Monthly Archives: September 2017

30/9/17: Technological Revolution is Fizzling Out, as Ideas Get Harder to Find

Nicholas Bloom, Charles Jones, John Van Reenen, and Michael Webb’s latest paper has just landed in my mailbox and it is an interesting one. Titled “Are Ideas Getting Harder to Find?” (September 2017, NBER Working Paper No. w23782. the paper asks a hugely important question related to the supply side of the secular stagnation thesis that I have been writing about for some years now (see explainer here: and you can search my blog for key words “secular stagnation” to see a large number of papers and data points on the matter). Specifically, the new paper addresses the question of whether technological innovations are becoming more efficient - or put differently, if there is any evidence of productivity growth in innovation.

The reason this topic is important is two-fold. Firstly, as authors note: “In many growth models, economic growth arises from people creating ideas, and the long-run growth rate is the product of two terms: the effective number of researchers and their research productivity.” But, secondly, the issue is important because we have been talking in recent years about self-perpetuating virtuous cycles of innovation:

  • Clusters of innovation engendering more innovation;
  • Growth in ‘knowledge capital’ or ‘knowledge economies’ becoming self-sustaining; and
  • Expansion of AI and other ‘learning’ fields leading to exponential growth in knowledge (remember, even the Big Data was supposed to trigger this).

So what do the authors find?

“We present a wide range of evidence from various industries, products, and firms showing that research effort is rising substantially while research productivity is declining sharply.” In other words, there is no evidence of self-sustained improvements in research productivity or in the knowledge economies.

Worse, there is a diminishing marginal returns in technology, just as there is the same for every industry or sector of the economy: “A good example is Moore's Law. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 18 times larger than the number required in the early 1970s. Across a broad range of case studies at various levels of (dis)aggregation, we find that ideas — and in particular the exponential growth they imply — are getting harder and harder to find. Exponential growth results from the large increases in research effort that offset its declining productivity.”

We are on the extensive margin when it comes to knowledge creation and innovation, which - to put it differently - makes ‘innovation-based economies’ equivalent to ‘coal mining’ ones: to achieve the next unit of growth these economies require an ever increasing input of resources.

Computers are not the only sector where the authors find this bleak reality. “We consider detailed microeconomic evidence on idea production functions, focusing on places where we can get the best measures of both the output of ideas and the inputs used to produce them. In addition to Moore’s Law, our case studies include agricultural productivity (corn, soybeans, cotton, and wheat) and medical innovations. Research productivity for seed yields declines at about 5% per year. We find a similar rate of decline when studying the mortality improvements associated with cancer and heart disease.” And more: “We find substantial heterogeneity across firms, but research productivity is declining in more than 85% of our sample. Averaging across firms, research productivity declines at a rate of around 10% per year.”

This is really bad news. In recent years, we have seen declines in labor productivity and capital productivity, and TFP (the residual measuring technological productivity). Now, knowledge productivity is falling too. There is literally no input into production function one can think of that can be measured and is not showing a decline in productivity.

The ugly facts presented in the paper reach across the entire U.S. economy: “Perhaps research productivity is declining sharply within every particular case that we look at and yet not declining for the economy as a whole. While existing varieties run into diminishing returns, perhaps new varieties are always being invented to stave this off. We consider this possibility by taking it to the extreme. Suppose each variety has a productivity that cannot be improved at all, and instead aggregate growth proceeds entirely by inventing new varieties. To examine this case, we consider research productivity for the economy as a whole. We once again find that it is declining sharply: aggregate growth rates are relatively stable over time, while the number of researchers has risen enormously. In fact, this is simply another way of looking at the original point of Jones (1995), and for this reason, we present this application first to illustrate our methodology. We find that research productivity for the aggregate U.S. economy has declined by a factor of 41 since the 1930s, an average decrease of more than 5% per year.”

This evidence further confirms the supply side of the secular stagnation thesis. Technological revolution has been slowing down over recent decades (not recent years) and we are clearly past the peak of the TFP growth of the 1940s, and the local peak of the 1990s (the ‘fourth wave’ of technological revolution).

