Year: 2024

In classes about personal finance, once of the best-known lessons is that investing in US stocks can have considerable short-term risk, but that over an extended period of time, a patient investor has been rewarded for that short-term risk with higher long-run returns. David Chambers, Elroy Dimson, Antti Ilmanen, and Paul Rintamäki discuss this pattern and others in “Long-Run Asset Returns” (Annual Review of Financial Economics, 2024, volume 16). A particular advantage of their study is that, for them, the “long-run” doesn’t mean going back the 1980s or the 1950s, but back to the 19th century and sometimes earlier.

On the issue of stocks having higher returns than bonds in the long-run, they write:

An abundance of evidence has shown that the total returns of equities have exceeded those of (government) bonds over various long-run periods since the beginning of the twentieth century—both in the United States (Ibbotson & Sinquefield 1976; Siegel 1994, 2022) and in the rest of the world (Jorion & Goetzmann 1999; Dimson, Marsh & Staunton 2002). First, we address one of the central questions in empirical asset pricing, namely, whether stocks consistently beat bonds over the long run. As we noted above, this evidence relies primarily on data series starting in 1900 or, in the case of the United States, 1926, when the University of Chicago’s CRSP data starts. In this section, we first discuss the history of stock and bond returns before 1900/1926 … The main message is that the US equity premium over (government) bonds at and above 5% in the 1900s was considerably higher than estimates for the 1800s ranging between +1.6% and –0.6%. … The 224-year estimate of the annualized UK equity-bond premium is in the range of 2–3%, which is again well below the twentieth-century premium of 4–5%.

In short, it’s been a good century for stock returns, especially in the US economy. But some centuries have not been as good.

For bonds, a key question is that they seem to be historically low rates in recent decades.

[B]efore the twentieth century, inflation was very low and there was little difference between nominal and real yields, which both fell to 3–4% around 1900. The twentieth century saw more persistent price rises, particularly the Great Inflation of the 1970s, which pushed nominal rates up to double digits—a level last seen in the 1500s. The post-1982 Great Moderation witnessed global convergence in inflation rates toward 2%—back to the low levels that characterized the pre-1900 economy.

Even after inflation expectations stabilized at low levels in the 2000s, real yields and policy rates kept falling to negative territory. Eventually, even nominal yields in many European countries and Japan turned negative, or reached record low levels in places where they didn’t (the United States and the United Kingdom). The global rise in inflation in 2021–2022 finally turned bond yields higher after a 40-year downtrend. The yield evidence … stretching back over centuries provides confirmation that the recent low (even negative) bond yields were truly exceptional.

What about corporate credit risk, measured by how much the rate of return on corporate bonds exceeds the rate of return on government bonds? They discuss the weakness of the evidence on this point, but argue that it seems as if corporate credit risk doesn’t actually appear in the data until 1973.

What about investments in housing? “When reviewing the evidence on the investment performance of real estate, we discuss the challenges presented by the heterogeneity and immovability of this asset class. The evidence has largely focused on housing and suggests that total returns are below those from equities.”

What about returns to investing in commodities? “We then turn to commodities and critically examine the claims of the recent studies pointing to surprisingly high long-run returns. Here, we conclude that the long-run historical returns on a diversified portfolio of futures have come close to approximating those on equities.”

Generalizing wildly from my own personal experience, I sometimes tend to think about “long-run” returns as the returns happening over the decades in which I am saving for retirement. But of course, the “long-run” does not care about my birthday. A longer view on the long-run opens up new ways of thinking about how possible outcomes, and how and why financial markets distribute their rewards.

Most actions of the US government require a process. A law is passed through Congress and signed by the president. An administrative agency follows a process for a rule, which is then open for a period of public comment, before being finalized. So it seems reasonable to ask: Does President Trump have the legal authority on Day 1 of his presidency, without passage of a new law by Congress or an administrative regulatory process, to impose imports on tariffs from places like Mexico and China–or even the entire world?

When it comes to tariffs, Article 1 of the US Constitution–the part which lays out the structure and powers of the legislative branch–states in Section 8: “The Congress shall have Power To lay and collect taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States …” On its face, this certainly seems to suggest that new tariffs need to start in Congress and be signed into law.

(For those of you wondering about terms like “Duties” and “Imposts,” a “duty” is a tax on imports or exports, and an “impost” is a nearly archaic term for “import duties.” It has been argued that when drafting this part of the Constitution, several different terms were included to reduce the chance of someone arguing that Congress did not actually have these powers.)

But what if Congress decides to delegate its Constitutional powers in this area to the President and the Executive Branch? Clark Packard and Scott Lincicome make the case that this has already happened in “Presidential Tariff Powers and the Need for Reform” (Cato Institute, October 9, 2024, Briefing Paper No. 179). Just to be clear, these authors do not support tariff increases and would prefer that presidents not have the power to impose them with the stroke of a pen. But their review of existing legislation leads them to state, in the subtitle to the article: “Congress has broadly delegated its constitutional tariff powers to the president, and there is a real risk that the legislative and judicial branches would be unwilling or unable to check a future president’s abuse of US trade law as currently written.”

Packard and Lincicome argue that, in the aftermath of the infamous Smoot-Hawley tariff increases in the heart of the Great Depression, Congress mistrusted its ability to refrain from using tariffs to protect specific domestic industries. Thus, Congress began a process of handing trade negotiations and tariff decisions to the executive branch, with the idea that the president (elected at the national level) would be less likely to cater to pressures from local industries and interests than Congress.

What are the most relevant and applicable laws along these lines?

The International Emergency Economic Powers Act of 1977 (IEEPA) … grants the president wide discretionary authority to address “unusual and extraordinary” peacetime threats to national security, foreign policy, or the economy from a “source in whole or substantial part outside the United States.” Presidents have utilized IEEPA authorities to implement US embargoes and sanctions; past uses have included blocking exports to and imports from Nicaragua, blocking Iranian transactions in response to the 1979 hostage crisis, and blocking transactions and property acquisitions made by individuals deemed to be bad actors (e.g., traffickers of narcotics and illicit diamonds, as well as human rights abusers).

