Creative Destruction

December 13, 2016

Creative Destruction

The name of the blog, Creative Destruction, is correct, but only partially. The definition offered at Wikipedia, drawn from Austrian economics, is a “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” The term proposes an ongoing process of birth, death, and rebirth. With U.S. presidential election results a little more than a month old and the inauguration a little over a month away, we have embarked on the path of political, economic, and cultural transformation with few clear objectives other than jettisoning progressive ideology and instituting radical conservatism. It will be the reverse of the last change of administration: hope without change (Obama) vs. change without hope (Trump). Thoughtful consideration would suggest we will get only the destructive part of creative destruction and that revolution, mutation, and creative rebirth will be long delayed, if indeed they ever come at all.

February 19, 2008

Marketing Niches

Filed under: Blogosphere,Business,Economics — Brutus @ 11:49 pm

This report at Hitwise compares the ages and incomes of users of Yahoo! to those of Google. The differences appear to be negligible or at least subtly shaded, unless I’m reading the data wrong. However, in my circle, the perception has long been that Yahoo! was pretty well eclipsed by Google. That perception is apparently untrue, which accounts in part for Microsoft’s interest in acquiring Yahoo!, which hadn’t made sense to me before.

Best of all, though, are the labels assigned to various demographics in this graph:

graph

What does one do if more than one marketing niche might be a reasonable fit? Here they are in a list:

  • Struggling Societies
  • Urban Essence
  • Blue-Collar Backbone
  • Remote America
  • Aspiring Contemporaries
  • Rural Villages and Farms
  • Varying Lifestyles
  • American Diversity
  • Metro Fringe
  • Small-Town Contentment
  • Affluent Suburbia
  • Upscale America

What’s the difference between Varying Lifestyles and American Diversity, or Small-Town Contentment and Remote America? And don’t all of these demographics have an normal age range?

I’m used to being reduced to a number based on my consumption and spending habits. Undoubtedly, one (or more) of those demographics fits me, despite my knee-jerk disdain for such things. Without a specialization in marketing, though, I still can’t believe that such information is worthwhile to makers of products and providers of services. Maybe someone else knows better.

November 24, 2007

Lessons of History

Filed under: Economics,Politics — Brutus @ 3:02 am

The oft-repeated trope is that those ignorant of history are doomed to repeat it, to which most most of us laconically reply “So what? Big deal.” We’ve taken our eye off the ball and don’t really care anymore about history, being contented with the illusory belief that our current stage of historical development can and will continue undisrupted into the middle of the century, which is probably the longest time horizon we really care about. But there are still plenty of academics and pundits studying history, drawing lessons from it, and sounding the klaxon regarding some threat or imminent transformation or collapse. Actually rousing citizens out of their satiated lethargy is undoubtedly too difficult a task just yet, but the alarm calls at least make for some interesting reading.

Three recent articles make comparisons between the current state of America and historical conditions here and abroad in an attempt to draw out the lessons and perhaps inspire changes necessary to stave off the collapse of our cherished institutions (read: the American way of life). In no particular order, the first in The Guardian appears to be a prepublication summary by Naomi Wolf of her new book The End of America: A Letter of Warning to a Young Patriot, which compares fascist shifts in history to current America. The second in The Philadelphia Inquirer is an opinion column by Chris Hedges, author of American Fascists: The Christian Right and the War on America, which column describes the decline of the so-called American Empire. The third is a transcript in The American Prospect of Robert Kuttner, author of The Squandering of America: How the Failure of Our Politics Undermines Our Prosperity, giving testimony before the U.S. House of Representatives Committee on Financial Services regarding parallels between fiscal policy in the 1920s and now.

(more…)

November 15, 2007

Shameless self-promotion

Over at Sophistpundit I’ve written up a pretentious little call to arms against media regulation.  Enjoy!

November 10, 2007

Suffer the Rich

Filed under: Economics,Geekery — Brutus @ 2:27 am

In his short story “The Rich Boy,” F. Scott Fitzgerald wrote, “Let me tell you about the very rich. They are different from you and me.” I haven’t read the story in a long time, but as I recall, Fitzgerald goes on to describe the character of the very rich with an acute perceptiveness hard to imagine with today’s cluttered, distracted literary aesthetic. Writers simply don’t have the time and focus anymore to work out character the way writers of the past did. Being a product of this era, I’m also at a loss to describe the character of the rich accurately. But like power, I’m pretty well convinced excessive wealth has an absolutely corrupting influence.

Forbes magazine recently released its 25th annual ranking of the 400 richest Americans, so the idea of what constitutes being very rich thrust itself upon me with some renewed vigor. The article states that it now takes $1.3 billion just to make the list. So, um, pardon me, and believe me when I say this is not out of envy, but isn’t it rather obscene that there are 400 people in the U.S. who each possess that much wealth? Forbes says the collective amount is $1.54 trillion.

Numbers like those are just a snapshot, and I certainly don’t possess the wherewithal to comment meaningfully on something so far beyond the reckoning of an average wage slave. Still, what is one to make of this article by Reuters, reporting on the sorry fact that living well — that is, having a super luxurious lifestyle — now costs more than ever? Forbes actually keeps an index, not unlike the Consumer Price Index, called the Cost of Living Extremely Well Index (CLEWI), which tracks the price of a selection of luxury goods. That cost is apparently rising faster than the Consumer Price Index. So let me be among the first to shed a few crocodile tears that it’s increasingly difficult for the superrich to distinguish themselves from the merely rich.