Australian Politics 2017-09-30 15:49:00


Child institutional abuse probe’s approach under fire

Under influence from an unscientific nut

The $500 million royal commission into institutional child abuse is promoting “ethically dubious” and potentially harmful ideas about the counselling of sexual abuse victims and the reliability of their testimony, senior experts in the field have warned.

Several leading national and international researchers say the long-running inquiry has adopted a misguided victim-advocacy role and published misleading, inaccurate research that could potentially undermine the $4 billion redress scheme for abuse victims.

Richard Bryant, director of the Westmead Trauma Stress Clinic, said the royal commission ­appeared to be advocating counselling practices that were potentially dangerous and contradicted guidelines endorsed by the ­National Health and Medical ­Research Council.

His concerns were echoed by several experts in psychology, including emeritus professor Don Thomson, chairman of the ethical guidelines committee of the Australian Psychological Society, and Elizabeth Loftus of the University of California Irvine, an internationally renowned memory researcher who described some of the ideas endorsed by the commission as “brain babble”.

Harlene Hayne, vice-chancellor of the University of Otago in New Zealand, said one of the commission’s recent reports contained “a level of error that would probably cause you to fail an undergraduate memory course”.

The criticisms centre on two royal commission reports, one on the proposed compensation scheme, the other examining the effects of childhood trauma on memory.

The compensation report draws extensively on the advice of Cathy Kezelman, president of the victim-advocacy organisation the Blue Knot Foundation and co-author of a 120-page counselling guide that advocates “trauma-­informed care”, an approach the royal commission adopted. Its central idea is that counsellors focus on their clients’ underlying trauma rather than their presenting symptoms.

Dr Kezelman is a former GP who underwent psychotherapy in her 40s and developed multiple personalities while recovering “repressed memories” of being raped and tortured as a child by her father and a pedophile cult led by her grandmother.

She cites her nine years of psycho­therapy as an example of trauma-informed care, and has forged a close relationship with the royal commission, which praised the clinical expertise of her organisation in its report and suggested trauma-informed care could play a valuable role in the compensation scheme.

In today’s Weekend Australian Magazine, Dr Kezelman’s brother, Claude Imhoff, an emergency physician, refutes his sister’s story of pedophilia, saying he lodged a formal complaint against her psychologist in 2012, arguing that her treatment triggered “false memories” of abuse and caused immeasurable harm to her and his family.

The issue of whether people can entirely forget incidents of childhood abuse and then recover repressed memories of them years later has split the psychotherapy professions in recent decades, with many experts arguing there is no empirical evidence to support a phenomenon. Professor Bryant said the trauma-informed approach advocated by Dr Kezelman directly contradict best-practice guidelines endorsed by the NHMRC, which encourage counsellors to focus on treating symptoms.

He said her counselling guidelines advocate ethically dubious and potentially dangerous therapy techniques such as helping clients retrieve “implicit memories” that are hidden from consciousness, a technique that caused a rash of false and bizarre reports of child abuse in the 1980s and 90s.

“Does the royal commission really want to advocate policies that are contrary to the NHMRC?” he asked. “If funds are going to be made available for people who have been damaged, I think it would be ethically irresponsible, and would further compound the damage to the victims, if the system promoted or even ­allowed psychological services that are not evidence-based.”

Professor Loftus described aspects of the guidelines as “brain babble”, saying if they were widely adopted, “I foresee a world of hurt in Australia’s future”.

Dr Kezelman defended the guidelines, saying they had been endorsed by the Royal Australian and New Zealand College of ­Psychiatrists and the Royal Australian College of General Practitioners. The chairman of the RANZCP’s faculty of psychotherapy, Michael Daubney, said current counselling methods often did not meet the complex needs of people who had suffered extensive interpersonal abuse in childhood, a gap that trauma-­informed care could fill.

The royal commission report stipulates it is not advocating any particular counselling model for the compensation scheme, but recommended Dr Kezelman’s organisation be involved in ­accrediting counsellors for the scheme: she now sits on the advisory panel devising it.

