GDP-to-gold doesn't really mean anything. If e.g. the average person wanted to hold 2% of their wealth in gold, and there is no way to get more gold, then (value of all assets) / (price of gold) is going to stay stable, regardless of how rich we are actually getting. The graph tells you something about the popularity of gold, and maybe the interest rate (which very directly affects (total wealth) / (GDP)), but nothing about growth.

I think GDP-to-oil also seems pretty silly, though less obviously so (gold is quite silly). As an analogy, if you measure GDP-to-land, you won't see a long-run increase. That doesn't mean that we aren't getting richer---in fact it doesn't tell you much of anything, because it's basically what you'd observe in every possible world where you can't increase the total supply of land. "Things we pull out of the ground" is a bit more elastic than the ground itself, but it's still pretty inelastic.

The basket of commodities looks like it's 75% fuel and metal, so I think the same basic criticism applies to that graph.

GDP-to-corn seems more real. The growth rate in your graph seems to be 1.7%/year. That's compared to 2.7%/year if we use CPI. So there is a real gap there. This could be explained either by noise (the rate of corn-denominated GDP growth depends hugely on which years you pick, which lower bounds the noise, with some periods being smaller than CPI and some periods being larger). It could also be explained by pretty mundane stories like "technology improves productivity faster areas and slower in others; from 1985-2015 agriculture has been a low-tech area."

It seems like it would be more useful to talk about why you object to CPI.

I agree it's been a really bad 50 years, it's been a very rare period of slowing growth, but I don't think those data really show that. (And I think you are overstating how bad it is.)

Independently, I'm pretty unconvinced on monopoly as the explanation for the great stagnation. Most of your graphs on "how monopolistic are we" show pretty small or zero differences between now and the early 20th century. In general the effect seems too large to be naturally explained by increasing concentration, without some more convincing causal story.

Monopoly and lack of innovation go together, since monopolists have less incentive to produce or compete.

I don't buy this, for a handful of reasons. Most important is the historical evidence of highly innovative 'monopolies,' like Carnegie Steel, Standard Oil, AT&T, and Microsoft.

Second are some basic models of innovation. Suppose it's the case that innovations are easily transferrable, or come from outside vendors, and the user of the innovation is in a commodity market. (Suppose a new, more efficient loom is invented by the loom-making company, which sells to all cloth factories.) Then, the gains to innovation (the increased efficiency of this loom) are captured by a combination of the inventor (who gets to sell their new product) and the customer (who gets the reduction in commodity prices), with none of it going to the user (who has to lower their prices with the new efficiency, as their competitors are doing the same). What happens if the user of the innovation is a monopolist? Well, then they get to keep the profits (that don't go to the inventor), as they can maintain prices while having lower costs.

[Note that this makes differing predictions for "customer fit" innovations and "increased profit" innovations. Under this model, a static monopolist is unlikely to experiment and find ways to satisfy customers better, whereas it is likely that they will find ways to increase prices and cut costs. The example of Prego chunky spaghetti sauce (popularized by Gladwell) is something that seems obviously brought on by competition between firms, as opposed to basic research funded by monopoly profits.]

Further, consider innovations that have some variable benefit (like a decreased cost for every unit made) but a fixed cost to create (perhaps the cost of experimentally determining the optimal amount of solder to use on a barrel costs the same regardless of how many barrels you make). Then the larger the firm, the more likely such an experiment is to be run--a small firm will find many such experiments not worth their time, whereas Standard Oil will think they are.

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A story I often tell about the modern economy is that returns to intelligence are increasing, and this more and more pushes industries into a winner-take-all dynamic. (Increasing returns to any variable factor will increase inequality in a domain, so long as it's not sufficiently negatively correlated with previous inequality.) If it's the case that having a data science team makes a company cumulatively more efficient at what it does, and there's a meaningful difference between a first rank and second rank data scientist, and data scientists want to work with top data scientists, then you end up with the industry leader able to attract the best data scientists (because they're the most fun company to work at), and pay them less (it's fairly standard for the #2 firm to actually have to pay more than the #1 firm, because at equal prices people would just go to the #1 firm), and use them most effectively (since their larger scale means they have more data, and will find smaller opportunities more worthwhile in absolute terms). And so, unsurprisingly, more and more of the profits in an industry go to the top firm, and smaller firms find it more and more difficult to survive (as their scale might not justify hiring even a single data scientist, and the ones available for them to hire aren't great).