IEEPA is subject to a few important procedural requirements. The president may exercise discretionary authority under the IEEPA only if they have declared a national emergency under the National Emergencies Act (NEA). IEEPA also requires the president to consult with Congress in every possible instance before taking action. Concurrent with the declaration of a national emergency pursuant to the NEA and the exercise of IEEPA authority, the president is also required to report to Congress on the necessary actions taken, the countries targeted by the actions, and other details. Unlike other US trade laws, however, IEEPA does not require the executive branch to conduct an investigation or issue a report prior to taking action.

Notice that last condition in particular: no investigation or report is needed. No president has used IEEPA to impose tariffs, but Trump threatened to use the law to impose tariffs on Mexico in 2019 as part of negotiations over what Mexico was (or was not) doing to limit border crossings. The language of the law gives the president very broad authority. For an overview of the IEEPA law, a useful statring point is “The International Emergency Economic Powers Act: Origins, Evolution, and Use” from the Congressional Research Service (updated January 30, 2024)

A second law that Packard and Lincicome point out is “Section 232”:

Section 232 of the Trade Expansion Act of 1962 was passed during the height of the Cold War and authorizes the Commerce Department’s Bureau of Industry and Security—in consultation with the Department of Defense—to investigate whether the importation of a particular product threatens the national security of the United States. If affirmative, the president has virtually unlimited authority to restrict imports to address the national security threat.

Section 232 was little-used in the decades before President Trump’s first term: the previous time it had led to tariffs was during the Reagan administration, with tariffs on machine tools. Some of the proposed historical uses seemed silly, like the idea that national security would be threatened unless the United States limited imports of garlic or scissors. But the Trump administration used Section 232 and “national security” as the basis for imposing tariffs on imports of steel and aluminum, which I discussed here. My point here is not the wisdom of Trump’s earlier choice; it is just to emphasize that Section 232 is alive and kicking as a justification for presidential power to impose tariffs.

Want more? Packard and Lincicome write:

Section 301 of the Trade Act of 1974 grants the US Trade Representative (USTR) the authority to investigate and attempt to remedy “unfair” foreign trade practices through the use of tariffs and other trade restrictions. … The USTR can self-initiate a Section 301 investigations or can open an investigation because of a petition from an interested party. Unlike Section 232, Section 301 is country-specific and requires an investigation and report by USTR. … The duration of Section 301 trade restrictions is similarly open-ended. As long as any representative from the domestic industry benefiting from the action requests its continuation every four years, the action can be extended following a USTR review. The decision to terminate such actions rests solely with the USTR, who can determine whether the restrictions are no longer appropriate.

The Trump administration used Section 301 to impose tariffs on imports from China as part of a broader dispute over intellectual property protection. The Biden administration continued and extended those tariffs: for example, by imposing a 100 percent tariff on electric vehicles imported from China. (Apparently, a dramatic rise in affordable electric vehicles is needed to save the planet, but if the vehicles are made in China, we don’t need to save the planet.)

There are more laws on the books. “Section 338 of the Tariff Act of 1930 grants the president the authority to impose new or additional tariffs of up to 50 percent ad valorem on imports from countries that have `discriminated’ against US commerce as compared to another foreign nation.” “Section 122 of the Trade Act of 1974 empowers the president to unilaterally address “large and serious” balance-of-payments deficits via import surcharges of up to 15 percent and/​or import quotas.  These measures are limited to 150 days unless they are extended by an affirmative act of Congress, and any action under Section 122 must apply to every country. “

The bottom line for Packard and Lincicome is that Congress has effectively handed off a lot of its power over imposing tariffs. In theory, Congress could choose to reclaim these powers, but I am unaware of any broad movement to do so. Instead, they write:

For more than 80 years, presidents largely avoided abusing the enormous unilateral tariff powers that Congress had delegated to the executive branch under several different laws. This changed as both Trump and Biden implemented broad tariffs on dubious grounds, and as Congress, the courts, and the WTO proved unable or unwilling to limit such measures.

If government is considering an industrial policy to subsidize a certain industry (for example, as the US is subsidizing domestic semiconductor manufacturing), what’s the best way to do it? I am not typically a fan of such subsidies, but it’s possible to make an economic case that for certain industries that provide social as well as private benefits (say, reducing carbon emissions or strengthening the domestic supply chain in produce important to national security), some form of government subsidy can be production. But what form?

I ran across an example of some issues that can arise in “The Political Economy of Industrial Policy,” by Réka Juhász and Nathan Lane (Journal of Economic Perspectives, Fall 2024, 38:4, 27–54). They describe a situation which the appropriate form of subsidy would not be for the firms that succeed in producing the desired product, instead for firms that fail. The mechanism would be a “repayable advance” from the government, where successful firms need to repay the advance, but firms that fail to compete in the market do not need to repay. They write:

Consider a green industrial policy, where a public agency subsidizes risky projects that, if successful, would generate both private and social benefits. How should the agency design conditional subsidies? Meunier and Ponssard (2024) show that when firms and public agencies have symmetric information about the probability of a project’s success, rewarding success is optimal. However, under asymmetric information, where only the firm knows its probability of success, failure should be rewarded (!)—as it mitigates the windfall profit that arises when an agency subsidizes projects that would have received financing absent the subsidy. This insight speaks directly to the experience of the French Agency for Ecological Transition (ADEME), a public agency monitoring innovative activities for the energy transition funded by the Investments for the Future Programme. At the outset, ADEME used flat subsidies, but evidence of windfall profits quickly emerged in some projects. Therefore, the agency introduced “repayable advances,” which are subsidies that need to be paid back in the case of success—that is, they are subsidies for failure.