If citing Fitzgerald isn’t obvious enough to the uninitiated, he lived during the Jazz Age, which followed behind the Gilded Age (roughly 1870s to the 1890s). The Gilded Age was characterized by radical polarization of wealth, not unlike our situation today. So Fitzgerald had the advantage of perspective and hindsight on the peculiarities of a certain class of people. If we’re currently in the midst of another Gilded Age, it may take a decade or two for some insight on the those whom we might think twice before admiring.

October 23, 2007

GMU Econ Bloggers

Filed under: Economics,Education — Adam Gurri @ 6:08 am

Arnold Kling has up a list of GMU Econ bloggers, including faculty, students, and alumni.  It’s quite substantial.

October 16, 2007

Competition Spurs Failure

Filed under: Business,Economics,Science — Brutus @ 1:38 am

As with Adam’s anticipation of the demise of the newspaper, the demise of the recording industry has been prophesied for some time now. Periodic transitions from one medium to another have been disorienting, but it wasn’t until the digital era, when ripping tunes and file swapping became ubiquitous, that the economic model of the recording industry got to be seriously undermined. (Others have disagreed with me on this point in the past.) The RIAA has made itself a scourge by acting to protect its members’ intellectual property, which I find a legitimate response but others insist is preposterous. This is a brief background to provide context.

What surprised me to learn was that the recording industry has had a larger hand in its own eventual failure than even I suspected. As this article describes in some detail, recording companies (labels, if you wish) competed to attract listeners and sell albums, but rather than focus on developing musical groups and creating the best possible musical product (or maybe in addition to those things), they adopted a subtle technological trick to harpoon listeners. Louder music (average level rather than peak level) tends to give the impression of better quality to typical listeners, so over time, the dynamic range of music was flattened or compressed while made louder overall. The side effect the industry should have foreseen is listener fatigue, which causes customers to turn off the music.

This competetive strategy looks conspicuously like the tragedy of the commons to me. A few thoughtless competitors abandoned their values for a temporary and illusory edge in the marketplace until the practice became so widespread that the music itself was compromised. I suppose there are plenty of examples of both principled competition and weaselly competition. In this case, the weasels sealed their own fates first by enabling infringers and then selling listeners short (not in that order chronologically). Oddly enough, neither of these practices has had the same effects in the classical and jazz markets, where the best possible medium and best possible musical material have always been used to stimulate listeners’ interest and album sales. What a shame those simple values are lost in mass markets.

October 11, 2007

Newspapers Relegated to the Dustbin of History

Filed under: Blogosphere,Business,Economics,Media Analysis — Adam Gurri @ 6:29 am

Note: the following is a paper I wrote for a Microeconomics class, which is why the language is a bit more formal than usual. This paper may also be viewed as a PDF file.

When the last newspaper goes bankrupt, people will be better informed. This is counterintuitive only if you hold to the popular misconception that newspapers developed as an institution in order to filter out all but the highest quality information. The problem that newspapers address is reality is not one of quality, but one of distribution. They utilized mass-production in order to provide consumers with a cheap medium with a wide variety of content. This was a highly efficient solution to the problems of the printing press, but the internet is rendering such problems obsolete. As a result, the newspaper model will rapidly be overtaken by more effective online alternatives.

The incentives provided by the newspaper business model are unnecessary for the production of content. As pointed out in Price Theory and Applications, “Some people are willing to create without material reward, simply for the pleasure and glory.” (Page 330) This is as true for nonfiction writing as it is for creative works—writer William Zinsser famously categorized nonfiction as a type of literature. The fact that content is produced for pleasure does not imply that it will be poor in quality, either. The reason is simple—often people who have a passion for something will invest a great deal of time on it. Whether it’s spent on research or taking art classes, it refines the tools that they will have available to produce content later on.

In some cases, they may be indulging in extracurricular pursuits on topics related to their profession. Tyler Cowen, of Marginal Revolution, is but one of many economists who write on weblogs, or “blogs”. Since his professional career is dedicated to accumulating information on a particular subject, the marginal cost of finding relevant information for a new publication in his field is significantly less than it would be for a non-economist. In fact, it’s safe to say that it would cost a journalist far more to produce something of comparable quality on the subject. In the world of nonfiction, newspapers cannot compete with their online alternatives—Cowen is but one example of the professional blogging in his spare time. Eugene Volokh, of The Volokh Conspiracy, is a professor of law who offers far more educated insights than a newspaper could hope for, without asking for any subscription fee.

In terms of specific content, newspapers are simply unable to compete. Webcomics are abundantly available, free, and popular. Crosswords and Sudoku puzzles are numerous, as are puzzle games of every imaginable variety. Photosharing websites such as Flickr allow for the dissemination of photographs of far more diverse subjects than newspapers ever provided. Perhaps most significantly, websites such as Craig’s List are providing substitutes for the Classified Ads pages.

The myth of the fact-checker aside, the content creation aspect of the internet does not actually come in direct competition with newspapers in and of itself. For newspapers in fact provide not high quality content, but variety in a world where the time to accumulate various sources is scarce. Just as the price system economizes the distribution of information that is fragmented across many minds, so too do newspapers economize the access to certain categories of content that would otherwise be fragmented across many different specialized publications.

