Trump’s Economic Claims Are Overblown

And the rate of job growth during Mr. Trump’s first 19 months in office (194,000 jobs per month) is slightly less than the rate at which jobs were added during Mr. Obama’s final 19 months (205,000 per month). So the good news on jobs is the same good news Americans have been hearing for the last three years.

.. Over the first 18 months since Mr. Trump took office, real earnings, which reflect earnings after accounting for inflation, rose at an annual rate of just 0.3 percent.

.. Without these extraordinary interventions, the underlying rate of economic expansion in the second quarter of this year was about 2.7 percent
.. Moreover, that 4.1 percent number isn’t heroic. During the Obama presidency, the economy produced four quarters of growth that were higher. And the consensus among private and government forecasters is that the G.D.P. growth rate is likely to ebb quickly, once tariffs are actually in effect and the tax cut gains are all realized. Goldman Sachs, for example, forecasts that the annualized growth rate will fall to 3.3 percent in the third quarter and then taper down to 1.5 percent by the end of 2019.
.. the Trump administration’s policies have done little for the average worker. Mr. Trump’s tax cut delivered 84 percent of its benefits to business and to individuals with incomes above $75,000 a year.