The article that Juhász and Lane cite, by Guy Meunier and  Jean-Pierre Ponssard, is titled “Green industrial policy, information asymmetry, and repayable advance” (Journal of Public Economic Theory, February 2024, e12668). The article will be math-heavy for the uninitiated reader. But they are

One danger of government subsidies for successful firms is that they reward those that would have already been successful in producing the desired good: in fact, they may reward firms for projects that were already financed and underway. In effect, they reward firms that would have already been profitable with even higher profits. In contrast, a repayable advance is aimed at encouraging more firms to try to produce the desired product, because the repayable (and forgivable) advance means that losses from failure are reduced.

On the other side, a danger of repayable advances is that, well, they are paid to firms that don’t succeed. One can imagine a situation where a firm, knowing that it is somewhat protected against losing money, fails to make an optimal effort to succeed. In addition, politicians will find it easier to explain subsidizing success–which also offers photo opportunities!–than subsidizing failure.

In the specific setting of the Meunier-Ponsard model, it turns out that the key difference between subsidizing the winning firms or the losing firms relies on what information is available. For example, consider a situation in which there are a number of possible firms that might be ready to invest in trying to produce the desired product, but neither the government nor the firm’s themselves have any clear idea of who is likely to be most successful. In this setting, it might make sense to promise additional rewards for the winners. But now consider an alternative situation, where the government does not know what firms are likely to succeed, but the firms themselves have a pretty good idea. In that situation, the firms that are likely to succeed are also more likely to be going ahead without the subsidy–and the government is only rewarding what would have happened anyway.

At a broader level, the key point is that providing a broad overall justification for an industry subsidy is only a first step. The actual design of a specific policy can matter a great deal for the incentives that are created. Meunier and Ponsard write:

More generally our analysis justifies the importance of the empirical recommendations made by Rodrik (2014) for an agency in charge of monitoring a green policy. Let us review three of them briefly. Discipline: clarify ex ante objectives for the agency, build an evaluation protocol on what should or could be observed, making this an important aspect of the contracting process. Embeddedness: introduce reasonably simple conditional incentives along the life of the project but be aware of the risk of manipulation. Gaming: it plays an important role in our analysis, we formalize this issue and show how repayable advance may be used in some circumstances to mitigate its impact.

Of course, these guidelines for attempting to assure that industry subsidies are not wasteful or ineffective apply not just to green energy, but to any type of industrial subsidy. For those interested in learning more, Dani Rodrik’s (2014) paper is “Green industrial policy (Oxford Review of Economic Policy, 30(3), 469–491).

Thanksgiving is a day for a traditional menu, and part of my holiday is to reprint this annual column on the origins of the day.

The first presidential proclamation of Thanksgiving as a national holiday was issued by George Washington on October 3, 1789. But it was a one-time event. Individual states (especially those in New England) continued to issue Thanksgiving proclamations on various days in the decades to come. But it wasn’t until 1863 when a magazine editor named Sarah Josepha Hale, after 15 years of letter-writing, prompted Abraham Lincoln in 1863 to designate the last Thursday in November as a national holiday–a pattern which then continued into the future.

An original and thus hard-to-read version of George Washington’s Thanksgiving proclamation can be viewed through the Library of Congress website. The economist in me was intrigued to notice that some of the causes for giving of thanks included “the means we have of acquiring and diffusing useful knowledge … the encrease of science among them and us—and generally to grant unto all Mankind such a degree of temporal prosperity as he alone knows to be best.”

Also, the original Thankgiving proclamation was not without some controversy and dissent in the House of Representatives, as an example of unwanted and inappropriate federal government interventionism. As reported by the Papers of George Washington website at the University of Virginia.

The House was not unanimous in its determination to give thanks. Aedanus Burke of South Carolina objected that he “did not like this mimicking of European customs, where they made a mere mockery of thanksgivings.” Thomas Tudor Tucker “thought the House had no business to interfere in a matter which did not concern them. Why should the President direct the people to do what, perhaps, they have no mind to do? They may not be inclined to return thanks for a Constitution until they have experienced that it promotes their safety and happiness. We do not yet know but they may have reason to be dissatisfied with the effects it has already produced; but whether this be so or not, it is a business with which Congress have nothing to do; it is a religious matter, and, as such, is proscribed to us. If a day of thanksgiving must take place, let it be done by the authority of the several States.”

Here’s the transcript of George Washington’s Thanksgiving proclamation from the National Archives.

Thanksgiving Proclamation

By the President of the United States of America. a Proclamation.

Whereas it is the duty of all Nations to acknowledge the providence of Almighty God, to obey his will, to be grateful for his benefits, and humbly to implore his protection and favor—and whereas both Houses of Congress have by their joint Committee requested me “to recommend to the People of the United States a day of public thanksgiving and prayer to be observed by acknowledging with grateful hearts the many signal favors of Almighty God especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness.”

Now therefore I do recommend and assign Thursday the 26th day of November next to be devoted by the People of these States to the service of that great and glorious Being, who is the beneficent Author of all the good that was, that is, or that will be—That we may then all unite in rendering unto him our sincere and humble thanks—for his kind care and protection of the People of this Country previous to their becoming a Nation—for the signal and manifold mercies, and the favorable interpositions of his Providence which we experienced in the course and conclusion of the late war—for the great degree of tranquillity, union, and plenty, which we have since enjoyed—for the peaceable and rational manner, in which we have been enabled to establish constitutions of government for our safety and happiness, and particularly the national One now lately instituted—for the civil and religious liberty with which we are blessed; and the means we have of acquiring and diffusing useful knowledge; and in general for all the great and various favors which he hath been pleased to confer upon us.

and also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations and beseech him to pardon our national and other transgressions—to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually—to render our national government a blessing to all the people, by constantly being a Government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed—to protect and guide all Sovereigns and Nations (especially such as have shewn kindness unto us) and to bless them with good government, peace, and concord—To promote the knowledge and practice of true religion and virtue, and the encrease of science among them and us—and generally to grant unto all Mankind such a degree of temporal prosperity as he alone knows to be best.

Given under my hand at the City of New-York the third day of October in the year of our Lord 1789.