That said, most of my attention is on the manufacturing sector. (It's where many of my historical examples came from, was a fairly large part of my education, and most of my experience in private industry.) I am pretty convinced of the 'troll under the bridge' story for rising costs and decreasing quality elsewhere. It doesn't seem like Harvard is innovating in education technology anywhere near how Intel in innovating in semiconductor manufacturing technology (if Harvard is innovating at all!).

But this says to me that firm size / degree of competitor isn't the core factor. Something closer to 'style of competition' seems much more right. The Raubritter is empowered by facts of geography forcing you to pass by him, whereas Carnegie Steel is just making higher quality products more cheaply and quickly. If you could teleport a modern steel company back in time, they could put Carnegie out of business; teleporting a (civilian) cargo ship back in time (or even a modern road) doesn't put the Raubritter out of business.

This paper by Steve Schmitz seems broadly relevant:

Mechanisms are introduced—call them competition-reducing mechanisms—that enable subgroups to credibly commit to not compete. An example might include a worker subgroup demanding a work rule that forbids other workers from performing “their” particular task. But these mechanisms come at a high cost: reduced productivity. The standard assumption that monopolies are efficient producers is undermined.

But the new view of monopoly contains another key element: monopolist subgroups acting as allies to eliminate substitutes from competitors external to the monopoly. Consider the logic of close substitutes. Politically adept monopolies (as they are de facto since the large majority of monopolies result from special privileges granted by the government) often use their political influence to weaken or destroy existing substitutes for their product. Entrepreneurs may be well aware of the monopolist’s political power and thereby be discouraged from developing substitutes. Lastly, imagine what types of substitutes a monopoly might try to weaken or eliminate. It would not go after those with broad political support. Rather, it would target those with little support, those purchased by politically disadvantaged low-income segments of the population.

My sense is that moving houses incurs a cost proportional to the value of the house, if only because real estate agents typically charge a percentage fee instead of a flat fee. That seems tied to decreased migration, to me; it's already well-studied that increased frictional costs to buying and selling a home in California from prop 13 leads to decreased migration.

It seems likely that this extends to the economy at large: as local knowledge and reputation (and other 'intangibles') become more important, the costs to moving increase. Yelp reviews tied to a particular location presumably make it more difficult to move a restaurant than it was 30 years ago, even as internet search makes it more possible for new businesses to be discovered. It seems likely that it was historically much easier to sell companies without retaining core staff, as the primary value of the company was in capital it owned; compare to a company now whose primary value is in intangibles or the human capital of particular employees.

The other story in decreased interstate migration is increased intercountry migration; wage differences between states drive movements between those states, but someone entering the country from outside is much more indifferent between states than someone who already has a home and job and social connections in a particular state. Sufficient migration to prevent those wage differences from getting high enough to overcome the energetic barrier of switching costs means fewer people move. But this isn't obviously bad, and I bring it up mostly as part of a "what's up with decreased migration, as a component of decreased dynamism?"

Some images seem to have gone missing from the "It's Not (Just) Regulation" section?

Gonna take a while to digest, but the intro shows a common mistake.

If Scrooge McDuck’s downtown Duckburg apartment rises in price, and Scrooge’s net worth rises equally, but nothing else changes, the distribution of purchasing power is now more unequal — fewer people can afford that apartment.  But nobody is richer in terms of actual material wealth, not even Scrooge.  Scrooge is only “richer” on paper.  The total material wealth of Duckburg hasn’t gone up at all.

This confuses"nominal" or "projected" price with an actual price, which is only known at time of sale. And you seem to believe that paper wealth (which may or may not EVER be converted into goods and services) is the same as purchasing power.

You're correct that the total material wealth of Duckburg hasn't gone up. Scrooge's material wealth _ALSO_ hasn't gone up, just his nominal wealth. And no other member of the city has been harmed or lost material wealth. The entire scenario of "price went up but literally nothing changed owners" is an accounting fiction with no direct impact on anyone.