The inquiry’s chairman, judge Peter McClellan, has described her as an “old friend” of the commission and appeared with her at conferences and media events, including one scheduled for today when Dr Kezelman will introduce the judge’s speech to a psychotherapy conference in Sydney.

The other royal commission report to have attracted strong criticism is a 185-page review of the effects of childhood abuse on memory, which states among its findings that young children are not highly suggestible and do not appear to be more susceptible to misinformation than adults.

Professor Thomson said these assertions are contradicted by decades of research, a view supported by Professor Hayne and Deirdre Brown, from Victoria University of Wellington, two leading child psychology researchers.

Professor Hayne described the report as sloppy, inaccurate and potentially harmful to the cause of abuse victims. She was concerned a government inquiry was promoting such an erroneous, falsely optimistic view of children’s reliability, potentially undermining years of study into their vulnerabilities as witnesses. “Maybe they misguidedly have the view that this is an advocacy exercise,” she said. “I can see how this report could be misused and would lead to greater harm to children, if it leads to the belief they don’t have special needs as witnesses.”

The lead author of the report, Jane Goodman-Delahunty of Charles Sturt University, said she was aware some researchers contested its findings but these reflected robust recent research showing children were not as suggestible as earlier studies had reported. She said one aim of the report was to highlight ways to ­address the high incidence of ­“potentially wrongful acquittals” in child sex abuse cases, although it acknowledges the import­ance of careful, non-­suggestive questioning of children.

In a prepared statement, the royal commission said it had commissioned a large number of research reports, and the report co-authored by Professor Goodman-Delahunty reflected the views of the authors and not necessarily the views of the commission itself.


Another reason to abolish 18C. Consider this vexatious complaint’s threat to free speech

When the legal affairs editor of this paper, Chris Merritt, sent a carefully worded reply on March 9 to an email he had received two days earlier, that should have been the end of a matter involving what can fairly be described as a mild-mannered response to abusive hate mail.

Instead, the relevant series of emails is about to become the latest chapter in the story of Australia’s notorious anti-free-speech law, section 18C of the Racial Discrimination Act.

Attempting to single out any one element of this case for special treatment is a difficult task, but it is a laughable indictment of this dreadful law that Merritt, Janet Albrechtsen and Hedley Thomas (to whom some of the original emails were sent) are defendants in this case, rather than plaintiffs.

The reason this is so perplexing is that it was the original recipients who were vilified on grounds of “race, colour, or national or ethnic origin”, not the sender.

And yet the plaintiff is Sokhom Prins — the author of emails referring to writers at The Australian as members of a “WHITE RACIST POSSE”.

Ms Prins.  She is a Cambodian who survived the Pol Pot horror and who now lives in Australia.  She describes Australia on her Twitter account as a "great country, pity about the people".  Racist?

I have always thought the use of capital letters really lends an air of credibility to the written word. It is very effective use of language by Prins.

In a rare display of sensible judgment, the Australian Human Rights Commission dismissed the complaint when it first came across the desk of the bureaucrats whose job it is to decide whether feelings have been sufficiently hurt to usher the complaint through a convoluted series of supervised discussions between the complainant and the alleged offender.

In the letter to Prins explaining the commission’s reasons for dismissing the complaint, officer Jodie Ball stated: “The information you have provided to the commission is confusing and not easy to understand … The commission has spent considerable time trying to make sense of your correspondence.”

That is a lawyerly way of explaining that the Prins document was more of a rant than a carefully considered, quasi-legal statement of complaint.

Despite having been dismissed at the first hurdle, the complaint has now been advanced by Prins to the Federal Circuit Court.

Of course, if you are unable to express your complaint in clear enough language that others can understand, it is pretty unlikely that your claim will be successful. So Prins’s demands for the removal of the offending column (Merritt’s email response to Prins was published in this paper) and $1.6 million in damages are more than likely to be rebuffed by the court.

But the dismissal of this complaint should not be seen as validation of section 18C.

