The Next 40 years in Twelve Hundred Words

This post was originally published at The Scholar’s Stage on 19 July 2014 and has been reposted here without alteration.

Info-graphic taken from Peter Turchin, “The Double-Helix of Inequality and Well-Being,” Social Evolution Forum (8 February 2013).


Recently in a discussion at a different venue I wrote the following:

I am extremely pessimistic about the near term (2015-2035) future of both of the countries I care most about and follow most closely, but very optimistic about the long term (2040+) of both.

I was asked to give a condensed explanation of why I felt this way. The twelve thousand words or so I wrote in response proved interesting enough that participants in the discussion urged me to re-post my speculations here so that they might receive wider circulation and discussion.

Below is a slightly edited version of my response:

The demons that afflict the United States of America and the People’s Republic of China are legion, and every pundit that turns their eye to either country seems to have their own favorite. Some of these difficulties are more alarming than others.

The United States faces two problems that cannot be resolved without great turmoil. The first is one many in my demographic already feel acutely – the rising generation is one with no future. This generation has gone into obscene amounts of debt to finance educations that have provided them with few real skills to compete for a shrinking number of decent upper-middle class occupations. Part of the problem stems from the way economic inequality has hollowed out the middle class, part of it comes from the way sinking living standards for America’s working class have made that fate less and less desirable (accentuated by a growing cultural divide and spatial separation between the two groups), but the biggest problem is simpler: the number of people in the applicant pool has expanded far past the number of respectable positions our society has been able to offer them. More people go to college now than ever in the past, and more go to graduate school and earn PhDs as well. Millions more. And there is nowhere to put them. PhD placements have never been more competitive, half the people who leave law school cannot get jobs in law-related careers (much less jobs as real lawyers!), the medical profession is a place of misery, and so forth.

Thus we have a generation that put themselves into a debt slavery on the hope that they would be able to improve their life by doing so, snag great jobs and pay it all back. Except they won’t. In about ten years enough time will have gone by for all these graduates to realize that the future they’ve always imagined will never come to pass and that they spent more money on their education then they will earn in the next 25 years.

And that is when things get nasty. When you have a surplus of angry, educated, and bright people with no hope then things start to get dangerous.

The second problem will compound the situation because it will manifest itself at about the same time. This is one more people talk about (so I will not describe it with as much depth here), and the people who suffer will be on the other side of the demographic charts. Basically, the United States does not have the money to pay for its social programs now, and it really, really, really will not have the money or the capacity to administer its basic obligations in fifteen years’ time. All of the people who have promised that they will get social security benefits and health care and all other sorts of wonderful things, especially in retirement, will find out that the money just isn’t there for it. Some money may be seized from the richest, but they really don’t have it either. In the end the whole system will collapse because there just is nothing else it can do.

In the urban areas China faces a very similar “over elite production” dynamic as the USA. The debt problem is not nearly as bad for them, but the job situation is just as tight, and because of China’s “family planning” policies of the last few decades many balinghou and jiulinghou households will face the additional financial (and psychological!) pressure of being the only grandchild of four grandparents in a country with underdeveloped social services.

That is in the rich areas. Combined with this challenge is the simple fact that there are still 300 million Chinese men and women living on $2 a day. China’s great challenge is to lift those 300 million out of poverty and raise their living standards to something close to the developed world’s. To make its model work China needs at least a 6-7% growth rate every single year. No one is really sure what will happen when the numbers hit lower than that, but eventually they will. There is some fancy stuff I could say about China needing to move from an export-driven economy and account balances and stuff, but there is nothing I could say here that Michael Pettis has not already said better. The gist is that for China to pull off the transition to developed, slow-growth economy there needs to be significant restructuring in the economy. And its not going to happen. I don’t think it can happen – the Chinese economy and especially its finance markets have been too warped by state intervention and government goals for the changes to happen naturally and the whole shebang has been paid for by “an unsustainable debt burden caused by wasted debt-financed investment.” When the fall happens the best case scenario is a decade of nil growth; the worst case scenario is a Great-Depression style crash that pulls the rest of the world in with it.