Go: Washington

Sarah Josepha Hale was editor of a magazine first called Ladies’ Magazine and later called Ladies’ Book from 1828 to 1877. It was among the most widely-known and influential magazines for women of its time. Hale wrote to Abraham Lincoln on September 28, 1863, suggesting that he set a national date for a Thankgiving holiday. From the Library of Congress, here’s a PDF file of the Hale’s actual letter to Lincoln, along with a typed transcript for 21st-century eyes. Here are a few sentences from Hale’s letter to Lincoln:

“You may have observed that, for some years past, there has been an increasing interest felt in our land to have the Thanksgiving held on the same day, in all the States; it now needs National recognition and authoritive fixation, only, to become permanently, an American custom and institution. … For the last fifteen years I have set forth this idea in the “Lady’s Book”, and placed the papers before the Governors of all the States and Territories — also I have sent these to our Ministers abroad, and our Missionaries to the heathen — and commanders in the Navy. From the recipients I have received, uniformly the most kind approval. … But I find there are obstacles not possible to be overcome without legislative aid — that each State should, by statute, make it obligatory on the Governor to appoint the last Thursday of November, annually, as Thanksgiving Day; — or, as this way would require years to be realized, it has ocurred to me that a proclamation from the President of the United States would be the best, surest and most fitting method of National appointment. I have written to my friend, Hon. Wm. H. Seward, and requested him to confer with President Lincoln on this subject …”

William Seward was Lincoln’s Secretary of State. In a remarkable example of rapid government decision-making, Lincoln responded to Hale’s September 28 letter by issuing a proclamation on October 3. It seems likely that Seward actually wrote the proclamation, and then Lincoln signed off. Here’s the text of Lincoln’s Thanksgiving proclamation, which characteristically mixed themes of thankfulness, mercy, and penitence:

Washington, D.C.
October 3, 1863
By the President of the United States of America.
A Proclamation.

The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies. To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God. In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union. Needful diversions of wealth and of strength from the fields of peaceful industry to the national defence, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battle-field; and the country, rejoicing in the consiousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom. No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People. I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens. And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquillity and Union.

In testimony whereof, I have hereunto set my hand and caused the Seal of the United States to be affixed.

Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the United States the Eighty-eighth.

By the President: Abraham Lincoln
William H. Seward,
Secretary of State

As Thanksgiving preparations arrive, I naturally find my thoughts veering to the evolution of demand for turkey, technological change in turkey production, market concentration in the turkey industry, and price indexes for a classic Thanksgiving dinner. Not that there’s anything wrong with that. [This is an updated, amended, rearranged, and cobbled-together version of a post that was first published on Thanksgiving Day 2011.]

Maybe the biggest news about Thanksgiving dinner this year is that the overall cost of a traditional meal is down 4.5% from last year–although still up 25% from 2019. For the economy as a whole, the starting point for measuring inflation is to define a relevant “basket” or group of goods, and then to track how the price of this basket of goods changes over time. When the Bureau of Labor Statistics measures the Consumer Price Index, the basket of goods is defined as what a typical US household buys. But one can also define a more specific basket of goods if desired, and since 1986, the American Farm Bureau Federation has been using more than 100 shoppers in states across the country to estimate the cost of purchasing a Thanksgiving dinner. The basket of goods for their Classic Thanksgiving Dinner Price Index looks like this:

The cost of buying the Classic Thanksgiving Dinner rose 20% from from 2021 to 2022, but then fell back 4.5% from 2022 to 2023, and the dropped another 3.09% from 2023 to 2024. As the table shows, the big change is a drop in turkey prices since last year. The top line of the graph that follows shows the nominal price of purchasing the basket of goods for the Classic Thanksgiving Dinner. The lower line on the graph shows the price of the Classic Thanksgiving Dinner adjusted for the overall inflation rate in the economy. The lower line is relatively flat, which means that inflation in the Classic Thanksgiving Dinner has actually been an OK measure of the overall inflation rate over long periods of time.

Of course, for economists the price is only the beginning of the discussion of the turkey industry supply chain. This is just one small illustration of the old wisdom that if you want to have free-flowing and cordial conversation at dinner party, never seat two economists beside each other. The last time the U.S. Department of Agriculture did a detailed “Overview of the U.S. Turkey Industry” appears to be back in 2007, although an update was published in April 2014  Some themes about the turkey market waddle out from those reports on both the demand and supply sides.

On the demand side, the quantity of turkey per person consumed rose dramatically from the mid-1960s up to the early 1990s: for example, from consumption of 6.5 pounds of turkey per person per year in 1960 to 17.8 pounds per person per year in 1991. But since the early 2000s, turkey consumption has declined somewhat, falling to 14.8 pounds per person in 2023 and projected to fall below 14 pounds per person this year and next.

On the supply side, turkey companies are what economists call “vertically integrated,” which means that they either carry out all the steps of production directly, or control these steps with contractual agreements. Over time, production of turkeys has shifted substantially, away from a model in which turkeys were hatched and raised all in one place, and toward a model in which the steps of turkey production have become separated and specialized–with some of these steps happening at much larger scale. The result has been an efficiency gain in the production of turkeys. Here is some commentary from the 2007 USDA report, with references to charts omitted for readability:

In 1975, there were 180 turkey hatcheries in the United States compared with 55 operations in 2007, or 31 percent of the 1975 hatcheries. Incubator capacity in 1975 was 41.9 million eggs, compared with 38.7 million eggs in 2007. Hatchery intensity increased from an average 33 thousand egg capacity per hatchery in 1975 to 704 thousand egg capacity per hatchery in 2007.

Some decades ago, turkeys were historically hatched and raised on the same operation and either slaughtered on or close to where they were raised. Historically, operations owned the parent stock of the turkeys they raised while supplying their own eggs. The increase in technology and mastery of turkey breeding has led to highly specialized operations. Each production process of the turkey industry is now mainly represented by various specialized operations.

Eggs are produced at laying facilities, some of which have had the same genetic turkey breed for more than a century. Eggs are immediately shipped to hatcheries and set in incubators. Once the poults are hatched, they are then typically shipped to a brooder barn. As poults mature, they are moved to growout facilities until they reach slaughter weight. Some operations use the same building for the entire growout process of turkeys. Once the turkeys reach slaughter weight, they are shipped to slaughter facilities and processed for meat products or sold as whole birds.”

