Month: March 2013

What is the consumer surplus from the internet?

The Economist has an excellent survey article, here is one (not the only) estimate:

Yet another technique is to assign a value to the leisure time spent on the web. Erik Brynjolfsson and Joo Hee Oh of the Massachusetts Institute of Technology note that between 2002 and 2011, the amount of leisure time Americans spent on the internet rose from 3 to 5.8 hours per week. The authors conclude that in so far as consumers must have valued their time on the internet more than the alternatives, this increase must reflect a growing consumer surplus from the internet, which they value at $564 billion in 2011, or $2,600 per user. Had this growth in surplus been included in GDP, it would have raised economic growth since 2002 by 0.39 percentage points on average.

I would note one caution.  Consumer surplus per se does not make published gdp figures inaccurate for most purposes, since all goods and services yield consumer surplus to some extent.  One might argue, however, that the internet has higher than average consumer surplus, for purposes of thinking about human welfare.

Different framings when people agree

Let’s take two cases, namely higher infrastructure spending for the United States today and looser monetary policy for the eurozone.  I favor both, but often I am left discomforted by the endorsements I see, in part because I wish to see those issues framed differently.

On infrastructure spending, I prefer to start with a frustration with current and recent infrastructure spending.  It doesn’t seem very well allocated.  It takes too long.  We just spent a huge chunk through ARRA and couldn’t even clear up the backlogs at LaGuardia and Kennedy airports, the major gateways to America’s #1 city.  We don’t seem able to build up nuclear power as significant protection against climate change.  High-speed rail doesn’t seem like a good investment in the places where it is going through.

One can favor more infrastructure without thinking that “the point” is simply to demand and then get more spending.  “The point,” in my view, is to improve the quality of our decision-making and our processes of implementation.  If it were one or the other, I would rather improve the long-run quality than get the extra $$ today.  So that is the issue people should talk and write about more often, and it seems odd to me to bring up the current $$ issue without insisting on the broader and more important point about massive institutional failure.  It’s almost as if the writers don’t want to weaken their case for the extra $$ to be spent.

Alternatively, I would put it this way: I would like to be able to favor more infrastructure spending than I do (which is still to favor an upgrade).

(I also get nervous when I read 2013 claims that infrastructure spending will significantly boost employment.  I doubt if it will make any more than a very small difference in long-term unemployment, the core of our remaining employment problem.)

Ultimately, I think that these differences in framing are more important than any agreement over the conclusion, although of course both should be reported.

On eurozone monetary policy, I prefer to start by understanding the roots of poor ECB policy.  I don’t ascribe it to bad macroeconomic theory, for the most part, although it is never hard to find examples of bad macroeconomic theorizing, including in the policy community and in speeches.

I ascribe it to the desires of European voters, most of all in the wealthier northern countries.  Very often they have protected professional and service sector jobs and a privileged insider status, for both private sector and public sector reasons.  Four to six percent inflation, to them, means something close to a four to six percent real wage cut.  They won’t be able to renegotiate their way back to the previous real wage because deep down they sense — correctly — that today we live in a different world.   So they hate inflation and prefer to hold on to their insider rents.

So much of eurozone economic policy, and indeed the entire underlying structure of EU interest groups, is based on the desire to protect inside workers from possible real wage cuts.  It therefore should come as no surprise that those same forces have such a stranglehold over monetary policy.  A lot of creditor financial institutions don’t like inflation either.  Nor do old people like inflation, in part because not all of them understand indexing and in part because indexing may be imperfect for the portfolio decisions of the elderly.  The elderly are a major swing voting bloc in many countries.  In the past I have referred to “gerontocratic deflation.”

Now I don’t mind people fulminating against bad (read: tight) eurozone monetary policy per se.  But in my view it misses or at least buries the lede.  The real story here is that a “dysfunctional to begin with” set of EU interest groups have now, due to changing circumstances, become much more dysfunctional.  The core lesson here, in my view, is that governments devoted so obsessively to rent protection won’t be able to make a lot of required tough decisions.  And yes, I become frustrated when I see the whole mess somehow blamed on Austrian economics, the Austerians, or related ideas.  At best that is superficial and at worst misleading or downright false.  It’s mostly a way to score debating points, at the expense of a fuller picture of what is going on.

I don’t like the meme “it’s the xxxx, dummy,” but I’ll try it in modified form: “it’s the interest groups, mein Freund.”

So there we have a story: “entrenched EU interest groups — including labor and the elderly — hinder easy money.”  Much of the left doesn’t like to stress the former factor and much of the right doesn’t like to stress or even admit the relevance of easier money, and so you have an under-reported story.

The bottom line is this: I am happy to read that there is a “sensible middle” position on both infrastructure and monetary policy.  I am happy to hold some version of that position.  But I am unhappy when that broom is used to sweep some very important underlying issues under the carpet.  The insistence on a sensible middle position, while true, is very often a cloak for partisan reframing of the issue itself and a somewhat Orwellian forgetting of what is really going on.  If we could get the underlying issues right, better policy would have a greater chance of coming to pass.  And we would understand the world better.  It also would be harder to score points in written or televised debate.