What newspapers offer is not authority, but a bundle, in which quality must to a certain extent actually be traded off for variety. For this reason, the fact that an article in Nature magazine on Climate Change may be more accurate than an article in the New York Times does not necessarily make the former a threat to the latter. A newspaper competes, not on the quality of a particular article, but on the quality of the bundle it offers as a whole. So while the New York Times may not be concerned with whether or not a particular article is as accurate as an article in Nature, it probably has to be concerned with whether or not it provides a higher quality product, with greater variety, than the Los Angeles Times.

What newspapers truly have to fear from the internet, then, is the fact that it gives consumers to ability to customize their own bundles of content. For almost as long as there have been web browsers, there have been “bookmarks”, which allow users to save the location of their favorite websites. More recently, websites such as del.icio.us have given users the ability to “tag”not only to save locations, but to provide categorical data “metadata” about those websites. This means that even if a user saves a massive amount of bookmarks, all they need to do to locate a particular one is search for the particular word or words that they “tagged” it with. For instance, one might tag Marginal Revolution, with both words in the title, then “Tyler”, “Cowen”, “economics”, and “blog”, and be relatively confident that it could be found again by searching any combination of those words, even if there are a thousand other websites bookmarked.

Another tool is the feed aggregator, such as Google Reader, that allows users to subscribe to the content of many different websites and access it all in one place. The setup is then almost like a custom made newspaper; you can subscribe to your favorite blogs, webcomics, even online newspapers, and you can access them all in one place, which signals you which of them have updated. Unlike physical paper, however, you don’t have to waste storage space if you ever want to access old content. You can simply scroll back to old updates.

In the past, consumers had to decide between the bundles offered to them by different newspapers, all or nothing. The tradeoffs that were made whenever it was decided to hire a particular journalist, or run with a particular story rather than an alternative, were taken on by the editorial staff. The consumer had no direct input in that process, and effected the outcome only insofar as competition between different newspapers made it clearer the sort of content consumers were interested in.

In a world where consumers make those decisions for themselves, however, the margin of competition will shrink to the level of content. In Price Theory and Applications, it states that content may be given away free of charge because “original composition may yield indirect material gains” (page 330) and it is for those gains that content producers on the internet will have to compete. The reason is that, as shown above, many people will produce content for no other reason than the pleasure of it, including high quality content. The market will be flooded with content, creating a stiff competition to be included in the bundles of consumers. Prices will be undercut until producers no longer even ask for money in exchange for the goods that they supply; merely the attention of consumers.

Those producers of content that are able to make a living off of that particular trade will be the ones who manage to obtain “indirect material gains” through the acquisition of consumers’ attention. In fact, this is already occurring. Webcomics predominantly offer their content for free, and the popular artists manage to make a living by selling merchandise. Successful comics such as Questionable Content and Penny Arcade sell a lot of Tshirts, with the latter even managing to sell large volumes of printed editions of their online works. Blogs have integrated Google Ads, which give them a small payment whenever their readers click on the ads. Glenn Reynolds, who gained fame through his highly popular blog Instapundit, wrote a book that sold quite well—safe to say far better than it would have, without the online fame he had achieved.

The end result is that consumers are able to eliminate the newspaper’s role entirely. They can experience a far greater variety of content than newspapers could have afforded to provide. At the same time, the sources of content will be engaged in a level of competition over quality that used to be relegated to the specialized publications, such as scientific journals. As people increasingly turn away from the old media, newspapers will go out of business one after another. When the time comes that the last one goes under, we will all already be much better informed. This trend will likely continue long after its timely demise.

(Cross posted at Sophistpundit)

September 5, 2007

Scholarly debates, now online and freely available

Filed under: Blogosphere,Debate,Economics,History — Adam Gurri @ 9:24 am

A recurring obsession of mine is the belief that the internet will facilitate works of scholarship and scholarly discussion.

Tyler Cowen’s review of A Farewell to Alms is a case in point.  Marginal Revolution’s longtime blogger is of course more than your average Joe himself; he’s an established Economist with a solid reputation.  His perspective alone is valuable.

In the comments section, however, you will find a debate of quite high caliber.  Participants include Daniel Klein, who is another GMU Economist like Cowen,  Gavin Kennedy, a semi-retired Economics professor in Edinburgh who specializes in writing about Adam Smith, and of course, the author of A Farewell to Alms himself–Gregory Clark.

I had briefly contemplated purchasing the book, but had put it off as I’ve enough to read already.  After looking through this intellectually rich discussion, however, I have changed my mind and decided to acquire it.   The debate has added a value to the book that would not have been there without it; I will not be reading the book in isolation but in the context of an ongoing discussion on the issues that it addresses.

Truly, the internet offers fantastic opportunities for this sort of event.

May 21, 2007

Too Tired for Leisure?

Filed under: Economics,Navel Gazing — Brutus @ 2:27 pm

Yahoo! has a brief article called Worker Burnout Threatens Vacations, which delivers these curious statistics:

Nearly half of the respondents (49%) said they feel “burned out” by their jobs, and many did not fully use vacation time as a remedy. Out of 1,800 professionals surveyed, 45% said they did not use all of their vacation days allotted in 2006, and 39% said they were too tired to take a “real” vacation during their days off.

The article doesn’t examine causes and effects in any depth at all. This further tidbit, though, caught my attention:

There is an expectation, sometimes unspoken, that people will come to work under all but the most extreme circumstances.