Even if the matter is withdrawn by Prins tomorrow, there have still been significant costs incurred by the defendants.

The time and energy already expended on this case will never be recovered.

And the money spent engaging lawyers is unlikely to be recouped, even if the court makes a costs order against a complainant.

Many of those who are in favour of the state dictating the limits of public discussion via the operation of section 18C will no doubt point to the marginal amendments that were made to the administration of the law earlier this year.

One of those changes was a new requirement that if a case had previously been dismissed by the Human Rights Commission for being “trivial, vexatious, frivolous, misconceived, or lacking in substance”, it could only advance to the Federal Circuit Court with leave of the court.

But Prins filed her complaint before those changes came into ­effect. Some will therefore argue that the new regime will not allow for a vexatious complaint to drag on as this one has.

But that relies on the Human Rights Commission dismissing cases such as this for being vexatious. And while it might seem obvious to the casual observer that complaints of this kind meet that requirement, this is not common practice for the AHRC. That a case may be dismissed for a reason other than being vexatious would not be ­unusual.

Fifty of 55 complaints under the Racial Discrimination Act in 2015-16 were dismissed because there was “no reasonable prospect of conciliation”. Just three dismissals in the last year fell under the vexatious category, with another two complaints dismissed for other reasons.

The upshot is that the procedural amendments made by parliament will knock out only a tiny proportion of complaints, without providing sufficient protection for free speech.

This latest example bolsters the argument for the repeal of section 18C.

Newspapers, journalists, columnists and students at university will not be free to express themselves until this dangerous law is removed in its entirety from the commonwealth’s statute books.


Mum infuriated by absurd letter home from preschool

LET’S just say this preschool has some unrealistic expectations about three-year-old children. They didn’t go down well.  One suspects that the authors of the letter are not themselves parents

A mum has shared a baffling newsletter sent home from her child’s preschool with US based parenting site Scary Mommy, Kidspot reports.

Why so baffling? Well, it appears that the staff of the preschool have some pretty unrealistic expectations of a group of three and four-year-olds.

“We made it through a really tough first month with tears, attitudes, unwillingness, not listening, not obeying the rules and especially, too much talking and not enough sitting in seats when asked to,” the October 2017 newsletter of this particular establishment reads.

“We work on this every day at school, but we need help from home, too. We realise kids don’t want to sit and would rather talk and play when they want to; but that’s not how school works.

“Preschool is preparation to go on to ‘big’ school and these things are important there, too. We simply can’t say that our kids don’t like colouring and sitting still because Kindergarten and first grade have a lot of colouring. Please, work five or 10 minutes each day with your child on this and you’ll see improvement. We have seen improvement with several kids already.

“We realise it’s a fast-paced world and parents work, but the adults in the house have to be in charge and help the kids to understand this. Please, talk to your child about the importance of sharing, not fighting, keeping their hands to themselves, and learning to get along with each other. Remind them that once we pick up the toys that we don’t get them back out again, because we are done playing and going on to learning fun things.”


We checked what’s expected behaviour of a preschooler over at Raising Children - an expert parenting advice site supported by the Australian Government and the Royal Children’s Hospital in Melbourne — and it’s fair to say, mums have good reason to find this newsletter infuriating.

As children settle into a new environment at a preschool, some tears and separation anxiety is very normal behaviour. Many children at age three are still having tantrums and a good preschool will have effective management strategies to help children communicate their feelings in a more positive way.

Preschoolers have short attention spans — around 30 minutes — so sitting still and listening for long periods of time is simply not a realistic expectation for a group of three and four-year olds.

Children at this age are still learning to follow instructions. They’re easily distractable. It is very normal to have to remind children of rules and expectations several times. After all, that’s how they learn.

Not to mention that unstructured play is shown again and again to be essential to early childhood development.


Angela Hanscom, an paediatric occupational therapist and expert on the important of play for young children, has written repeatedly about the dangers of an ever-increasing push to structured settings in preschool environments in the US. (It’s worth pointing out that in Australia, play-based education is at the heart of most early childhood curricula.)