China’s regime is much more fragile than America’s. I don’t buy the common talking point that the Chinese people only support or acquiesce to the Party’s rule because of the wealth they have gained by doing so, but I do think this is a very important reason the average Party insider plays the game. I do not know how much stress – especially economic stress – the Chinese Communist Party can take before it ranks begin to crack.

Now for the good news.

Neither country has much to worry about in terms of external threats. The United States really has nothing to fear from anybody – we can temporarily lose standing or even permanently lose prominence without the everyday lives of Americans being changed in any real or horrible way. China’s neighborhood is a bit rougher, but their big worries are things like losing a few stupid islands or having to recognize Taiwanese independence. The worst case scenario is a protracted war between the two powers because of that last issue, but the people who will suffer the most in that scenario are the Taiwanese themselves. It is difficult to imagine a credible scenario where millions of mainland Chinese die or China faces territorial dismemberment because of any foreign power.

In both cases I am much more worried about the consequences of internal conflict than I am in any external war.

Other good news: the way technology is developing the political economy of both countries – indeed, the entire world – is going to change incredibly. People don’t ask the right questions when they ponder over the near term future of humankind. Think of it this way: what does the world look like when you can 3D print in your house anything you buy at Walmart today? Production is going to return to houses (just like in the old frontier days!) and away from multi-national corporations. A decentralized economy will provide what the current economy cannot – a place for the newbies trying to succeed and resilience/security for those who are past their prime.

It will be hard to see that time in the midst of the troubles, however. An analogy could be made with the early 20th century, and it is particularly apt for China. When the SHTF a lot of folks will be saying things like, “China isn’t going anywhere, all that angst about China rising was foolishness!” Such statements are short-sided. During the 1930s you could have said much the same about America. But when we talk about the first half of the 20th century as a whole, the story is one of America’s titanic economic rise, not its great depression. When the troubles are over China will come roaring back – its just a question of what kind of country China will be.

Note: In the event of serious civil war or insurgency who knows what happens. Those things are easy to start but hard to end. If they occur then the future is too cloudy for me to even try and speculate like I do here.

Beause of the unusual circumstances of this post’s creation I have not bothered to insert meticulous foot-notes and citations standard at the Stage. Here are a few general references for those who want to investigate specific themes raise above in more detail.

Further Reading
Peter Turchin, “Return of the Oppressed,” Aeon Magazine (7 February 2013). 

  ———, “Blame Rich, Over-educated Elites as Our Society Frays,” Bloomberg News (20 November 2013)

(Peter Turchin invented the term “elite over-production” while working on mathematical models of cliodynamics. These articles are an accessible explanation for those not mathematically inclined. If you would like to jump into the data behind the concept, start here and here).

T. Greer, “Economies of Scale Killed the American Dream,” The Scholar’s Stage (1 July 2013)

Scott Alexander, “SSC Gives a Graduation Speech,” Slate Star Codex (23 May 2014)

Yukon Huang, Canyon Bosler, “China’s Burgeoning Graduates — Too Much of a Good Thing?,” The National Interest (7 January 2014). 

Jim Kessler, David Kendall, and Gabe Horwitz, “Now or Never: Now is the Moment for Democrats to Get a Grand Bargain,” Third Way Policy Memo (June 2012).

(It is easy to find conservative diatribes on this topic; it is more notable when American liberals raise the same alarm. Note also that the ‘moment’ in question is now two years past.)

I explicitly acknowledge the work of Michael Pettis in the body of the post. This is his blog. These are his books.  

John Maudlin and Wroth Wray, “China Will Need a Series of Economic Miracles to Sustain Growth”, Business Insider (9 June 2014). 

(The quotation in blue is comes from Wroth Wray’s section of this article.)

Carle Walter and Frasier Howie, Red Capitalism: The Financial Foundations of China’s Extraordinary Rise  (New York: Wiley, 2011).

(I am reading this book at the moment and strongly recommend it — it provides a clear eyed picture of just how much government intervention has distorted the Chinese financial sector).

James Bennett and Michael Lotus, America 3.0: Rebooting American Prosperity in the 21st Century-Why America’s Greatest Days Are Yet to Come (New York: Encounter Books, 2013). 

(By far the best treatment of  the happy, decentralized future I describe here is found in the second chapter of this book.  I reviewed the book with strong praise here at the Stage last year, though looking back at the review I see that I barely touched on the technological side of their vision).

