Arnold, Re: Your tonic essay about economic misconceptions.
You write: "In fact, the relationship between government fiscal policy and the process of creating patterns of sustainable specialization and trade is indirect and highly uncertain."
Isn't it nonetheless reasonable to believe that a fiscal policy of balanced budgets and of low debt/gdp ratio would likely have good overall effects on patterns of specialization and trade?
Empirically that does seem to be the case, yes, but alas there are very few examples of that behavior around since we started keeping records. (It also doesn't help that governments report records of government spending and debt, and they are not terribly trustworthy.)
Arnold wrote: "There are many plausible causes of the decline in fertility. I claim that nearly all of them are self-reversing." When the fertility rate drops far below replacement, then in the next generation there are far fewer fertile women. This creates a downward spiral that would take a rate far above replacement to stop, and that seems unlikely. That said, it appears one place this has happened is Israel, where the rate is far above replacement, and not just for the ultra-orthodox.
Slight correction: a fertility rate at replacement stops the spiral, by definition. You don't need to go above the break even point to stop decreasing, just reach it. Growth is required to reach a previously higher level, but not to stop the decline.
I think the urbanization issue is going to be an interesting one to watch.
I’m not a YIMBY for a lot of reasons, but their fundamental issue - we need more housing in already dense areas - is sound.
But I think that a lot of this movement is an example of people fighting the last war. There’s a housing crisis now, sure, but also for the first time it’s possible to do an incredible array of work remotely.
I’m watching my mega corporation try and fail to get people to come into the office one day a week. I think the future is going to be decentralized work, with lots of white collar workers able to choose where they want to live, independent of where office space is located.
So then the question is going to be “where do people like to live”? And I think that urbanism is going to be, broadly speaking, on the losing end of that. I think we’re going to see a resurgence of small-town living. Peaceful, easy, cheap, and have as many kids as you want.
I am not so sure that remote work is going to really take off in a lot of realms. Or rather, the numbers will collapse back to what it was previously. In the last 5 years I have seen a general sense that remote workers are much less productive in a wide variety of roles. It seems to vary a bit by person (as my boss likes to say "I can hire a traffic cone to sit at a desk for 100 hours a week, and cheap.") but for many jobs it just seems like being there with your team, where the work is, is needed. I wouldn't be surprised if it works out that maybe only 20% of even corporate jobs can be done remotely well.
Perhaps the thought is that a variety of causes (education, urbanization, status competition) induce *cultural drift* (decrease in birth-rate), which then introduces feedback loops that reinforce cultural drift.
Warby-related analytic question: It's obvious why multi-unit buildings are more efficient for people who want less room. But why is it not still less costly per square foot to accrete multiple 3 & 4 BR "houses" in a multiunit building than spreading them out?
I live in a duplex in DC and recently a family moved into the neighborhood from an apartment not far away, clearly becasue the children were growing and they wanted more space. Why did they have to move? When we were looking to move to DC (with no interest in yard work) but wanted space, the same amount of space cost MORE in multiunit structures.
My guess is that the curve for housing isn't terribly steep, but has a fairly high priced low end. That is to say, people will pay 1000$ a month for a 800 sqft apartment, 1400$ for a 1200 sqft apt, but not more than 1800$ for a 1,600 sqft one. Or at least the number of people who will drop that kind of money are very few and far between. So it makes sense for apartment owners to rent them out at the lower end of the curve, where two apartments rent for more than the price of one double sized apartment.
If the demand side starts thinking "I can get a mortgage that is lower than that", even if they are improperly ignoring maintenance costs, the high end of the apartment size market falls out.
"Since American budget deficits contribute to our low national saving, a Congressman who blames a business for “sending jobs to China” should instead be looking in the mirror. It is the budget deficit that leads to the trade deficit, not any one individual business."
You say this as if it were well known. I always think I have to argue the point. I think it is the greatly overlooked issue in the "China shock," Rustbelt-trade discussion. Maybe almost as under-thought is that import restrictions, through the exchange rate effect, tax exporters and firms competing with non-restricted imports.
When Americans buy foreign products with dollars, the foreigners who now have a bunch of dollars can only spend them on American made goods sold for dollars, or dollar denominated assets*. Those assets are things like stocks, bonds, US Treasuries, securities, and real estate (not an exclusive list). So if the US government is borrowing lots of money that debt is competing with other dollar denominated assets as well as American exports for those foreign owned dollars.