It’s unclear what may be driving trends toward worker burnout and failure/refusal to take vacation days as vacations, but I have a few suspicions. The article mentions taking vacation days as “mental health” days to cope with stress. Most of us are familiar with that approach. I suspect a complex mixture of factors keeps people tied to their jobs, which nets obvious diminished returns that are still apparently preferable to the alternative (giving and enforcing more time off).

Comparisons of benefits and productivity of different nations usually rank the U.S. pretty low in benefits (a quality of life measure) but high in productivity. Is the conventional wisdom that productivity = long hours on the job really true? And if productivity comes at the expense of leisure and health, is it really worth it?

May 16, 2007

Avast, Ye Swabs!

Filed under: Economics,Popular Culture — Off Colfax @ 11:26 pm

The music industry’s war against file-sharing has just developed a new front.

Amazon.com (NASDAQ:AMZN) today announced it will launch a digital music store later this year offering millions of songs in the DRM-free MP3 format from more than 12,000 record labels. EMI Music’s digital catalog is the latest addition to the store. Every song and album in the Amazon.com digital music store will be available exclusively in the MP3 format without digital rights management (DRM) software. Amazon’s DRM-free MP3s will free customers to play their music on virtually any of their personal devices — including PCs, Macs(TM), iPods(TM), Zunes(TM), Zens(TM) — and to burn songs to CDs for personal use.

Indeed. Without any Digital Rights Management capabilities, EMI is placing into the hands of the public precisely the same file types as could be found on file-sharing systems all throughout this here little series of tubes. And as there are many of us out here who remember Sony BMG’s fateful (and ultimately unprofitable) decision to force the issue with malware hidden on every CD sold, EMI looks to take the popular front and break against the RIAA-allied pack.

And that alone might be enough to convince some people to buy their music online.

What goes unsaid, but not entirely unpondered, is what this means to the iTunes’ limited-DRM music collection and Napster’s full-DRM files. It has constantly been a watchphrase of the free-market economic theory to let the market decide. With this development, there will soon be the chance for the market to fully and completely engage in the decision process.

Good for Amazon and EMI Music, who are performing the economic equivalent of a boarding action on the high seas while the RIAA coalition is still piping “Sweepers, man your brooms.

[Turn Signal: Fiat Lux]

May 15, 2007

Copyright in Transition

Filed under: Criminal Justice,Current Events,Economics,Popular Culture — Brutus @ 12:09 am

The U.S. Copyright Office and the Recording Industry Associate of America (RIAA) are doing exactly what they exist to do: protect and police the intellectual property of their constituencies. This post by Off Colfax a few days ago about the Copyright Review Board’s decision to raise royalty rates precipitously for streaming copyrighted content over the web (usually by commercial and web radio services), as well as stories like this one, do nothing to enhance the perception of the RIAA as a common thug with the support of the Copyright Office. Indeed, it’s gotten so bad that the RIAA recently won a contest (in public perception only) for being the worst company in America.

Naturally, it’s unpopular to lend support to an institution known for threatening lawsuits against college students, 12-year-olds, and grandmothers, or one that seems hellbent on instituting punitive royalty rates. I goofed in my first comment on this subject, as I didn’t get that new royalty rates for streaming content will likely put an end to web radio. (I still don’t understand the motivation behind it.) But unlike a lot of consumers, I’m no novice at intellectual property issues (see here and here). So the usual tropes consumers offer up to rationalize their illegal, infringing behaviors get no quarter with me.

What interests me now is that the entire notion of copyright, with its hundreds of years of support in legal practice, appears to be simply beyond the power of most folks to adequately comprehend. That change of sea means that widespread infringement and grassroots movements to relax or invalidate copyright protections, ironically undertaken at the same time that the U.S. government is seeking to impose stronger IP protections on other governments, probably doom the recording industry to extinction. If the consuming public determines, justly or unjustly, that a particular body of law is invalid and won’t respect it, then that law usually gets changed (or flatly ignored, like speed limits). The precipitating factor, in my view, is the technological simplicity of copying — the very thing copyright prohibits.

Before the photocopy machine and digital media, copying and piracy were far more costly and time consuming. Now, the ease and ubiquity of infringing behaviors have become a sort of death by a thousand cuts, except that it’s millions and billions of cuts. The business model on which the recording industry has been based for about 100 years is now so entirely destabilized and transitional that its very survival is threatened. In that context, it’s perfectly reasonable (if unpopular) for the RIAA to seek recourse through legal means, which includes infringement lawsuits (real and threatened) and resetting royalty rates. But the public’s insistence that new distribution methods and business models must (must!) be developed because, like the newspapers, the industry is already dead but doesn’t yet realize it, will probably win the day eventually. If and when that happens, and the financial incentive for creative work disappears with it (since creative work won’t be protectible), I wonder whether it will be a classic case of getting what you want but then deserving what you eventually get: crap music and crap media.

May 3, 2007

Economically Unsupported Consumption

Filed under: Economics — Brutus @ 9:30 pm

The Burea of Economic Analysis released some figures regarding personal income and outlays at the end of last month. According to this graph, which shows the trend lines for labor compensation, personal consumption, and savings rate, the first two factors adjusted for inflation using the PCE deflator,

personal income graph

the savings rate has dived into the negative at the same time that rates of earnings growth and personal consumption have stayed roughly flat. Unless I’m misunderstanding, doesn’t this pretty much show that on average we’re spending our savings and going into greater debt to support our lifestyles? In short, aren’t we consuming in excess of the general economic health that would support such behavior?