3-D Printing and the Future of Manufacturing,” CSC Leadership Edge Forum Report (Fall 2012). 

42 thoughts on “The Next 40 years in Twelve Hundred Words”

  1. “Neither country has much to worry about in terms of external threats”

    I tend to agree but we must be very careful about importing a hostile minority. The British and French are ahead of us in this foolishness with their larger Muslim minorities but we are not paying enough attention to this. The Hispanics the Democrats are importing to be voters are less dangerous. They will simply be an underclass for decades. The Muslims, like the barbarian mercenaries Rome imported, have allies externally and will not assimilate.

    I do not see China as a long term threat no matter what their military subculture desires. Most of their young people are bright and desire things similar to our own middle class desires.

  2. What astounds me is the way both the voting public and the political class sleepwalk though this entire evolving dynamic. So many things that could be done, should be done, but are not because they might interfere with short term or long term political power goals. It reminds me of GM management and the unions or the steel mills and the unions. Too invested in maintaining their then-current well paying status quo to make the very changes that would allow their organizations to survive and prosper for future generations. They sucked up everything, including the seed corn, for their own personal benefit, then the entire structure collapsed. Our society, and our political, media and academic classes have much in common with them.

  3. I do not see China as a long term threat no matter what their military subculture desires.

    I tend to agree with that. I also think we should not be drawn into any wars over meaningless islands in the Pacific or even (shock!) Taiwan. It’s not in our long term interest. Hard-hearted, I know, but the bigger picture view is that we should not replay WWI over a tiny island off China’s coast that is a vestige problem of their civil war. Strategically, it would be astoundingly stupid of us.

  4. “Too invested in maintaining their then-current well paying status quo to make the very changes that would allow their organizations to survive and prosper for future generations.”

    To be fair, we cannot expect the average worker or citizen to be making sacrifices for long term goals of society. That is what political leaders are supposed to do and few actually do. The rare examples include Winston Churchill who tried to warn Britain about the rising menace of Germany, and Coolidge who kept vetoing the farm bill that Roosevelt finally signed that raised farm prices in the Depression. Lincoln warned about slavery and fought the Civil War in spite of the political risks. Had Sherman not taken Atlanta, Lincoln would have lost the 1864 election and he knew it. Truman went into Korea and Greece to stop communism. Eisenhower stayed out of Vietnam. Nixon went to China.

    The list of far seeing politicians ended with Reagan. Everything since has been based on polls. GHW Bush did stop Saddam in Kuwait but lost the peace.

    Clinton is now our model of expediency.

  5. “Just processing the insurance forms costs $58 for every patient encounter” is a striking remark in the piece on doctoring. For perspective: suppose that money went instead to pay the doctor; $58 per twelve minutes for, say, a 2000 hour year would give a young doctor a plutocratic starting income wouldn’t it?

    Presumably any effective action to correct this absurd cost would in the short term result in the loss of more clerical jobs. And yet sweeping away endless tangles of bureaucracy, regulation, and rent-seeking must be the best hope of getting enough economic growth to produce good jobs for the generation that worries you.

    On China: to Taiwan I think you might add Russia and Japan as countries with whom a faltering regime might pick a fight.

  6. “Just processing the insurance forms costs $58 for every patient encounter”

    This is why the present system of prepaid care is insane. A system of catastrophic insurance and cash payment for small encounters would save billions but it won’t happen because there are millions of clerks and bureaucrats living on the system. Doing well by doing good has been the rule for all these welfare state programs for 70 years.

  7. Problem 1: too many young people with limited prospects: Answer UP. Space. Quite serious. Unlimited opportunities up there.

    Problem 2: Debt. Answer is repudiation of all of it, all debts wiped out. Ample precedent, as to the social programs good riddance. Along with the entire New Deal government.

    The actual amount of debt will have us as debt collectors or dying of starvation, the many layers of minimum payments is exactly the mechanism of the Irish Famine. There was plenty of food.

    [I don’t care that you paid in, you are the worst generation in Human History. Ever. You had all handed to you and you burned it down for kicks. You’re the worst elites in man’s history. In this you have no competitor. In any case the money’s gone.]

    How this is accomplished: Not by Talk.

