links for 2009-12-22
Picking Up Nickels in Front of the Steamroller: A Simple and Partial Finger Exercise

Five Economic Paragraphs Worth Reading: December 22, 2009

1) Paul Krugman: The insincere center:

[L]et’s also not fail to take note of those who had a chance to join in this historic moment, and punted. I’m not talking about the progressives who... don’t think it’s good enough; I disagree, but I respect the[m].... I’m talking instead about the self-described centrists, pundits and politicians, who have spent years lecturing us on the need to make hard choices and actually come to grip with America’s problems.... So what did they do when faced with a chance to help confront those problems? They made excuses.... As Atul Gawande and others have pointed out, the Senate bill tries a wide variety of approaches to cost containment — in fact, just about everything that has been suggested. We don’t know which of these approaches will work or how well, but that’s more than anyone has managed to achieve ever before. Oh, and the legislation is fiscally responsible from the start. So did the deficit scolds, the people who preach the need to rein in entitlements and start paying our way, rally behind the cost-containment plans? Um, no. As I said, they made excuses, whining that the bill doesn’t do enough... or insisting that even though the legislation does do the right thing, it doesn’t matter, because Congress won’t let the cost cuts go into effect.... [T]hese people are insincere... like posing as defenders of fiscal rectitude... but when push comes to shove... their refusal to consider any government economy measures that don’t involve punishing people with lower incomes, trumps their supposed concern.... Gentlemen — everyone I can think of here does happen to be male — this was your moment of truth, your test of character. You failed.

2) Charlie Stross: Gadget Patrol: 21st century phone:

Pre-2005, digital mobile phones... badly choked their ability to do anything useful and internet-worthy. By 2005, the first 3G networks based on WCDMA (aka UMTS) began to open up. By 2009, 3G HSDPA networks can carry up to 7.2mbps. The modem-grade data throughput of the mid-noughties smartphone experience has been replaced by late-noughties broadband grade.... To the mobile phone companies, 3G presented a headache.... What can you do over 3G that justifies the extra cost? Version 1 of their attempt to monetise 3G consisted of walled gardens of carefully cultivated multimedia content.... It turns out that what consumers want of a 3G connection is not what a mobile company sees fit to sell them, but one thing: bandwidth. Call it Version 2.... Enter: Apple and Google.... Apple are an experience company... a high-end marque.... How they got into the mobile phone market is an odd and convoluted story, but it's best to view it as a vertical upwardly-mobile extension of the MP3 player market (from their point of view), which has taken on a lucrative life of its own. Apple's unique angle is the user experience.... Apple don't want to destroy the telcos; they just want to use them as a conduit to sell their user experience. Google, however, are another matter. Google is an advertising corporation. Their whole business model is predicated on breaking down barriers to access.... I think Google are pursuing a grand strategic vision of destroying the cellco's entire business model.... [I]f Google succeeds, the economic basis of your mobile telephony service in 2019 is going to be unrecognizably different from that of 2009. Some of the biggest names in phone service (T-mobile? Orange? Vodafone? AT&T? Verizon?) are going to go the way of Pan Am and Ma Bell by then; the ones left standing will be the ones with the best infrastructure (hint: that doesn't look like AT&T right now — by some analyses, AT&T mis-understand TCP/IP so badly that their network trouble is self-inflicted) and best interoperability (goodbye Verizon), selling bits at the lowest price to punters who buy their cheap-to-disposable (phones are part of the perpetually deflating consumer elecronics sector; today's $350 BoM should be down to under $100 by 2019, for something a good deal more powerful) unlocked in WalMart and take ditchwater-cheap international roaming service for granted.... [T]hings will have come full-circle, and the internet will have eaten the phone system. What's good for the internet is good for Google. Right now, the phone companies are not good for the internet. If I'm right about the grand strategy, the Googlephone will change that.