“It is through active free play outdoors where children start to build many of the foundational life skills they need in order to be successful for years to come,” she writes in the Washington Post.

“In fact, it is before the age of seven years — ages traditionally known as ‘pre-academic’ — when children desperately need to have a multitude of whole-body sensory experiences on a daily basis in order to develop strong bodies and minds.”

She goes on to explain how dangerous it is to kerb children’s free play.

“If children are not given enough natural movement and play experiences, they start their academic careers with a disadvantage. They are more likely to be clumsy, have difficulty paying attention, trouble controlling their emotions, utilise poor problem-solving methods, and demonstrate difficulties with social interactions.”

All of that makes you wonder, just exactly what is this preschool trying to achieve?


Making a point? Activists wearing giant blow up hands emblazoned with Australian flags storm Melbourne council meeting demanding they don't ban Australia Day

Far right protesters dressed in bright blue Lycra waving inflatable Australia flag hands stormed a Melbourne council meeting over Australia Day date changes.

A handful of people draped in Australian flags waving anti-Nazi signs were protesting against Moreland Council's decision to change the date of Australia Day celebrations.

Moreland City Council voted to scrap Australia Day celebrations almost two weeks ago, making them the third Melbourne council to make the controversial move.

The council meeting was interrupted Wednesday evening and a video posted to Facebook shows one man in the gallery being forced to cover his ears because of the noise.

Sombrero wearing protesters carried slogans plastered on black signs including 'no Nazi councils' and 'stop division'.

Protest organiser Neil Erikson posted a video to Facebook saying they 'hit' the council meeting. 'We just burst in there, they closed down their whole meeting,' Mr Erikson said.

The video received more than 8000 views in the three hours it was online and many people commented in support of the protesters. 

Greens Councillor Natalie Abboud shared that she was 'so proud' of the council and gallery who experienced the protest Wednesday evening and thanked them for their 'bravery and patience'.

'Men in Lycra won't stop us from hearing community submissions to the Draft Local Law tonight,' Ms Abboud wrote on Facebook.

'I hope I never have to see a professor with his hands over his ears again.'

However, Mr Erikson is no novice when it comes to storming council meetings in protest.

Mr Erikson stormed Yarra City Council's meetings in protest of them changing Australia Day earlier in September

The 32-year-old interrupted a Yarra City Council meeting early September, just hours after he was found guilty for his role in staging a mock beheading to protest a Bendigo mosque.

The group of protesters were also opposing Yarra City Council's decision to ban Australia Day.


Posted by John J. Ray (M.A.; Ph.D.).    For a daily critique of Leftist activities,  see DISSECTING LEFTISM.  To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup  of pro-environment but anti-Greenie  news and commentary at GREENIE WATCH .  Email me  here

29/9/17: Eurocoin: Eurozone growth is still on the upside trend

The latest data from Eurocoin - an early growth indicator published by Banca d’Italia and CEPR - shows robust continued growth dynamics for the common currency GDP through August-September 2017. Rising from 0.67 in August to 0.71 in September, Eurocoin posted the highest reading since March 2017 and matched the 3Q 2017 GDP growth projection of 0,67.

The charts below show both the trends in Eurocoin and underlying GDP growth, as well as key policy constraints for the monetary policy forward.

The last chart above shows significant gains in both growth and inflation over the last 12 months, with the euro area economy moving closer to the ECB target zone for higher rates. In fact, current state of unemployment and growth suggests policy rates at around 2.4-3 percent, while inflation is implying ECB rate in the regions of 1.25-1.5 percent.

In summary, euro area recovery continues at relative strength, with growth trending above the post-crisis period average since January 2017, and rising. Inflationary expectations are starting to edge toward the ECB target / tolerance zone, so October ECB meeting should be critical. Signals so far suggests that the ECB will outline core modalities of monetary policy normalisation, which will be further expanded upon before the end of 2017, setting the stage for QE unwinding and some cautious policy rates uplift from the start of 2018.