    It’s too late to talk it out, and in any case our current decision makers are sociopaths. When no deal will be kept none will be made.

    No deal, the peace terms are above.

  8. You’ve made the problems look harder than they have to. In the US at least, we have so many governments that we long ago gave up on dealing with them in reality and have aggregated them all. But they’re not all the same and they’re not all equally unprepared for the future. Our computers are fast enough that we actually don’t have to aggregate them anymore. We have the tools to deal with them in a real way and identify the real problems. We simply don’t out of habit.

    This is a tremendous opportunity for harm reduction that individuals can and should start to take up.

    Web 3.0 is coming and that’s going to pump an immense amount of new information into the system. If we don’t ignore it but use that information, we can significantly improve system performance everywhere in ways we’ve hardly even thought about yet. Will it be enough to avoid the seemingly inevitable crash? It’s tough to say. It does seem likely that positive developments will make events less severe.

  9. “It does seem likely that positive developments will make events less severe.”

    Getting someone like Mitt Romney as president will allow technology, like fracking, to create vast wealth. Then we have to dismantle the global warming hysteria and its rent seekers. Regulation has to have some economic sense to it, a hard sell to the LIV who love Fauxcahontas.

    Learning about Bastiat and the The Broken Window Fallacy would help.

    the fallacy comes from making a decision by looking only at the parties directly involved in the short term, rather than looking at all parties (directly and indirectly) involved in the short and long term.

    Long term thinking is rare these days. Maybe hard times will bring it about but that supposes an intelligent electorate.

  10. “I tend to agree with that. I also think we should not be drawn into any wars over meaningless islands in the Pacific or even (shock!) Taiwan. It’s not in our long term interest.”

    A great deal of nonsense said by security analysts looking at the Pacific region would be avoided if the analysts in question were all forced to answer, “Would you die for this cause?”

    Its a great question that I am afraid too many will take lightly. It drives away all the obfuscation and abstract formulas usually applied to these topics. It changed how I thought about a few things.

    I have realized that I am not willing to die for the Spratley, Paracel, or Diaoyu/Senkaku Islands. Nor am I willing to die for Japanese honor.

    I am willing to die for Taiwan’s freedom.

    Why I think Taiwan’s independence is important to die for is properly a topic of another post, however.

    “On China: to Taiwan I think you might add Russia and Japan as countries with whom a faltering regime might pick a fight.”

    While true, I don’t think a war between China and Japan, Russia, or India will be any more devastating than one with America. I also think it is unlikely that any such conflict, if it happens, will results in “the deaths of millions of Chinese or territorial dismemberment.”

    ” In the US at least, we have so many governments that we long ago gave up on dealing with them in reality and have aggregated them all.

    Perhaps this can help solve the entitlement problems, but how does it help the millennial debt/over-competition problem? The roots of that crisis lie deeper than the government.

    I am also deeply skeptical than American political culture will allow any of the changes to take place that need to take place until a crisis of great proportions forces the issue. Alas, can and will are often not the same!

  11. T Greer – Rather than die for Taiwan I think that a better solution would be to end the Chinese civil war, broker a unification of the KMT between its mainland and Taiwanese branches and a deal where the 8 minor parties are freed from their electoral shackles on the mainland and are liberated to actually contest for power. By no means would this be pretty. It would, however, poison the CCP by empowering its ambitious young with dreams of alternate, and faster, routes to power. Those dreams would have advantage of being true.

    The benefit to China to accept this would be a way to blow off popular steam in the new passion of party politics and toss the blame around in a way that might avoid a violent revolutionary overthrow of the current system.

    Regarding your objection on millennial debt/over-competition. A lot of the things wrong with governance in America are simply that bad things are not measured, not brought to peoples’ attention and so things just don’t get fixed. There is no reason why police do not allow taxis to go to the railway stations and pick up passengers in my county. It’s just a minor example, but we’ve got a death of a thousand cuts problem going on and a job here, a job there, ends up really costing us in the aggregate. Every extra job created reduces the over-supply of labor.

    We are not rich. We are living rich and beyond our means. Identifying laws that are not accomplishing any legitimate government purpose is just one aspect.