U.S. agriculture is full of examples of remarkable increases in yields over periods of a few decades, but such examples always drop my jaw. I tend to think of a “turkey” as a product that doesn’t have a lot of opportunity for technological development, but clearly I’m wrong. Here’s a graph showing the rise in size of turkeys over time from the 2007 report.

A more recent update from a news article shows this trend has continued. Indeed, most commercial turkeys are now bred through artificial insemination, because the males are too heavy to do otherwise.

The production of turkey is not a very concentrated industry with three relatively large producers (Butterball, Jennie-O, and Cargill Turkey & Cooked Meats) and then more than a dozen mid-sized producers.    Given this reasonably competitive environment, it’s interesting to note that the price markups for turkey–that is, the margin between the wholesale and the retail price–have in the past tended to decline around Thanksgiving, which obviously helps to keep the price lower for consumers. However, this pattern may be weakening over time, as margins have been higher in the last couple of Thanksgivings  Kim Ha of the US Department of Agriculture spells this out in the “Livestock, Dairy, and Poultry Outlook” report of November 2018. The vertical lines in the figure show Thanksgiving. She writes: “In the past, Thanksgiving holiday season retail turkey prices were commonly near annual low points, while wholesale prices rose. … The data indicate that the past Thanksgiving season relationship between retail and wholesale turkey prices may be lessening.”

If this post whets your your appetite for additional discussion, here’s a post on the processed pumpkin industry and another on some economics of mushroom production. Good times! Anyway, Thanksgiving is my favorite holiday. Good food, good company, no presents–and all these good topics for conversation. What’s not to like?

The International Federation of Robotics publishes an annual report on the use of robots in manufacturing and services. The main report is expensive and restricted, but some highlights are free. The top panel shows robots per 10,000 workers in manufacturing industries for 2023. The panel below shows a similar figure with data for 2017. A few themes emerge:

1) Across the major manufacturing countries, the number of robots per 10,000 manufacturing workers roughly doubles, from 85 to 162.

2) The robots in China increase especially rapidly, from close to the national-level average in 2017 to almost triple the national average by 2023.

3) Robots in the US were more than double the national-level average in 2017, and less than double in 2023.

These figure are just a count, not an analysis of effects on jobs or wages. National economies focus on different kinds of manufacturing, and also are facing different demographic trends in the number of working-age adults, so one would not expect the patterns of robots to be uniform. That said, it’s perhaps worth noting that total US manufacturing jobs were 12.3 million in January 2017 and 12.9 million in December 2023, even as the number of robots per 10,000 US manufacturing workers went from 200 to 295. My own opinion is that more robots are part of the productivity-enhancing solution for a healthy US manufacturing sector.

The IFR also reports some statistics on “service robots,” which do not produce goods. At present, these are mainly in transportation/logistics (think robot vehicle scooting around warehouses and factories) and in hospitality (which refers to “food and drink preparation robots as well as social interaction robots providing mobile guidance in retail stores, museums, and other public spaces”).

The middle income trap refers to the pattern in which certain economies grow rapidly enough to move into the global middle class, or even into the group of high-income countries, but at some point this catch-up growth seem to stall. The problem seems potentially widespread. For example, Japan and Korea both went through several decades of rapid growth, but then slowed to a more common pace. China’s exceptionally rapid growth seems to be slowing. The World Bank offers an overview of “The Middle Income Trap,” and possible policy solutions, in the World Development Report 2024.

From the report:

Developing economies change in structure as they increase in size, which means that changes in the pace of growth stem from factors that are new to them. Although these imperatives can vary across countries, economic expansion, on average, begins to decelerate and often reaches a plateau in income per capita growth, typically at about 11 percent of US GDP per capita. Today, this figure would be about US$8,000, or around the level at which countries are firmly considered upper-middle- income. A systematic slowdown in growth then occurs. … However, the pace of progress in middle-income countries is slowing. Average annual income growth in these countries slipped by nearly one-third in the first two decades of this century—from 5 percent in the 2000s to 3.5 percent in the 2010s. A turnaround is not likely soon because middle-income countries are facing ever-stronger headwinds. They are contending with rising geopolitical tensions and protectionism that can slow the diffusion of knowledge to middle-income countries, difficulties in servicing debt obligations, and the additional economic and financial costs of climate change and climate action.

Here’s an illustrative figure. Classify the middle-income countries as they were in the late 1970s. The blue line shows how those countries have done relative to the US, when measured on per capita GDP. The overall catch-up is quite modest, and as the orange line shows, the catch-up that has occurred is mostly due to China. The graph also shows some prominent examples of middle-income countries from different regions. Yes, Poland and Chile have caught up a bit, but their per capita GDP still hovers at about 20-25% of US levels. South Korea is the shining example of a middle-income country that has kept growing, but even after decades of rapid growth, its per capita GDP is about half the US level–and it’s catch-up seems to have stalled over the last decade or so.

The report suggests that economic development involves multiple steps. The first step is for a country to increase its investments in physical capital and human capital. However, the report offers a striking fact on this point: Middle-income countries already, at present, have about 71% of the physical and human capital of the US on a per capita basis; however, output per worker is only about 21% of US levels. The capital investment in these countries is not translating into output.

A plausible reason for this gap is that the quality of physical and human capital investment in middle-income countries is not as high, or to put it another way, the technology is not as good. Thus, the report argues that after an increase in investment, additional steps is needed.

To achieve more sophisticated economies, middle-income countries need two successive transitions, not one. In the first, investment is complemented with infusion, so that countries (primarily lower-middle-income countries) focus on imitating and diffusing modern technologies. In the second, innovation is added to the investment and infusion mix, so that countries (primarily upper-middle-income countries) focus on building domestic capabilities to add value to global technologies, ultimately becoming innovators themselves. In general, middle-income countries need to recalibrate the mix of the three drivers of economic growth—investment, infusion, and innovation—as they move through middle-income status

Consider this sketch of the relationship. Notice that the original step of greater investment is needed, but it doesn’t do much for catch-up growth. That happens with the later steps of infusion and innovation.