So when you say

When many goods become more expensive without materially improving, the result is increased wealth inequality without increased material abundance.

That's not the same thing - those are REAL prices, which people have actually paid. And even if you factor out monetary effects by looking at what people pay in terms of hours of labor or the like, real prices for many things have gone up. For many others, of course, they've gone WAY down while quality improves. The median American worker can buy a pocket computer for less than a week's labor which is literally thousands of times more powerful than they'd have gotten 30 years ago for over a month's work.

That said, I agree with many of your concerns that there are more gatekeepers than producers, and many things cost too much, because many people are capturing parts of the money/product flow without actually providing value themselves. I'm not sure that "monopoly" is the right proxy to think about this problem, but it's clearly a problem.

Really glad you wrote this post. I think it's trying to speak to something I've been concerned with for a while—a thing that feels (to me) like a crux for a lot of current social movements and social ills in the States (including the social justice movement, black lives matter, growing homelessness / decreasing standards of living for the poorest people). And of course, the whole shit-pile that is our health care system.

Some Questions / Further Comments:

(Please respond to each point as a separate thread, so that threads are segregated by topic / question.)

1) My guess is that under "Services and construction", where you list "transportation", you mean a different "transportation" than the one in the graph, which has "Transportation and Warehousing" as its own category? I'd appreciate clarification / disambiguation in the article.

2) I agree with your point RE: intangibles, that they correlate / go together with monopoly. But it's difficult for me to tell HOW MUCH they 'go together'. And whether it is strictly 'a bad sign'. While I'm not a huge fan of how patents sometimes play out, I am a fan of branding. While you can't just try to transfer the effect of Coca-Cola's branding to your new product, I think you can, in fact, try to compete on branding.

(It would be terrible if someone tried to take exclusive rights over the use of the color red in logos or something, though. Hopefully that doesn't ever happen.)

And, honestly, I think the 'value' of their branding might not be too inaccurately priced, in some sense? (Even if the product reduces in quality, I think the branding has value beyond trying to measure quality of product.) I also don't whether 'intangibles' includes things like 'excellent customer service', but if it does, that seems like true value, not 'fake value'. Even though it doesn't directly cash out into more product.

Over time, I think more of what we consider valuable should be in intangibles? Seems like a sign of people having enough useful things that they can now afford to put money into "nice experiences." And in many ways, people value having fewer choices because it cashes out into less effort.

3) Similarly, 'company culture'—while it is 'dark matter' as Robin Hanson says—seems appropriate to value highly in some cases. I don't think most 'monopoly situations' are a result of some company just having a really good, un-copyable company culture, but in general, I do expect it to be very difficult to transfer / copy really excellent company cultures. And as a result, I do expect something monopolistic-looking to emerge as a result of—not shady dealings or exclusive privileges facilitated by government—but as a natural consequence of very few companies, in fact, being really good places to work.

I would really like to be able to disambiguate between the situations where: There are only 3 main firms in this industry. Is it because those 3 firms are in fact providing outsized value in a way that's hard to compete with? Or, is this happening because the government made some poor decisions that favored certain companies for not-very-good reasons, and they leveraged this into an effective monopoly?

Speaking to the problem of financial wealth outpacing capital investment, I wonder about asset inflation due to open market operations for monetary policy. As I understand it, expanding the money supply works about like this:

• The Federal Reserve adds assets to the reserve accounts of commercial banks.
• These banks nominally have more money to loan, but there is no requirement that they actually issue loans with it, so they invest it in whatever is most profitable. Usually that is financial assets.
• This process continues until the target inflation goal is reached.

The part about this that doesn’t make sense to me is that inflation is tracked based on the price of a basket of consumer goods. In particular, the Consumer Price Index. You can view exactly what goes into CPI by clicking ‘Show Table’ under the chart. The thing is, almost all of the money spent on financial assets stays in financial assets; the only amount that gets spent on the items in the CPI list is whatever portion is taken in fees for each transaction down the road.

If we assume that all the money that goes to fees gets spent on CPI goods, then if the fees amount to 5%, it looks like the central bank is adding 20x the amount of money needed to move the needle where they want it. The rest of that money is driving up the price of financial assets.

I’d be really happy to be wrong about this.