    We spend vast sums on K-12 education yet achieve mediocre results. Where’s the over-competition there? If we could cut our expenses by 30% and increase our performance to the top tier of first world nations in results, this would be a tremendous increase in possibilities but it is nothing extraordinary. It would just mean replicating what countries like Finland achieve.

    We actually have legislation preventing us from taking into account guarantees on bids. They must give the contract to the low bidder. So we have lousy roads that constantly need repairing because back in the 1800s some scammers conspired with local governments to guarantee roads and then ran off with the money.

    There are some things that are done that are just plain illegal, but nobody checks and so the practices go on until finally people start getting sick or die. There was a Chicago area municipality that illegally mixed contaminated well water into the municipal water supply to stretch out the more expensive Chicago lake water.

    It really does go on and on. I’m doing a bit of work on a property tax project in my own county and recently found out that there are properties mis assessed at $0 value. This is stuff that wouldn’t pass the laugh test if anybody was seriously checking.

  12. I can’t take that graph seriously. What is “Inequality” and how is it measured? What does “Well-Being” mean? Are these two measure based on things independent of time, technology, and changes in occupation? What did inequality mean when 80% of the country was involved in agriculture? What are the scales, and why do the two scales match? Is low well-being significantly different from high well-being? Why did well-being increase during the depression? I call BS.

  13. @Chuck – Dr. Turchin discusses your questions at length in the blog-post in which the graphic originally appeared, which is cited beneath the picture.

    @TMlucas- While well thought out, the plan you present has a crippling deficiency: the Taiwanese will never buy into it. The majority-a supermajority, really – would like to keep to the status quo, and more people support outright independence than any political settlement with the mainland. Even the Ma administration’s rather modest attempts to nudge Taiwan towards closer economic relations with the PRC caused a crisis two months ago that shut down the government for three weeks and threatened to tear the ruling KMT coalition apart.
    Moreover, Taiwanese jiulinghou have a very strong sense ofTaiwanese national identity. In their eyes, your suggestion is not too different from showing up in Kiev and announcing that Ukraine could solve all of its problems by rejoining the Soviet Union. Anyone who arrives on the scene and speaks of ‘ending the civil war’ is dismissed immediately as an old crank out of touch with the times and with reality in general. This is in 2014. The feeling will be all the stronger in 2030 when these kids are in power and the last folks who remember Taiwan before it was self autonomous will have passed away.

    No, the Taiwanese are willing to die for their freedoms. It is simply a question of who is willing to die with them

  14. What’s the x-scale on that graph again, and how were its values measured? How was the zero established? To label the whole mess nonsense is praise it with faint damnation.

    It’s curious, for instance, that the 1960s with their urban race riots, Leftist and racial terrorism, and assassinations are on the + side of the well-being curve, joining–get this–WW2. While times between wars have low well-being?!?

    Utter and compleat junk.

  15. *sigh*

    He does explain all of this in his post. Here is a small quote (but read the whole before critique, please):

    I used four different indicators to approximate the generalized well-being curve. In addition to social optimism, proxied by marriage age, I also looked at an economic indicator and two biological (health) indicators. The economic indicator is the wage of production workers divided by the GDP per capita. Basically it tells us how the fruits of economic growth are distributed – actually paid as wages to workers, or paid out as dividends to share-holders or as compensation to CEOs.
    The health aspect of well-being is captured with two proxies: life expectancy and the average stature (height). Life expectancy is an obvious measure of the quality of life, and so is average stature as is documented in voluminous literature (including writings by the Nobel laureate Robert Fogel).
    To combine the four variables into a single index, I did the following. First, I log-transformed each variable to make peaks and valleys more symmetric. Then I detrended them, as with the age of marriage above. Finally I divided them by the standard deviation, which brings them all to the same scale. Here’s what the four curves look like when plotted together after detrending and scaling (note that marriage age was flipped upside down, because it is earlier age that correlates with well-being)

    And here what he says about the red line:

    The red curve is easier to explain. It is based on the idea of Kevin Philips (as explained in the Aeon article) to measure inequality by the ratio of the largest private fortune to the wealth of a typical (median) household

    He even has a note about wars at the end:

    On the right hand side and coded blue, I list some of the more important integrative occurrences. Unlike internal wars (such as the American Civil War that divided the nation) external wars (War of 1812, World War II) are listed on the right side of the ledger, because they were powerful unifying (and therefore integrative) events.