Perhaps you economists could interpret this data better for me.

April 24, 2007

Because CEO Pay Isn’t High Enough Yet …

Filed under: Economics,Ethics,Politics — Brutus @ 11:39 pm

According to this article in The New York Times business section, Demoncrats Democrats have introduced (again) a bill that would give shareholders of publicly held companies a nonbinding vote on pay packages and so-called “golden parachute” compensation plans for senior executives. It is an idea whose time has come. Indeed, shareholders of British companies have held this power since 2002 but only voted against an executive pay package once.

What’s especially interesting to me, and probably predictable, is that Republicans oppose the measure. Although the article suggests that such a vote would permit shareholders to exercise considerable influence, I can’t see how a nonbinding vote would be too difficult to ignore. Indeed, decision-makers who award executive pay have ignored economic reality at lots of companies even while those companies are unprofitable or in bankruptcy. And besides, everyone already knows that pay packages have grown from tens of times the lowest yearly company wage to hundreds of times that wage in the span of about 25 years.

If that weren’t rich enough, how about this argument by Representative Spencer Bachus of Alabama of the House Financial Services Committee:

“How many times has this Congress substituted its judgment for the American people? For people in business? That is again what this legislation is doing. Congress should never rush in and begin to change the free-enterprise system, our system of competition between companies.”

Isn’t Congress empowered to substitute its judgment for that of the American people? Isn’t that in fact its job? Bachus is clearly a market fundamentalist, believing that regulation, restraint, and any impediment to free enterprise is uncalled for. Considering just how toothless this proposed legislation is to begin with, why is it necessary to fight it so hard with such overblown rhetoric?

Update: Fixed misspelling of Democrats. And in case my arguments lacked currency, it was announced yesterday that the Chief Executive Edward Whitacre of AT&T will be retiring in June and will receive a $158.5 million retirement package.

According to a proxy filing with the Securities and Exchange Commission, Whitacre’s retirement package will include $24,000 in annual automobile benefits, $6,500 each year for “home security,” access to ATT&T’s … corporate jet for 10 hours a month and $25,000 to cover his country-club fees ….

That report also provides this link to a report last year about CEO pay. Finally, a NY Times column by Paul Krugman titled “Gilded Once More” (sorry, Times select, so no link) reports that income inequality is back to levels known in the Gilded Age. He has a particularly outrageous case in point:

<>Last year, according to Institutional Investor’s Alpha magazine, James Simons, a hedge fund manager, took home $1.7 billion, more than 38,000 times the average income.

So I was wrong in saying that some folks make hundred of times the average yearly wage, it’s now thousands of times.

March 7, 2007

Exciting New Market Opportunities

Filed under: Content-lite,Economics — Brutus @ 12:10 am

I’m not to most rabid consumer there is. I don’t expect something for nothing. But sometimes I have to pause and wonder about how craven some business models are. For instance, I blogged before about how it used to be a standard service for gas stations to provide a free air hose to customers — even those who might not be purchasing anything, such as a teenage bicyclist. (Advertising on air machines just adds insult to the whole affair.) Software companies that charge fees for assistance installing and debugging their products annoy me, too. And although they don’t make money at it, the endless voice trees one has to navigate to get to a real customer service agent (often overseas, natch) irritate the bejebus out of me. They’re using up my time without accomplishing anything.

So it was with some disgust that I learned that airports are now making money off of pay-per-use electrical plugs. Profit is king, apparently. Now, admittedly, there are a lot more folks these days plugging in, what with cell phones, laptops, iPods, etc., all of which need charging. And I suppose that the few stray outlets available to visitors to airport, bus, and train terminals have the potential to cause considerable problems in the mad scramble to recharge. But still, does every market really have to be cornered? Doesn’t the public good or customer service mean anything anymore, that a little bit of goodwill might be worth the expense?

February 15, 2007

Food Shortages in Venezuela

Filed under: Economics — Robert @ 5:15 pm

Food shortages are beginning to become a problem, as Hugo Chavez continues to play the “let’s pretend economics doesn’t work” game with price controls on staples.

Idiot.

February 2, 2007

Hillary Calls for Confiscating Energy Company Profits

Filed under: Economics,Election 2008 — Robert @ 7:46 pm

Hillary Clinton, speaking at the DNC’s winter event, calls for confiscating the recent profits of Exxon and…buying Priuses, I guess. “The Democrats know what needs to be done, again, we’re working to try to push this agenda forward. The other day the oil companies reported the highest profits in the history of the world. I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart energy alternatives and technologies that will begin to actually move us toward the direction of independence.”

Senator Clinton, as far as I know, didn’t mention how she planned to replace the $433 billion in investment capital that generated those profits last year, and which will find alternative uses for itself once Senator Clinton destroys the incentives that cause those assets to be devoted to energy production. Capital, in Senator Clinton’s world, apparently falls from the sky and replenishes itself, and political actions have no repercussions beyond the stated intention of the policy.

I used to think that Hillary Clinton was smart.

January 31, 2007

Does the Internet Push Down Wages for Freelance Writers?