Firearm Silencing in Slow Motion

Suppressors are devices that deaden the noise that would otherwise be loudly heard when a bullet is fired from a gun. First patented in 1909 by Hiram Percy Maxim, they work by trapping the explosive gases that propel the bullet from the barrel of a gun after it is fired and the sonic boom that accompanies it.

SmarterEveryDay's Destin Sandlin worked with modern day suppressor manufacturer Soteria to visualize what happens inside a suppressor to better understand how they work by using a see-through acrylic sleeve on the supressor and firing several while filming with a high speed camera. You can learn a lot of engineering (and about engineering) in a short period of time from the footage of the bullet moving through the modified suppressors (HT: Core77):

The son of inventor Hiram Stevens Maxim, who had invented the first fully automatic machine gun some three decades earlier, Hiram Percy Maxim was an early automobile industry pioneer who would also apply the principles of his firearm silencer to that industry through his invention of the muffler for gasoline-powered engines in 1913.

28/9/17: Pimco on Russian Economy: My Take

An interesting post about the Russian economy, quite neatly summarising both the top-line challenges faced and the resilience exhibited to-date via Pimco: Worth a read.

My view: couple of points are over- and under-played somewhat.

Sanctions: these are a thorny issue in Moscow and are putting pressure on Russian banks operations and strategic plans worldwide. While they do take secondary seat after other considerations in public eye, Moscow insiders are quite discomforted by the effective shutting down of the large swathes of European markets (energy and finance), and North American markets (finance, technology and personal safe havens). On the latter, it is worth noting that a number of high profile Russian figures, including in pro-Kremlin media, have in recent years been forced to shut down shell companies previously operating in the U.S. and divest out of real estate assets. Sanctions are also geopolitical thorns in terms of limiting Moscow's ability to navigate the European policy space.

Banks: this issue is overplayed. Bailouts and shutting down of banks are imposing low cost on the Russian economy and are bearable, as long as inflationary pressures remain subdued. Moscow can recapitalise the banks it wants to recapitalise, so all and any banks that do end up going to the wall, e.g. B&N and Otkrytie - cited in the post - are going to the wall for a different reason. That reason is consolidation of the banking sector in the hands of state-owned TBTF banks that fits both the Central Bank agenda and the Kremlin agenda. The CBR has been on an active campaign to clear out medium- and medium-large banks out of the way both from macroprudential point of view (these institutions have been woefully undercapitalised and exposed to serious risks on assets side), and the financial system stability point of view (majority of these banks are parts of conglomerates with inter-linked and networked systems of loans, funds transfers etc).

Yurga, another bank that was stripped of its license in late July - is the case in point, it was part of a real estate and oil empire. B&N is another example: the bank was a part of the Safmar group with $34 billion worth of assets, from oil and coal to pension funds.

The CBR knowingly tightened the screws on these types of banks back in January:

  • The new rules placed a strict limit on bank’s exposure to its own shareholders - maximum of 20% of its capital, forcing the de-centralisation of equity holdings in banking sector; and
  • Restricted loans to any single borrower or group of connected borrowers to no more than 25% of total lending.
I cannot imagine that analysts covering Russian markets did not understand back in January that these rules will spell the end of many so-called 'pocket' banks linked to oligarchs and their business empires.

The balance of the banking sector is feeling the pain, but this pain is largely contained within the sector. Investment in Russian economy, usually heavily dependent on the banks loans, has been sluggish for a number of years now, but the key catalyst to lifting investment will be VBR's monetary policy and not the state of the banking sector. 

Here is a chart from Reuters summarising movements in interbank debt levels across the top 20 banks:

The chart suggests that net borrowing is rising amongst the top-tier banks, alongside deposits gains (noted by Pimco), so the core of the system is picking up strength off the weaker banks and is providing liquidity. Per NYU's v-lab data, both Sberbank and VTB saw declines in systemic risk exposures in August, compared to July. So overall, the banking system is a problem, but the problem is largely contained within the mid-tier banks and the CBR is likely to have enough fire power to sustain more banks going through a resolution.