    If you desire a more technical discussion of the sources, the equations used, the dynamics Turchin proposes to explain how they interact, etcetera, then you will have to trawl through his draft paper, “A Structural-Demographic Analysis of American History” (also linked to above…), where he devotes some ten pages (pp. 17-20, 40-49) on the questions you are asking, with an extended discussion of select historical periods as well (pp. 89-162).

  16. While times between wars have low well-being?!?

    Looks like there is a time lag between cause, that is, inequality, and effect, that is, well-being. Inequality leads to increased well-being ;) Or at least well-being increasing faster than a linear trend. One just needs to apply a bit of selection in the model and, voila, science. Note that we assume a linear trend on account of Fechner’s law.

  17. Comrades, throw off the yoke of your capitalist exploiters. True equality…”from each according etc. etc.” will bring us true well-being and prosperity!

  18. Turchin’s chart is measuring social solidarity and cohesion, which according to him is the essential ingredient involved in the rise and fall of empires.

    A better way to think of it is this:
    look at that blue line and consider it as a measure of when the American empire was expanding when the blue line was high and consolidating when the blue line was low.

    It also corresponds inversely with immigration, which makes sense because “low well being” would be periods of more low wage workers working dangerous jobs and susceptible to health issues and poor nutrition,
    disconnected from their traditional social structure, i.e. not marrying until later.

    “High well being” would correspond with reactionary anti-immigration social and political movements, but also assimilation of immigrants into society. A strong external empire would also thwart immigration by controlling or obstructing the homelands of migrants.

    I don’t necessarily agree that his characterizations of degrees of wellness is the best way to describe the dynamic that is occurring. He’s an academic with some of the typical biases. However, his analysis and reasoning are sound, and you can’t argue with his statistics.

  19. TMLutas vs T Greer:

    What on earth would be the upside of unifying Taiwan and China? China is already way too big in bureaucratic/administrative terms! Should the US, Canada, and Mexico merge into a single political entity, for the same reasons? Bah, humbug.

    Instead, China should spin off Tibet (which despite Han influx still has quite a few who don’t want to part of China) and Uyghuristan, adopt an approach to Taiwan that resembles the US relationship with Canada, NOT KILL THE GOLDEN GOOSE THAT IS HONG KONG, and then just get on with life.

    Oh, yeah, and their last totalitarian act before becoming a civilized polity should be to get rid of anything and averything that hints of Middle Kingdom revanchism.


    Well, I can dream, can’t I?

  20. Turchin’s graph for well-being shows no reduction during the Great Depression, which doesn’t pass the sniff test for me.

  21. GDP fell much more than wages during the depression. There was a lot of government pressure, like Smoot-Hawley, to keep wages elevated.
    Instead of decreasing wages, businesses laid off workers and severely cut production.

    So that would be favorable for the wage to GDP ratio.

    Again, “Well-Being” isn’t the best way to describe what’s going on here. He should call it something like the “Cohesion and Conformity Curve”

  22. I waited to comment until I read all three articles. My response is that it is interesting, but when you get down in the weeds with the details of history. I don’t think it holds together. In the Aeon article, he has the income tax starting in the 20s as a social equality measure. It was established in 1913, so that the prohibitionists could ban alcohol, the sale of which had been the Federal Government’s principal revenue source. He discusses unionization without any reference to the way world trade changed in the aftermath of WWII. Nor do I think that the 30s represents a rising curve of well-being.

    Turchin counts the 20s as part of the rising curve of well being. My hope is that the next president will be like Harding and return the country to normalcy.

  23. “Turchin’s graph for well-being shows no reduction during the Great Depression, which doesn’t pass the sniff test for me.”
    But then I heard too many stories about the Depression from my Okie relatives. Such as my uncle who graduated from high school at age 15 during the Depression, who had to quite college after one semester and go to work.

    Though one addition to well-being during the Depression: many rural areas were electrified during the Depression.

  24. That reminds me of experiences in my family. I also had relatives in Oklahoma during the Depression. My great grandparents were Okies who eventually lost their farm. They were kicked off their land, but, ironically, the tractors that came to bulldoze their homestead were built by their son-in-law (my grandfather) who was doing a brisk business up north building heavy equipment because of orders streaming in from the Civilian Conservation Corps and the Soviets. Apparently, Stalin’s collectivization program prompted a modernization push where they spent millions on American machinery and equipment.