These additional step of infusion and innovation are potentially quite hard, because changing the technology of an economy is not plug-and-play. The necessary changes don’t just happen inside companies, but also involve shifts in earlier economic, social and political understandings. Incumbents will push back against forces that require substantial change. As one example: “In many middle-income countries, power markets are still a monopoly: an SOE [state-owned enterprise] operating under a vertically integrated utility remains in charge of generation, transmission, distribution, and the retail supply.” Such incumbent firms are comfortably sheltered behind a barricade of powerful political and economic forces.

From this perspective, the key to growth isn’t exactly the technology itself, but rather the incentives and flexibility within a given country and economy that determine how and how fast the technology will be adopted. For firms, this flexibility is about entry of new firms and the extent to which existing firms evolve and change, and about giving successful firms space to grow and inefficient firms the chance to shut down or be absorbed. For people, it’s about opportunity and mobility. The report notes: “Economically and socially mobile societies are better at developing skills and utilizing talent, but social mobility in middle-income countries is about 40 percent lower than that in advanced economies.”

The report has much more to say: about how the finance industry can support these evolutions, or not; about how countries with an international diaspora of skilled emigrants might be able to draw on those connections; about striking a balance where success is encouraged without being allowed to become entrenched; and so on.

The emphasis of this report on a dynamic and evolving society struck me as having relevance not just to middle-income countries, but also to high-income countries including the United States. For example, the report notes: ]

Three kinds of preservation forces perpetuate social immobility in middle-income countries, shutting out talent from economic creation. The first force is norms—biases that foreclose or limit opportunity for women and other members of marginalized groups. Next are networks—above all, family connections. And the last force is neighborhoods—regional and local disparities in access to education and jobs. Although all three factors can have positive impacts on talent creation—filling voids left by missing markets and services—they become forces of preservation when they block the disadvantaged from accessing opportunity.

Thinking about how to limit the constraints that norms, networks, and neighborhoods can put on the flourishing of individuals seems like a US issue, too.

Back in 1939, Winston Churchill famously said in a radio broadcast: “I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma …” One might say something similar today about the state of Russia’s economy. Since Russia’s renewed invasion of Ukraine in 2022, international economic sanctions have increased. However, Russia’s economic growth appears robust, according to IMF figures, because of enormous wartime stimulus. Meanwhile, Russia’s central bank has hiked its policy interest rate above 20%, partly to choke off inflation and partly to avoid a depreciation of the ruble (which would make it more expensive for Russia to import goods from China, in particular). Add unreliable and unavailable Russian economic statistics to the mix, and it’s hard to see into the riddle, though the mystery, past the enigma. But some evidence does bubble to the surface now and then.

A report from the Wall Street Journal describes “The ‘Deathonomics’ Powering Russia’s War Machine; Payments for soldiers killed on the front lines are transforming local economies in some of Russia’s poorest regions” (by Georgi Kantchev and Matthew Luxmoore November 13, 2024).

Facing heavy losses in Ukraine, Russia is offering high salaries and bonuses to entice new recruits. In some of the country’s poorest regions, a military wage is as much as five times the average. The families of those who die on the front lines receive large compensation payments from the government.

These are life-changing sums for those left behind. Russian economist Vladislav Inozemtsev calculates that the family of a 35-year-old man who fights for a year and is then killed on the battlefield would receive around 14.5 million rubles, equivalent to $150,000, from his soldier’s salary and death compensation. That is more than he would have earned cumulatively working as a civilian until the age of 60 in some regions. Families are eligible for other bonuses and insurance payouts, too. “Going to the front and being killed a year later is economically more profitable than a man’s further life,” Inozemtsev said, a phenomenon he calls “deathonomics.”

The subsidies are large enough to reduce poverty rates in some of Russia’s poorest areas, and also to balloon budget deficits:

The money flowing to military families can also carry economic risks. The payouts cost around 8% of state expenditures in the year to June 2024, expanding the budget deficit, according to an analysis by Re: Russia, a research group. The payouts have contributed to a high inflation rate plaguing Russia, leading the central bank to raise interest rates to near-record 21%. And more men going to the front is stoking a labor crunch, leaving employers short of welders, drivers and builders.

In Russia’s hinterland, though, the war payouts make a big difference. In Tuva, a remote region where the poverty rate is three times the national average, bank deposits have jumped by 151% since January 2022, the month before the invasion, central-bank data shows. That is the highest increase in Russia, a sign that people are able to squirrel away substantial amounts of money. The region is also in the midst of a record construction boom with new multistory residential complexes arising in the regional capital of Kyzyl. It is almost as if an entire generation has found work overseas and is now sending back remittances.

The Stockholm Institute of Transition Economics (SITE) at the Stockholm School of Economics has tried to see through the smoke in its report “The Russian Economy in the Fog of War” (September 2024). The report starts by putting the size of Russia’s economy in international perspective.

In a global context, Russia is sometimes labeled a “great power”. There are good historical reasons for this. It was one of two opposing poles in the cold war; it remains a major nuclear state; it is a permanent member of the UN security council with veto powers; between 1998 and 2014 it was part of the G7 which with the inclusion of Russia became the G8; and in terms of land size Russia is by far the largest country in the world. In terms of economic size, however, Russia is not a “great power” with a GDP of around 2000 billion US dollars. That is about 1/10th of the combined GDP of the EU-27 (about 20 000 billion US dollars), or approximately the same size as the Nordic countries combined. The size of the US economy is about 27 000 billion US dollars or more than 13 times the Russian economy. Compared to other BRIC countries, Russia is behind Brazil (2200 billion US dollars), distanced with some margin by India (3600 billion US dollars), and only around 10 percent of the Chinese economy (17 800 billion US dollars). … In other words, there is no reasonable scenario where Russia could afford to outspend the West on military equipment and personnel if the West decided to enter a full-blown arms race with Russia in the longer run, when short-run production constraints are not the deciding factor.