*Strictly speaking, they could sell those dollars to other foreigners for some other currency, but then it is just some other non-American with the dollar to spend, so it doesn't affect the analysis.
So I drove an hour into the DC suburbs (Leesburg) for a baby shower. First time for me as where I am from such customs are normally distaff affairs. However, I was quickly disabused of that notion, and informed that both of the two sexes now customarily attend. At any rate, it was a great pleasure to see the hordes of grandchildren and great nieces and nephews playing with each other. And of course I can’t but help relate it to observations on fertility, demographic sinks, and human interdependence, or more specifically mutual aid.
First observation is that it appears that there is great variation in fertility between US metropolitan areas with some having nearly twice that of the low fertility areas. And I suspect that this has something to do with the phenomenon of suburbs. Largely suburban Jacksonville FL has the highest fertility in the US and isolated, constrained, and dense San Francisco the lowest, if what the internet tells me can be trusted. I am not sure that the demographic sink idea really grasps this new development. In late medieval days, young women migrated to domestic service employment in the city cores where their potential fertility was forsaken just as today young women migrate to city cores to sit behind laptops and forego fertility. However, the non-farm share of the population outside the city walls has greatly increased and so the potential for fertility rebound seems to have increased. Perhaps the post-WWII rise of suburbs can explain the baby boom mystery?
Second observation is that in many places in Europe, urban and suburban fertility both exceed rural fertility due to the black plague of supranational governance wreaking havoc on smaller communities. The rural areas are unlikely to provide new blood for the cities. Fertility rebound would likely be boosted by efforts to rein in the authoritarian impulses of the supranationalists as it would likely improve living standards for the non-urban population.
Third observation is that immigration is not likely to be an answer. Globally, the so-called refugees are predominantly younger males who are unlikely to find partners. The female migrants in Europe, whose statistics are warped by the huge influx of Ukranian women, may or may not return to Ukraine but their current uncertain status suggests they are not going to contribute much to fertility. And highly educated women make up a disproportionate share of the other female migrants and they too are unlikely to have higher fertility rates. The brain drain might advantage high income nations in the short run but will likely have not long term benefit. This seems to being played out elsewhere, in for example, Canada, having been overrun with immigrants, still sees plummeting fertility. (https://tnc.news/2024/09/29/canadas-birth-rate-record-low/ ).
Finally, the custom of a baby shower had me thinking of Kropotkin and his book Mutual Aid (https://www.gutenberg.org/ebooks/4341 ). One wonders whether it would be possible to examine and study surviving customs such as baby showers as a form of mutual aid and whether there is a correlation between such local customs and fertility. For example, my hypothesis is that the institution of the commune in France has acted to preserve mutual aid customs and that this may account, at least in part, for France having the highest fertility in Europe. Where I am from, we have the custom of baking dumplings and having a sale to help out families hit with medical bills. After funerals, a potluck meal is generally put on for the mourners by other members of the community. And there are baby-sitting coops and the like. Such local institutions might be correlated with a higher fertility rate. Somewhat related, perhaps, but I would also hypothesize that density of blood relations has something to do with fertility. People who have family support networks in place may be more likely to reproduce.
Arnold, I recently finished a book by Michael Pettis. I am not an economist so I'm worried I might misrepresent what he stated, but he seems to argue that: if 1 country is running a large trade surplus with another country (by directly/indirectly subsidizing its business sector) the deficit country, assuming it can't find a way to force the deficit country to stop buying its assets, has to choose between higher debt in some form (private or government) or higher unemployment.
I don't buy that deficits are what they are in a causal sense because of foreign asset purchases, and it's not clear if that's what he means, but the idea that there's a trade off between debt and growth when dealing with aggressive net exporters seems more reasonable than saying government deficits drives the trade deficit.
On topsoil, I had a useful exchange in the comments. I should have made it clearer that topsoil issues usually operate across the very long term, as in centuries. Though particularly destructive farming in poor soils can operate much faster.
It is also entirely possible to rebuild topsoil, but the incentive structure has to be solid for that to happen, and that is not nearly as often the case as one might expect. Over-capitalised farms and corporate farms do not have a great record in this regard.
On fertility, humans just don’t seem to be adapted to sustained breeding in cities. I agree that other factors are relevant at the margin, but the problem of sustainable breeding within cities does not seem to be something we have ever mastered, or have any idea how to do so.