  25. “GDP fell much more than wages during the depression….Instead of decreasing wages, businesses laid off workers and severely cut production.”

    First of all, GDP always falls more than wages in a recession. You wouldn’t ever have cyclical unemployment if businesses were able or willing to reduce costs by cutting wages across-the-board rather than sack people.

    Second, that’s not what’s driving the shape of the curve. There is a long-term secular increase in the “relative wage” (ratio of wages to GDP per capita) over 50 years starting around 1910. He smoothes out the fluctuations in GDP by using 4-year averages, essentially.

    There was a lot of government pressure, like Smoot-Hawley, to keep wages elevated.

    And trade volumes were not big enough in the 1930s for that to make that much difference to wages.

    Turchin’s chart is measuring social solidarity and cohesion, which according to him is the essential ingredient involved in the rise and fall of empires….

    You’re mixing up books.

    i don’t necessarily agree that his characterizations of degrees of wellness is the best way to describe the dynamic that is occurring. He’s an academic with some of the typical biases.

    His “well-being” curve is an index of relative wage (ratio of wage to GDP per capita), life expectancy, height and age of first marriage.

    I cannot agree “relative wage” is an indicator of well-being. It’s certainly an indicator of inequality.

    But if GDP is rising then even a falling labour share of income doesn’t necessarily mean wages are falling. If GDP is falling and labour share falling that would certainly imply lower living standards for workers.

  26. Yes, I felt like the addition of the wage ratio data was a bit funny — it seems to be on the wrong curve!

    I wonder how different the curve looks if you take the wage ratio data out.

  27. As for China, I like Pettis. People would make fewer stupid mistakes if they thought more in terms of the national accounting identity (although that has serious pitfalls). But for decades and decades now people have been bitching about Asian overinvestment and underconsumption. In that book of his Pettis compares with China…with Brazil. There are like a hundred differences between Brazil in the 1970s and China of today. Yes, Pettis has one compelling reason after another why the financial distortions can’t be reversed, but many of those things were said about South Korea in 1973, 1979 and 1997, and I think SK is the better comparison. Pettis likes to point to Japan but its stagnation coincides with lower returns to capital (normal for a rich country) and a badly inverted age-pyramid.

  28. Smoothed or not, wage/GDP ratio is going to drive the other health & welfare factors. He might as well have left out those other variables as they are all too closely correlated.

    As for Smoot Hawley, it had a big effect on the economy. See the stock market recovery in 1930 and subsequent crash after it was passed. Revisionist arguments downplaying its impact come from high tax advocates.
    Even without it, a minimum wage was passed that most definitely kept wages elevated.

  29. Yeah, tax-loving revisionists like Milton Friedman who does not mention Smoot-Hawley even once in The Monetary History of the United States. He has a play-by-play of the banking crisis in 1930-31 in the chapter “The Great Contraction”.

    Why no mention of Smoot-Hawley ? Because Friedman could do some simple math.

    Between 1929 and 1933, net exports fell by ~0.7% of GDP. The only way this has anything but a small effect is to assume some massive multiplier effect, in which case you might as well be an Obama fiscal stimulus advocate times eight.

    The minimum wage law was passed in 1938, way too late for what you’re talking about.

    Smoothed or not, wage/GDP ratio is going to drive the other health & welfare factors. He might as well have left out those other variables as they are all too closely correlated

    Still missing the point. wage/GDP ratio is not an indicator of well-being, and that’s a criticism of Turchin, not a defence. Height and life expectancy are indicators of well-being, and age of first marriage might be.

    The reason Tuchin uses wage/GDP is because he doesn’t trust the price deflator over 200 years, so he can’t use real wages.

  30. And besides, since net exports fell after the passage of SH, the tariffs could not have possibly raised wages !

    I don’t know what I’m doing here. It’s a waste of time.

  31. You’re correct that you’re wasting your time, and you’re wasting your time because you are consistently wrong

    Real wages increased in the second half of 1930 and throughout all of 1931 because of implicit deals Hoover made with certain industries in conjunction with the tariff.