That Rich would even implicitly compare Barack Obama, who has made a significant and very substantive intellectual effort to deal with every problem he's faced, with an adulterous golfer is facile to the point of slander... And so is the judgment that the country is "mired in a sand trap with no obvious way out." From where I sit, the country is facing very difficult problems--caused, in large part, by the right-wing extremism Rich seems to be crediting here--but it is in much better shape than it was a year ago.... After a thirty year period during which the very notion of governance was ridiculed, we need to take the work of government seriously again. Barack Obama is doing precisely that. You can disagree with Obama's decisions and his philosophy. You can argue that that he has tried to take on too much. You can argue that health care reform was the wrong priority in the midst of a deep recession.  But you cannot gainsay the intensely serious nature of this presidency. And to give any credit to the notion that Obama is "spineless" requires a fundamental lack of knowledge.... Yes, Americans have grown cynical. The most toxic form of that cynicism is the know-nothing populism that Rich is celebrating here. Frank Rich's value as a columnist has always been his willingness to push back against the carnival tide of ignorance that has washed over the country in recent decades. Today, he lazily went with that tide.  At a moment when the real voices of progress and sanity need all the help they can get, that is a terrible mistake.

4) STUPIDEST THING I HAVE READ ALL DAY: Richard Posner: The (F)utility of GDP?:

I disagree with economists who say the “recession” ended in the third quarter. The depression (as I think we should call it if only because of its enormous potential political consequences) has caused massive unemployment with all the associated anxieties and hardships, has greatly reduced household wealth, has caused private investment to turn negative, has cost the government trillions of dollars in lost tax revenues and recovery expenditures (TARP, the fiscal stimulus, the mortgage-relief programs, the auto bailouts, etc.), has undermined belief in free markets and altered the line between government and business in favor government, and is threatening a future inflation while deepening our dependence on foreign lenders. To view a change in GDP from negative to positive as signifying the end of a depression (by which criterion the Great Depression ended in 1933 and again in 1938) is to misunderstand the utility of GDP as a measure of economic activity... [The depth of ignorance required to claim that anyone thinks that the end of the downturn--the end of the recession--is also the end of the period during which the economy is hag-ridden with slack and unemployment... that depth of ignorance leaves me simply speechless.]

5) FROM THE ARCHIVES: Brad DeLong (February 12, 2003): Andrei Shleifer's "Implementation Cycles":

I think I was very smart to teach this paper as an [introductory] way of pointing students to the issues involved in bringing innovation, technological progress, and market structure into aggregative macroconomics. The underlying basic model is very elegant. It begins with an initial setup that seems rather complicated, yet it rapidly simplifies to produce a situation in which: --A lot of firms implementing their new technologies at once creates a boom. --An aggregate demand externality makes it profitable to cluster the implementation of new technologies. A firm with a new technology wants to wait until a boom to implement it because its technology will be quickly copied--its edge is temporary--and it is more profitable to implement when the economy is booming and demand is high than when the economy is not booming and demand is low. --Partly offsetting this is the fact that the interest rate is high when a boom is expected, and thus the cost of waiting until a boom to implement your technological innovation can be substantial. (In fact with log utility or a utility function less risk-averse than log utility, the interest rate effect always outweighs the aggregate demand externality effect). --Thus the model can exhibit periodic "implementation cycles" in which technological advance is delayed until periodic booms. --However, in the basic model households always want new technology to be implemented as fast as possible: these implementation-cycle equilibria reduce welfare. --But this can be reversed: in a version of the model with fixed costs of implementation and with 'standing on the shoulders of giants' effects in discovery, it is very possible that technological progress is only possible if there are periodic large booms. There is one dimension in which the paper is not a good guide for students thinking about how to write their dissertations. It is a perfect-foresight model--its equilibria are those in which everyone has point expectations about what the future will bring, and those expectations are always confirmed. Today it's hard to get a job with a perfect-foresight model: too many people will say that the dive was not difficult enough. It is, however, a great article: all kinds of issues--the role of expectations, of imperfect competition, of market profits as spurs to innovation, and of the relationship between short-run business cycles and long-run development--are raised and dealt with in a very thoughtful way...