Filed under: Economics,Navel Gazing — Robert @ 9:25 pm

Yes and no.

The freelance writing business is in both a boom and a bust. It’s in a boom because the bottomless mouth of the Internet means a lot of work out there wanting to get done – a joyous prospect for the impecunious freelancer. It’s in a bust because the wages offered for this work are pretty low. (And even with the very low rates, there are complaints of high costs by Web content buyers.)  Overseas competition has put a downward pressure on domestic wages.

On the other hand, the volumes available mean that the writer who can generate content quickly and competently in volume now has a major advantage over the finicky artist. (Even more of an advantage than they used to have.) Increasingly, it’s possible to make a decent living by just working hard at a keyboard. So while per-word rates might be lower, per-week paychecks go up. Some writers would rather work 50 hours and make $500 than work 10 hours and make $200. So the content boom is good for the production writers.

The artists, of course, suffer, but they enjoy that, so it’s all right.

January 27, 2007

Study: Skin Tone A Factor In Salary

Filed under: Economics,Immigration,Race and Racism — Robert @ 1:04 pm

A Vanderbilt University study sez that skin tone appears to be operative as an independent factor in salaries received by immigrant workers.

The study compared 2,087 immigrants to the United States, and the author claims that ”On average, being one shade lighter has about the same effect as having an additional year of education.” The differences between the lightest and darkest skinned immigrants of similar backgrounds was between 8 and 15 percent.

Discuss.

January 24, 2007

HIV in Africa: An Economist Chimes In

Filed under: Economics,Health Care,Science — Robert @ 1:05 pm

Interesting. Very interesting. If we want to help Africa with AIDS, we should help with herpes and foster capitalism.

January 16, 2007

Capitalism in Action

Filed under: Economics,Politics — Brutus @ 3:42 pm

I’ve been struggling to get my head around some issues that have cropped up in past posts relating to how free market capitalism delivers the best of all possible opportunies for regular folks to improve their lot. Well, the Center on Budget and Policy Priorities has the dirt on income inequality, or if you prefer, income concentration. Here’s a graph showing the trend since the first Gilded Age:

income concentration

The complexities of the capitalist system are invariably too complex to chalk up this graph to one or two factors, such as the tranformation of the progressive tax system into a regressive one, the abandonment of a regultated, Keynesian economic policy in favor of laissez faire capitalism, and the abandoment of the Bretton Woods treaty. However, the results speak pretty clearly: if you’re already super rich, you’re in a considerably favored position to enhance your already monstrously large share of the pie. (Short version: it takes money to make money.)

Whereas some market fundamentalists insist that this result is just, proper, and entirely to the benefit of everyone — especially since acquisition of large piles of capital supposedly stimulates investment and creates jobs down the line for less well-heeled folks — I interpret it more as a morally bankrupt system operating without any sense of social justice.

If that interpretation doesn’t come out of the simple fact shown above, New York Magazine has an article called American Roulette by Kurt Andersen that provides opinion and context on top of some interesting further data. The metaphor adopted in the article is that we are now in a sort of “casino economy,” where the odds are rigged in favor of the house (read: the rich) and the losses suffered by the poor become, literally, the gains of the rich. The data that supports that contention includes a wage gap (CEO to average worker) an order of magnitiude larger than it was in the seventies; a drop in median income over the past five years, which according to a NY Times citation is “the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers”; and an increased likelihood (1/6 today vs. 1/14 in 1970) of family income dropping by half. In effect, the few blazing success stories provide the faint hope shared by the masses of hitting it big, not unlike casino or lottery gambling. 

An interesting byproduct — a harbinger of things to come, perhaps — of the prolonged shift of capital upwards is that Tesco, a large retailer operating in the United Kingdom, has announced plans to build employee housing. Why, you might ask? It’s because Tesco’s staff can’t afford to live where they work, and the company has been suffering from high employee turnover as a result. Makes me wonder when Wal-Mart will similarly branch into real estate. It’s undoubtedly too early to adopt the unfair characterization of the company town, but considering how budding central economies have devolved into that practice before, it’s worth being vigilant.

Speaking of Wal-Mart, that corporation has implemented new employee scheduling software, which promises to streamline or optimise certain labor practices for the employer while having some fully anticipatable and deleterious effects on employees. For example, Wal-Mart is able to track hours to cap employees below full-time status (to deny benefits) and is able to use the software to place employees “on call” to meet customer surges or send employees home during lull periods. Not everyone thinks this flexible scheduling is necessarily a bad thing. Naturally, someone will find in it some benefit to some nonrepresentative employee.

It used to be that Socialism and/or Communism offered the Holy Grail of a worker’s paradise. Free market capitalism has replaced the siren’s call of those defunct ideologies but has yet to deliver fully on the promise. But that’s the subject of a longer, more involved post on market fundamentalism I’m still mulling.

December 27, 2006

The Calculus of Christmas

Filed under: Content-lite,Economics,Popular Culture — Brutus @ 2:26 pm

Is gift giving primarily a demonstration of warm, fuzzy sentiment for family and others, or is it primarily an economic activity? To judge from the aftermath of Christmas, it’s far more calculated than it is emotional. Most of us are familiar with news reports at the onset of the Christmas season, which trumpet the increase or decrease in spending on the weekend following Thanksgiving over the previous year or years as though that were valuable news. Perhaps the media can be forgiven such a misplaced focus, since there is no way to report a change in public sentiment or mood. Similarly, perhaps the childhood obsession with reporting to friends the Christmas haul is forgivable. I know I did that when I was younger.