    The reason he used wage/GDP is because it’s the broadest measure of aggregate activity, and it is the broadest reflection of social mood.

    The Smoot-Hawley Tariff was the political and economic equivalent of yelling fire in a crowded theatre. The one person out of 500 in the audience is only a small percentage of the crowd, but the panic he spreads with that one shout is greatly disproportionate. And that was reflected in the markets which declined 15% on the day the tariff was passed.

    To give some (muted)credit to Reductivists like the Paul Krugmans, the underlying idea of these kind of social mood theories is that they are not effected by exogenous factors, so the cycles would have proceeded and propagated regardless of which tax and regulatory measures were taken. The mood of the people was thus, and what was to be was going to be.

    Or that’s the theory, at least.

  32. I like “father of lies” for Obama; “forces of darkness curse the light” for the EPA for shutting down coal fired power plants and banning lightbulbs; which makes Obama the Dark Lord.

  33. The real wage began rising at the end of 1929 — well before 1931.

    The nominal wage began a continuous and steady decline from the middle of 1930.

    What is the discrepancy ? Deflation ! A very substantial deflation.

    The reason he used wage/GDP is because it’s the broadest measure of aggregate activity, and it is the broadest reflection of social mood.

    Since your Vulcan mind meld with Turchin has clearly failed, it’s best to set aside your laziness and actually dig into what he actually says.

    The most common way to measure living standards is the real wage (nominal wage divided by the consumer price index). There are some problems with this measure, because it is sensitive to the composition of the basket of consumables, but it provides the logical place to start with the investigation into popular well-being….

    The cyclic pattern in worker compensation is even more apparent when we consider how well wages did in comparison to GDP per capita {for a similar approach in the case of eighteenth-century England, see \Angeles, 2007 #1808}. The question is, what proportion of economic growth translates into increased incomes for workers, and how does this quantity change with time? This question can be approached with an index constructed by dividing the annual wage by GDP per capita. In other words, instead of scaling nominal wages by the cost of the basket of consumables (which is affected by a variety of estimation biases, as is discussed in the next section), we scale them by GDP per capita. Both wages and GDP are expressed in nominal dollars (if expressed in real terms, we need to take care that we use the same GDP deflator, which will cancel out). I refer to this index as wages relative to GDP per capita, or relative wages for short.

    Using the annual GDP, however, introduces one problem. During deep recessions GDP can decline quite sharply. Wages, being ‘sticky’ (that is, inertial, often taking several years to adjust to new economic conditions), don’t decline as sharply, and the ratio of wages to GDP per capita will leap up. Thus, a deep recession will introduce a spurious upward ‘spurt’ in the relative wage. One way of dealing with this problem is to divide wages not by actual GDP per capita, but to use a smoothed GDP, also known as ‘potential’ or ‘trend’ level of output {Samuelson, 1998 #2260:376}. I smoothed GDP with an exponential kernel smoother {Li, 2006 #2261} using bandwidth h = 4 years, which removes short-term fluctuations of the business cycle.

  34. Now, Turchin clearly intends for his “well-being” curve to be an indicator of material living standards, not popular mood. But wage/GDP measure IS a better index of what you say, popular mood. People do seem to feel glum when inequality is rising, even when their absolute living standards are the same or rising, and not falling. People’s sentiments are not based only on absolute income, but also on relative income. People apparently care about how they are doing in comparison with others. So in my opinion Tuchin’s “well-being” index has mixed up two quite separate measurements, absolute living standards based on height & life expectancy, and perception of relative income based on wage/GDP.

  35. I think Turchin muddles the curve a little bit here. We forget that he has added another variable that is quite clearly a proxy for social mood: marriage age. (In both his Aeon article and the double helix blog post he puts that variable front and center, so it is understandable to think that mood is what the curve is about, imho, if one has not read his more detailed breakdown in the paper.)

    In fact, if we look at all the variables together we get this:

    Biometric height data — A clear measure of physical well being
    Life expectancy — Ditto
    Marriage age — Measure of social mood
    Wage/Gdp ratio — Intended as a measure of physical well being, but is actually a better tell of social mood for reasons Pseudo notes above.

    But I still find the inclusion of the last variable questionable, for really it just seems another way of representing the same basic facts as the blue inequality curve does.

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