Those unemployment numbers are a bit questionable. There seem to be a lot of adjustments to the official numbers, and a large number of workers outside the workforce entirely. Add in discrepancies between "employed" with part time vs full time work and other measurement issues, and I am not entirely certain we know how high employment is.
More to the point though, a trade deficit does not imply unemployment, just less stuff sold to foreigners that is classified properly as goods and services.
"If population falls, cities will become less dense,"
Falling population does not mean cities will be less dense. Maybe if all other things were unchanged but they never are. It's very possible it would only slow the rate of urbanization.
"On the latter point, suppose that China as a nation saves at a higher rate than the United States. Then Chinese purchases of American assets will raise the value of the dollar, making Chinese goods’ production more competitive, causing manufacturing jobs to increase in China, with American workers moving to different industries."
I can't make the connection.
Why does China saving at a higher rate lead to purchase of American Assets?
How does the purchase of American assets (by Chinese) lead to the rise of the American Dollar?
I also don't understand why it would be true that budget deficits lead to trade deficits. From this paragraph:
"Since American budget deficits contribute to our low national saving, a Congressman who blames a business for “sending jobs to China” should instead be looking in the mirror. It is the budget deficit that leads to the trade deficit, not any one individual business."
Buying our debt is one thing, I guess, but to me it sort of elides the question of how great it is for China to buy e.g. American farmland all so we can lose manufacturing jobs.
Not to mention we now have Chinese nationals slipping across the border in record numbers to sort of double dip as it were, in enjoying these manifold benefits of cheap stuff coming off the cargo ships.
Or paint our nails or give massages with a big finish. Which was supposed I think to be the job left to us lol.
Arnold, Re: Your tonic essay about economic misconceptions.
You write: "In fact, the relationship between government fiscal policy and the process of creating patterns of sustainable specialization and trade is indirect and highly uncertain."
Isn't it nonetheless reasonable to believe that a fiscal policy of balanced budgets and of low debt/gdp ratio would likely have good overall effects on patterns of specialization and trade?
Empirically that does seem to be the case, yes, but alas there are very few examples of that behavior around since we started keeping records. (It also doesn't help that governments report records of government spending and debt, and they are not terribly trustworthy.)
It would at least shift resources from consumption to investment.
Arnold wrote: "There are many plausible causes of the decline in fertility. I claim that nearly all of them are self-reversing." When the fertility rate drops far below replacement, then in the next generation there are far fewer fertile women. This creates a downward spiral that would take a rate far above replacement to stop, and that seems unlikely. That said, it appears one place this has happened is Israel, where the rate is far above replacement, and not just for the ultra-orthodox.
Slight correction: a fertility rate at replacement stops the spiral, by definition. You don't need to go above the break even point to stop decreasing, just reach it. Growth is required to reach a previously higher level, but not to stop the decline.
I think the urbanization issue is going to be an interesting one to watch.
I’m not a YIMBY for a lot of reasons, but their fundamental issue - we need more housing in already dense areas - is sound.
But I think that a lot of this movement is an example of people fighting the last war. There’s a housing crisis now, sure, but also for the first time it’s possible to do an incredible array of work remotely.
I’m watching my mega corporation try and fail to get people to come into the office one day a week. I think the future is going to be decentralized work, with lots of white collar workers able to choose where they want to live, independent of where office space is located.
So then the question is going to be “where do people like to live”? And I think that urbanism is going to be, broadly speaking, on the losing end of that. I think we’re going to see a resurgence of small-town living. Peaceful, easy, cheap, and have as many kids as you want.
I am not so sure that remote work is going to really take off in a lot of realms. Or rather, the numbers will collapse back to what it was previously. In the last 5 years I have seen a general sense that remote workers are much less productive in a wide variety of roles. It seems to vary a bit by person (as my boss likes to say "I can hire a traffic cone to sit at a desk for 100 hours a week, and cheap.") but for many jobs it just seems like being there with your team, where the work is, is needed. I wouldn't be surprised if it works out that maybe only 20% of even corporate jobs can be done remotely well.
Thanks for the link to Lorenzo Warby's essay about histories of fertility collapses. Many interesting references therein.
Re: Arnold's reply: "There are many plausible causes of the decline in fertility. I claim that nearly all of them are self-reversing."