Less forgivable is the coldly impersonal discussion of Christmas gift-buying habits such as this one by James Surowiecki in The New Yorker. His utterly charmless analysis concludes that gift cards may be a better choice than a “real” gift at least partly because the cost of a real gift to the giver is often greater than what the recipient would have paid for it — a phenomenon called “deadweight loss.” This is related to the emotional cost of a poorly chosen gift, which almost everyone has experienced on one side of the exchange or another. Although Surowiecki (who is apparently out of touch with the Christmas spirit or the spirit of giving) doesn’t mention children, parents of a typical two-year-old are likely to be familiar with the child’s simple, unbounded elation ripping through wrapping paper and opening boxes, overlooking or oblivious to the gift object inside. It’s hard not to take pleasure in such simple joy, though adults are oblivious if no two-year-old is on hand. Surowiecki’s argument, if Christmas is analyzed purely as economics, also suggests that there is a better return on investment (ROI) for less expensive gifts as compared to more expensive gifts, eliminating the “waste” of deadweight loss. An even better solution is the gift card, which ensures that there is no unwanted gift, since the recipient makes his/her own choices. Taken to its logical conclusion, we will soon all be giving gift cards to each other, which are in effect interest-free loans to merchants, rather than piles of cash. At the end of each Christmas season, we will then be able to calculate our profit/loss based on the value of gift cards purchased and received. Merchants will love it, because in addition to cash cards never redeemed, consumers generally add something over the amount of the gift card to obtain the card’s full value — a phenomenon called “uplift spending.” Kinda makes me all warm and fuzzy inside.

 

November 17, 2006

Conservatives Generous and Full of Love, Liberals Grasping and Cold, Says Author

Filed under: Economics,Ethics — Robert @ 2:50 pm

OK, I’m just kidding about the headline. But Syracuse University professor Arthur Brooks (the guy who opined that the liberal-conservative birth divide was going to doom liberalism) has a book coming out that argues conservatives (specifically, religiously-believing, nuclear-family-dwelling, welfare-state-disliking conservatives) are the most generous Americans, in terms of charitable giving, volunteerism, and blood donation.

I’ve written before about this (but am not going to dig for the link, because I’m just going to say the same thing again) – assuming the professor’s analysis is correct, I suspect that the reason has to do with the differing view of human nature espoused by liberals and conservatives. Oversimplifying for the sake of pithiness (and if we can’t oversimplify for pithiness, what can we oversimplify for?), liberals believe that people are basically good and will take care of one another. Conservatives believe that people are basically heartless bastards who will kill orphans to harvest their organs if they have the opportunity.

So why the heck would that result in conservatives being more generous? Easy peasy: the psychology of the individual. A decent liberal sees a problem and thinks that society should do something, and further, assumes that someone will help (people are good), so “I don’t need to get personally involved”. A decent conservative sees a problem and thinks that the other callous pricks who comprise society will point and laugh, and so if anyone is going to help, “it’s gotta be me. ” Result: conservative check, liberal raincheck.

That’s my theory. What’s yours?

November 13, 2006

Because I Have A Gun And The Fish Was Right There In The Barrel

Filed under: Economics,Humor — Tuomas @ 3:06 pm

Amanda at pandagon offers some wise criticism of capitalism and sexism (sexism against women). She approvingly (“best eviscerations of a little bit of knee jerk rhetoric I see all the time on the left”) quotes Ellen Willis (R.I.P):

As expounded by many leftist thinkers, notably Marcuse, this theory maintains that consumers are psychically manipulated by the mass media to crave more and more consumer goods, and thus power an economy that depends on constantly expanding sales. The theory is said to be particularly applicable to women, for women do most of the actual buying, their consumption is often directly related to their oppression (e.g. makeup, soap flakes), and they are a special target of advertisers. According to this view, the society defines women as consumers, and the purpose of the prevailing media image of women as passive sexual objects is to sell products. It follows that the beneficiaries of this depreciation of women are not men but the corporate power structure.

(italics added, we’ll get back to them soon!)

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November 8, 2006

Election results: 1.5 million low-wage workers get a raise

Filed under: Economics — Ampersand @ 10:14 am

The minimum wage was a winner in last night’s election. In the six states (Montana, Ohio, Arizona, Colorado, Missouri and Nevada) with ballot measures to raise the minimum wage, the ballot measures passed. Even better, all six laws are indexed to inflation – meaning that the MW in those states will automatically go up over time, rather than having to be fought for again and again.

Here’s a summary table, from this Economic Policy Institute page:

State

New minimum wage Number of
workers affected
Arizona

$6.75 + indexing 303,000
Colorado

$6.85 + indexing

138,000
Missouri $6.50 + indexing

256,000
Montana $6.15 + indexing

44,000

Nevada $6.15 + indexing 101,000

Ohio $6.85 + indexing 719,000
Total   1,561,000

If trends in these six states mirror national trends, then about 60% of the 1.5 million workers getting the raise will be women. A disproportionate number of the 1.5 million will be people of color.

Interestingly, this is the first time in US history that the majority of states have state-level minimum wages which are higher than the Federal minimum wage. That’s a reflection of how much the Federal government has allowed the real value of the minimum wage to drop, forcing the states to step in:

Real value of the minimum wage, 1950-2004

(Curtsy: Angry Bear).