For Russia, oil and gas exports alone are about 14% of total GDP. Thus, Russia’s economy fluctuates with energy prices. The report cites one estimate that “between 60 and 95 percent of Russia’s GDP growth can be explained by changes in one exogeneous variable alone: the change in international oil prices.”

Another way of illustrating how natural resources dominate the Russian economy is to look at trade flows. A break-down of what Russia exports, and to whom, shows that more than half consists of sub-soil assets, and more than 40 percent of the total is oil and oil products. When instead looking at imports, it is clear that Russia depends on the rest of the world for machinery, electronics, vehicles, pharmaceuticals, and other goods that require innovation and competitive manufacturing. In short, the Russian economy in terms of trade relations can be described as exporting mainly natural resources, while importing manufactured items and being highly dependent on importing advanced products.

Since 2022, Russia has stopped and then re-started the publication of various economic series. The official GDP numbers are probably not trustworthy, and even to the extent that they can be trusted, they involve heavy production for a wartime rather than a civilian economy. The report uses the price of oil to estimate the size of Russia’s GDP, and then applies a range of possible estimates of inflation, withe the result that “all the alternative measures of growth are negative, ranging from around minus 2 to minus 11 percent.”

The unemployment rate in Russia appears to be quite low, at an official rate of 2.4%. But the grim reason is a combination of killed and wounded in the Ukraine war and people of military age fleeing the country. As the report notes:

Beyond the aggregate numbers, there are also important details when it comes to what happens with the composition of the workforce. The war requires soldiers in great numbers at the front lines, mostly young males, with many of them ending up killed or injured. The war has also triggered an outmigration of citizens due to sanctions and the threat of conscription. Notably, those emigrating are predominantly middle-class business owners and educated workers in conscription age. Furthermore, migrants also move their capital to their new home countries, as for instance shown by the significant financial flows being directed from Russia to the United Arab Emirates since the invasion began in February 2022 (Alexander and Malit, 2024). This suggests that the brain drain not only results in a reduction of skilled labor but also in a loss of capital and investment.

In snowy mountain regions, the situation is sometime ripe for an avalanche, but at the same time, exactly what might cause the avalanche to happen can be unclear. Russia’s economy is currently spending about 8% of GDP on defense and intelligence, while running large budget deficits, double-digit inflation, interest rates north of 20%, and suffering under international sanctions. I do not know if the result will be an economic avalanche, or just a stagnant and declining standard of life for civilians.

The eruption of the COVID-19 pandemic in March 2020 is less than five years ago: still, it has become hard (for me, at least) to recapture in my own head the fears and uncertainties of those first few months. The unemployment rate spiked from 3.5% in February 2020 to 14.8% just two months later in April 2020. It was not clear how many employers would function, or how many people would earn a living. In short, it was a time when a fast legislative reaction seemed essential. But although no one of prominence was making this point in March 2020, any high-speed plan to spend a few trillion dollars is also extraordinarily likely to end up with an oversized proportion of waste and abuse.

Cecilia Elena Rouse makes this point in her broader discussion of “Lessons for Economists From the Pandemic,” delivered as the annual Martin Feldstein Lecture at the National Bureau of Economic Research (NBER Reporter, 2024, No. 3). She describes the sheer size of federal spending in response to the pandemic:

In response, in 2020, Congress passed and then-President Trump signed two bills: the Families First Coronavirus Response Act on March 18, 2020 (providing $192 billion for COVID research, enhanced UI, and health funding), and the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) less than 10 days later (providing more than $2.2 trillion in economic stimulus). CARES alone was the largest stimulus package in American history. These were followed by the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, which was signed in December 2020, providing $900 billion in additional funding and stimulus. And then, in 2021, Congress passed and President Biden signed the American Rescue Plan, which added yet another $1.9 trillion in stimulus and recovery funding. In total, this was more than $4.5 trillion in stimulus, compared to just over $2 trillion throughout the 2008 global financial crisis (both in 2022 dollars).

Rouse focuses on some of the main aspects of the CARES legislation passed in March 2020. As she points out, while the law “may have been `good enough,’ it was sloppy.” She points out:

This lesson is based on the fact that federal data, computer, and human resource infrastructures were — and still are — not up to the task of delivering surgical and speedy support for the economy. Components of the CARES Act highlight this reality well. For example, the Paycheck Protection Program (PPP) provided uncollateralized and forgivable loans to small businesses (generally, those with fewer than 500 employees). These loans could officially be used only to retain workers (with several safe harbor provisions), meet payroll and health insurance costs, or make mortgage, lease, and utility payments. If these conditions were met and firms met their employment targets, the loans would be entirely forgiven after the pandemic. The Economic Injury Disaster Loan (EIDL) program provided low-interest-rate loans of up to $2 million, payable over up to 30 years. Loans also included the option to defer all payments during the first two years while businesses and nonprofits got back on their feet after the pandemic. And finally, the coverage and generosity of UI were expanded dramatically. Benefits were increased by $600 per week, and those not typically covered, such as gig workers and contractors, were made temporarily eligible.

While it may have been “good enough,” it was sloppy. On the one hand, nearly 1 million firms received PPP loans (worth $150,000 to $10 million), and 3.9 million received EIDL loans. On the other hand, this assistance was rather inefficiently delivered. Waste and poor targeting were a problem. David Autor and his coauthors estimate that PPP loans cost between $169,000 and $258,000 per job-year saved, which is more than twice the average salary of these workers. They also estimate that more than two-thirds of the total outlays on the program accrued to business owners and shareholders rather than employees.

Outright fraud was also a major issue. The Government Accountability Office (GAO) estimates that PPP fraud totaled about $64 billion out of a total of nearly $800 billion in loans— that is, about 8 percent of all PPP loans may have been fraudulent. Under EIDL, some borrowers claimed loans using falsified names or business details and often simply ran off with the cash. In the end, the GAO and the Small Business Administration estimate that EIDL fraud was even more pervasive than PPP fraud, in dollar terms — more than $136 billion. UI fraud also skyrocketed during the pandemic; the GAO estimates that fraud may have cost anywhere from $55 to $135 billion.