Compare Robin Hanson's pessimism:
https://www.overcomingbias.com/p/13-fertility-scenarios
Perhaps the thought is that a variety of causes (education, urbanization, status competition) induce *cultural drift* (decrease in birth-rate), which then introduces feedback loops that reinforce cultural drift.
Warby-related analytic question: It's obvious why multi-unit buildings are more efficient for people who want less room. But why is it not still less costly per square foot to accrete multiple 3 & 4 BR "houses" in a multiunit building than spreading them out?
I live in a duplex in DC and recently a family moved into the neighborhood from an apartment not far away, clearly becasue the children were growing and they wanted more space. Why did they have to move? When we were looking to move to DC (with no interest in yard work) but wanted space, the same amount of space cost MORE in multiunit structures.
It's weird.
My guess is that the curve for housing isn't terribly steep, but has a fairly high priced low end. That is to say, people will pay 1000$ a month for a 800 sqft apartment, 1400$ for a 1200 sqft apt, but not more than 1800$ for a 1,600 sqft one. Or at least the number of people who will drop that kind of money are very few and far between. So it makes sense for apartment owners to rent them out at the lower end of the curve, where two apartments rent for more than the price of one double sized apartment.
If the demand side starts thinking "I can get a mortgage that is lower than that", even if they are improperly ignoring maintenance costs, the high end of the apartment size market falls out.
Interesting question. I've been in the building industry for 45 years. I have a few hypothesis, but nothing resembling an answer.
"Since American budget deficits contribute to our low national saving, a Congressman who blames a business for “sending jobs to China” should instead be looking in the mirror. It is the budget deficit that leads to the trade deficit, not any one individual business."
You say this as if it were well known. I always think I have to argue the point. I think it is the greatly overlooked issue in the "China shock," Rustbelt-trade discussion. Maybe almost as under-thought is that import restrictions, through the exchange rate effect, tax exporters and firms competing with non-restricted imports.
I want to, but I don't see the connection between budget and trade deficit.
When Americans buy foreign products with dollars, the foreigners who now have a bunch of dollars can only spend them on American made goods sold for dollars, or dollar denominated assets*. Those assets are things like stocks, bonds, US Treasuries, securities, and real estate (not an exclusive list). So if the US government is borrowing lots of money that debt is competing with other dollar denominated assets as well as American exports for those foreign owned dollars.
*Strictly speaking, they could sell those dollars to other foreigners for some other currency, but then it is just some other non-American with the dollar to spend, so it doesn't affect the analysis.
Have you had a public conversation with Robin Hanson regarding fertility? I also see this as a self correcting problem but he doesn't
So I drove an hour into the DC suburbs (Leesburg) for a baby shower. First time for me as where I am from such customs are normally distaff affairs. However, I was quickly disabused of that notion, and informed that both of the two sexes now customarily attend. At any rate, it was a great pleasure to see the hordes of grandchildren and great nieces and nephews playing with each other. And of course I can’t but help relate it to observations on fertility, demographic sinks, and human interdependence, or more specifically mutual aid.
First observation is that it appears that there is great variation in fertility between US metropolitan areas with some having nearly twice that of the low fertility areas. And I suspect that this has something to do with the phenomenon of suburbs. Largely suburban Jacksonville FL has the highest fertility in the US and isolated, constrained, and dense San Francisco the lowest, if what the internet tells me can be trusted. I am not sure that the demographic sink idea really grasps this new development. In late medieval days, young women migrated to domestic service employment in the city cores where their potential fertility was forsaken just as today young women migrate to city cores to sit behind laptops and forego fertility. However, the non-farm share of the population outside the city walls has greatly increased and so the potential for fertility rebound seems to have increased. Perhaps the post-WWII rise of suburbs can explain the baby boom mystery?
Second observation is that in many places in Europe, urban and suburban fertility both exceed rural fertility due to the black plague of supranational governance wreaking havoc on smaller communities. The rural areas are unlikely to provide new blood for the cities. Fertility rebound would likely be boosted by efforts to rein in the authoritarian impulses of the supranationalists as it would likely improve living standards for the non-urban population.
Third observation is that immigration is not likely to be an answer. Globally, the so-called refugees are predominantly younger males who are unlikely to find partners. The female migrants in Europe, whose statistics are warped by the huge influx of Ukranian women, may or may not return to Ukraine but their current uncertain status suggests they are not going to contribute much to fertility. And highly educated women make up a disproportionate share of the other female migrants and they too are unlikely to have higher fertility rates. The brain drain might advantage high income nations in the short run but will likely have not long term benefit. This seems to being played out elsewhere, in for example, Canada, having been overrun with immigrants, still sees plummeting fertility. (https://tnc.news/2024/09/29/canadas-birth-rate-record-low/ ).