Plus, new overlord Pelosi has said that raising the minimum wage will be at the top of the Democrats’ national agenda (one of a bunch of items at the top, admittedly). Fresh from a electorial beating, the Republicans may not have much stomach for fighting a minimum wage increase – polls show that raising the minimum wage is popular with voters of both parties.

A couple of links:

Dean Baker points out that when restaurant owners say that raising the minimum wage would hurt them, and anyway waiters may a ton in tips, the numbers don’t add up.

This Economic Policy Institute brief from 1999 — “The Minimum Wage Increase: A Working Woman’s Issue” — is, sadly, still current today. EPI has a bunch of good articles about the minimum wage, by the way.

September 9, 2006

Are America’s Poor as Well Off as Sweden’s Poor?

Filed under: Economics,International Politics — Robert @ 1:33 pm

Interesting article at TCS about comparing Sweden to the United States (always a favorite pastime in our household, when we get bored of trying to guess how many yellowjackets the yellowjacket trap will kill today). Bottom line (but read the article): after transfer programs and such are taken into account, the poorest 10% of Americans earn about 39% of the US median income. The poorest 10% of Swedes earn about 38% of the US median income. In standard of living terms, anyway, it appears that poor Americans are infinitesimally better off than poor Swedes, despite all the transfer programs and such.

The exercise by the TCS author doesn’t, as far as I can tell, talk about the psychic benefits that the stability provided under the Swedish model provide. That is, I imagine (and it seems reasonable) that it’s mentally easier to be poor in Sweden than it is to be poor in the United States. I doubt that poor folk in Sweden worry overmuch that the state is going to fall in Republican hands and that things will get a little tougher in the free hospitals, whereas I know that poor people in the US do worry about that kind of thing. How much that’s worth in terms of “social justice” I don’t know.

September 8, 2006

Data not bad anymore, but misleading none the less

Filed under: Economics,Statistical Method — Adam Gurri @ 6:09 pm

Yes, I’m surprised I still exist, too.

Anyway, saw Ampersand’s correction, and had me a look at the Kevin Drum Analysis.

It’s misleading, and I will tell you why: look at the census data he’s drawing on.  We are not talking about the Median Income levels for all citizens of the United States.  We’re talking about Median Income…for each household.

I’m not splitting hairs.  There are a number of reasons why the average income for a household might decline that would in no way suggest a decline in the standard of living.  If the proportion of low-income people who are buying their own houses increases, then the average might decrease, but the people who already owned homes are not any worse off than they were before.

It could also be that more single people are buying their own homes.  If you have fewer income earners in each house, then naturally the average “per house” goes down, but comparing a house owned by a twenty-something single IT student with a house occupied by a family of five would be rather unproductive if you’re attempting to get a sense of general standard of living.

But enough talk.  Let’s look at some information.

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Median Income – Bad Data Alert

Filed under: Economics — Ampersand @ 2:54 pm

median_income_bad_data.png

Yesterday I posted the above map, and I see that many lefty bloggers have done the same. However, as Jane Galt points out, the data behind the map was put together very poorly, and the statistics given on the map have little validity. (Thanks to Nobody.Really, who pointed out Jane’s post in comments).

Kevin Drum has posted more accurate data; although it shows that median incomes have indeed dropped in most states since 1999, the situation is not as dire as the inaccurate map made it seem.

September 1, 2006

Market Forces at Work in New Orleans

Filed under: Current Events,Economics — Brutus @ 1:05 pm

Michael Parenti has an interesting perspective in his article on market forces at work in the years prior to and in the immediate aftermath of Hurricane Katrina. The article was published on Sept. 3, 2005, so the full effect of Katrina and the complete ineffectiveness of our government’s response to it was not yet known.

Parenti’s remarks are sometimes snide, and there is no lack of attitude about the brand of Republicanism practices by Bush and Reagan before him. While I don’t especially appreciate that approach, it nonetheless makes its point abundantly clear. For instance, I was curious to read Parenti’s ironic observation that the U.S. government refused offers of foreign aid from France, Germany, Russia (huh?), and Cuba (what?).

It’s now just over a year since Katrina struck the Gulf Coast — not just New Orleans. Much of the region is bouncing back, but apparently New Orleans has not yet. About half of its population has returned. Those who have left, with intention of returning, has been called by some the American diaspora. The Washington Post reports on the desolation that is currently New Orleans, a full year after Katrina. Whether the city will eventually be rebuilt and repopulated remains to be seen. Some are calling for its abandonment, anticipating that another catastrophe is only inevitable. If Parenti’s perspective is the controlling one — that the free market determines the optimal outcome over time — it may well take a decade or more for people to trickle back to New Orleans. I suspect it will eventually happen, as the prospect of abandoning the city wholesale is simply too unpalatable for us in our hubris that we can defy nature.

August 30, 2006

Disagreeing With Dignan: The Politics Of Poverty And Welfare

Filed under: Economics — Ampersand @ 4:39 pm

Via Religious Left Online, I ran into Dignan’s post on “The Politics of Poverty.” Dignan criticizes both the right and left approaches to fighting poverty (although the solution he settles on is fairly right-wing), but in this post I’m gonig to concentrate on his critique of income transfer programs (also know as welfare).
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