Add it up, and the $2.2 trillion of economic stimulation in the CARES legislation may have involved more than $300 billion of outright fraud–as well as extremely high costs per job saved. Of course, adding the fraud and waste components from the rest of the pandemic-response legislation would add to the total fraud and waste.

Was this tradeoff between speed of response and the nearly inevitable fraud and waste that followed worth it? Rouse points out that compared to other high-income countries, the recovery of US GDP by the end of 2021 was much stronger. She also notes that this boost of federal support also played a role in triggering the resurgence of inflation. She argues that the pandemic response was clearly not perfect, but given the stresses of the time, could at least be categorized as “good.”

I’m willing to give Congress and President Trump something of a pass for the pandemic support passed in the craziness of March 2020. It seems to me that the additional $2 trillion or so in stimulus passed into law under President Trump in December 2020 and under President Biden in March 2021 probably deserved more scrutiny than they got.

The obvious follow-up question is whether it’s possible, when (not if) a similar crisis occurs, to reduce this tradeoff between a speedy response on one hand and waste and fraud on the other hand–a tradeoff that occurred across other high-income countries as well. Rouse points out that minimizing fraud and waste means investing up-front in information systems and technology that make it possible for the administrators of these programs perform their role as front-line fraud and waste detectors. But the US has lagged behind in such investment. Rouse focuses on the example of information technology in unemployment insurance programs, which are run at the state level, although her point can be more broadly applied to many government information systems. She notes:

As of 2020, less than half of the states had modernized their UI [unemployment insurance] systems. Some state systems still run on COBOL; it is almost impossible to submit an application on a mobile device in most states, and workers in some states must still be physically mailed a password to log in to their UI account. In part because of these challenges, by the end of May 2020, only about 57 percent of unemployment claims had been paid nationwide. This created a double crisis, where overworked employees didn’t have the resources they needed to rigorously verify claims, leading to more fraud, while genuinely eligible workers had to wait weeks or months to get their benefits.

Moreover, if the goal in a pandemic-type situation is to get income to those suffering immediate disruption, unemployment insurance as it exists is an imperfect tool. The program doesn’t cover many people in “alternative” work arrangements like contract worker, the self-employed, gig workers, or students who hold jobs while taking classes at the same time.

We are already seeing some high-profile prosecutions for fraud during the pandemic. But while trying to identify the wrongdoers several years later is necessary, it’s also a costly and inefficient way to limit wrong-doing. What we aren’t seeing is serious thought (and investment) to reduce risks of fraud and waste in these programs both now, and in a future crisis.

David A. Price of the Richmond Fed serves as interlocutor in an interview with “Laura Alfaro: On global supply chains, sentiment about trade, and what to learn from Latin America” (Econ Focus, Fourth Quarter 2024, pp. 22-25). Here are a couple of comments from Alfaro that stuck with me:

On lessons for the United States from Latin America, Alfaro comments:

On the negative side, I don’t see the United States paying attention to unsustainable fiscal debt. Politicians have been just offering to spend money and this at some point comes back to roost. One does start to worry. It is true that the United States has advantages. It’s the biggest economy in the world; it has its own currency, which is the reserve currency. So we tend to assume that it can go on forever — that when the end of the world comes, U.S. sovereign debt will be around along with the cockroaches. But it is not endless. 

For Americans, anti-trade attitudes seem inextricably intertwined with negative attitudes regarding trade with China. The “Great Reallocation” refers to the pattern that, as the US has raised tariffs on imports from China since 2017, products are instead being partially produced in China, finished in third countries, and then imported to the US from these third countries. Alfaro describes the pattern of US public opinion in this way:

There seems to be a backlash against globalization, but it’s in rich countries. People think it’s global, but it’s not. It’s Brexit; it’s the United States. I did this work with Davin Chor and Maggie Chen. … We were thinking that what’s going on is people have not been explained the benefits of globalization. … And so in an arrogant way, we thought we would teach them. That was the objective of the paper: Let’s give people facts about trade to see if we convince them that trade is good.

And what are these facts? The U.S. has never seen the level of employment it has seen during globalization. If you look at the number of employed people in the U.S. in the last 20 years, U.S. unemployment is low, and the U.S. keeps employing people. So we gave these facts. We also showed the fact that the price of goods has come down. To keep it simple, we showed them the price of computers, the nominal price. We didn’t even go into real and nominal. The nominal price of computers has gone down. And of clothes. We also showed them that with tariffs, prices went up.

Unsurprisingly, if you tell them there was a loss of manufacturing jobs, people go against trade. But even if you tell them everything positive — it created more jobs, it lowered prices, tariffs increase prices — the process still made them more against trade. And these were randomized experiments. So we did this for five years, because we were thinking no, we did something wrong the first time. But the outcomes were very stable.

And so we went and asked people: I just told you trade was good, why are you still against trade? What we found is that people cannot differentiate trade from a link with China and jobs. It doesn’t matter what you tell them, it instantly triggers an association with China. So we walked away a little bit more humble because our models are not models that deal with national security. And that’s a concern that they mentioned. We economists should probably try to think more about how to incorporate national security concerns.

Our conclusion is that if we do want people to support trade — and as I said, I do think trade has benefits, and we do need to do things to improve redistribution, retooling, reskilling — if we want people to be open to it, we need to address the concerns about the particular bilateral interaction with China. Perhaps that reallocation is one way to deal with it. Let’s try to trade a little bit more with Vietnam and some other countries.

However, in our own work what we have found is that even as the U.S. has directly imported less from China, the main trade partners of the U.S. are importing more from China. Mexico is importing more. Europe is importing more. And Vietnam is importing more. So even though directly the U.S. is diminishing the exposure, indirectly the exposure might still be there. Therefore, one still needs to worry because people eventually may also note that the relation is indirect, given the concerns of the bilateral relationship with China.