Finally, the custom of a baby shower had me thinking of Kropotkin and his book Mutual Aid (https://www.gutenberg.org/ebooks/4341 ). One wonders whether it would be possible to examine and study surviving customs such as baby showers as a form of mutual aid and whether there is a correlation between such local customs and fertility. For example, my hypothesis is that the institution of the commune in France has acted to preserve mutual aid customs and that this may account, at least in part, for France having the highest fertility in Europe. Where I am from, we have the custom of baking dumplings and having a sale to help out families hit with medical bills. After funerals, a potluck meal is generally put on for the mourners by other members of the community. And there are baby-sitting coops and the like. Such local institutions might be correlated with a higher fertility rate. Somewhat related, perhaps, but I would also hypothesize that density of blood relations has something to do with fertility. People who have family support networks in place may be more likely to reproduce.
Arnold, I recently finished a book by Michael Pettis. I am not an economist so I'm worried I might misrepresent what he stated, but he seems to argue that: if 1 country is running a large trade surplus with another country (by directly/indirectly subsidizing its business sector) the deficit country, assuming it can't find a way to force the deficit country to stop buying its assets, has to choose between higher debt in some form (private or government) or higher unemployment.
I don't buy that deficits are what they are in a causal sense because of foreign asset purchases, and it's not clear if that's what he means, but the idea that there's a trade off between debt and growth when dealing with aggressive net exporters seems more reasonable than saying government deficits drives the trade deficit.
On topsoil, I had a useful exchange in the comments. I should have made it clearer that topsoil issues usually operate across the very long term, as in centuries. Though particularly destructive farming in poor soils can operate much faster.
It is also entirely possible to rebuild topsoil, but the incentive structure has to be solid for that to happen, and that is not nearly as often the case as one might expect. Over-capitalised farms and corporate farms do not have a great record in this regard.
On fertility, humans just don’t seem to be adapted to sustained breeding in cities. I agree that other factors are relevant at the margin, but the problem of sustainable breeding within cities does not seem to be something we have ever mastered, or have any idea how to do so.
"It is the budget deficit that leads to the trade deficit, not any one individual business."
Surely the direction of this impact is correct but is it a primary factor?
1 Our debt has never been bigger except maybe at the end and of WWII yet employment is high. Unemployment extremely low
2 Our dollar is the international currency and that, in part, leads to the savings of others being here in the US.
Those unemployment numbers are a bit questionable. There seem to be a lot of adjustments to the official numbers, and a large number of workers outside the workforce entirely. Add in discrepancies between "employed" with part time vs full time work and other measurement issues, and I am not entirely certain we know how high employment is.
More to the point though, a trade deficit does not imply unemployment, just less stuff sold to foreigners that is classified properly as goods and services.
"If population falls, cities will become less dense,"
Falling population does not mean cities will be less dense. Maybe if all other things were unchanged but they never are. It's very possible it would only slow the rate of urbanization.
I read your linked article.
It seems like it all hangs on this paragraph:
"On the latter point, suppose that China as a nation saves at a higher rate than the United States. Then Chinese purchases of American assets will raise the value of the dollar, making Chinese goods’ production more competitive, causing manufacturing jobs to increase in China, with American workers moving to different industries."
I can't make the connection.
Why does China saving at a higher rate lead to purchase of American Assets?
How does the purchase of American assets (by Chinese) lead to the rise of the American Dollar?
I also don't understand why it would be true that budget deficits lead to trade deficits. From this paragraph:
"Since American budget deficits contribute to our low national saving, a Congressman who blames a business for “sending jobs to China” should instead be looking in the mirror. It is the budget deficit that leads to the trade deficit, not any one individual business."
Buying our debt is one thing, I guess, but to me it sort of elides the question of how great it is for China to buy e.g. American farmland all so we can lose manufacturing jobs.
Not to mention we now have Chinese nationals slipping across the border in record numbers to sort of double dip as it were, in enjoying these manifold benefits of cheap stuff coming off the cargo ships.
Or paint our nails or give massages with a big finish. Which was supposed I think to be the job left to us lol.