China fact of the day

Ninety members of the National People’s Congress are on a list of China’s 1,000 richest people published by the Shanghai- based Hurun Report, up from 75 last year, according to a review of the data by Bloomberg News. Everyone on the Hurun list had a fortune of at least 1.8 billion yuan ($289.4 million), more than former Republican presidential candidate Mitt Romney.

Here is more, via a retweet from Yana.

Assorted links

1. The long data of European Jewish expulsion.

2. The economics of hiring paralysis; this piece goes a lot further than does a lot of sticky wage theory, noting that the two can be combined into a larger final explanation.  Nonetheless it gives real support to “risk premium” theories.

3. Columbia thievery of Nutella becomes costly.

4. Potato parties lead to misconduct at McDonald’s Japan.

5. Jeremy Stein on reaching for yield, not my view but always worth hearing from dissenters.

6. Upgrade or die.

Coasean markets in everything?

A consortium of Central Texas businesses and communities has floated a novel solution to the tug of war over Colorado River water: Pay downriver rice farmers not to farm rice.

Members of the Central Texas Water Coalition are asking the Lower Colorado River Authority to pay rice farmers at least $100 million not to farm rice in perpetuity. They figure that’s cheaper than the cost of a proposed downriver reservoir, whose costs the LCRA estimates at $206 million.

The full story is here, and for the pointer I thank Bill, a marginally loyal MR reader.

Not in a Better Place

Better Place, about which I was optimistic several years ago when visiting Israel, is not doing well:

Better Place, which staked out its position in the electric car market with an innovative battery-swapping technology, has sold only about 750 cars in Israel, while piling up losses of more than $500 million. Agassi was forced out of Better Place in October, his successor as CEO quit in January, and the company has put its global rollout on hold. Better Place needs to raise more money this year, and that won’t be easy, insiders say.

The devil appears mostly to be in the details. The technology works, people who use it like it, but it isn’t cheap enough yet to overcome a bunch of individually minor regulatory and societal hurdles.

One point which occurs to me is that the automatic battery-swapping technology pairs well with self-driving cars. The cars can charge themselves when not in use.

Hat tip: Brad Plumer at Wonkblog.

Not all of higher education is in financial trouble

In the almost six years since Falwell’s death, Liberty University has doubled its student head count — twice.

Total enrollment now exceeds 74,000, with nearly 62,000 working toward degrees online in fields such as psychology, business, education, criminal justice and, of course, religion. That makes Liberty the largest university in Virginia — with more than double the number of students at No. 2 George Mason — and the largest private, nonprofit university in the country. With a slogan of “training champions for Christ,” Liberty also is the nation’s largest university with a religious affiliation.

Liberty figured out how to recruit masses of students via the Internet years before elite universities began ballyhooed experiments with free online courses.

…Liberty’s expansion has yielded a river of money. The university ended 2012 with more than $1 billion in net assets for the first time, counting cash, property, investments and other holdings. That is 10 times what the school had in 2006, putting Liberty in the same financial league as universities such as Pepperdine, Georgetown and Tulane.

Flush with cash, Liberty is building a huge, $50 million library, replacing old dormitories and angling to place its Flames football team in a conference eligible for NCAA bowl games.

That is by Nick Anderson, here is more.

Department of spurious correlations?

Here is the abstract of a forthcoming AER piece, written by M. Keith Chen:

Languages differ widely in the ways they encode time. I test the hypothesis that languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.

Here is from a recent article in The Chronicle of Higher Education, by Geoffrey Pullum:

Chen’s data on languages comes from the World Atlas of Language Structures (WALS), and his evidence on prudence from the World Values Survey (WVS). Both are fully Web-accessible. Sean Roberts, who studies language evolution at the Max Planck Institute for Psycholinguistics in Nijmegen, decided to investigate the other linguistic factors treated in WALS to see how they related to prudence. He compared the goodness of fit for linear regressions on each of a long list of properties of languages (the independent variables), using as the dependent variable the answers that speakers gave to the WVS question “Did you save money last year?”

The results (see this blog post for an informal account) were jaw-dropping. He found that dozens of linguistic variables were better predictors of prudence than future marking: whether the language has uvular consonants; verbal agreement of particular types; relative clauses following nouns; double-accusative constructions; preposed interrogative phrases; and so on—a motley collection of factors that no one could plausibly connect to 401(k) contributions or junk-food consumption.

There is a bit more here.

For the pointer I thank Mike T.  And I would gladly run a response from Chen, if he has interest in drafting one.

Addendum: Here is an important update from the critic, after improving the specification of his alternative fits:

The results showed that there was only one other linguistic variable that improved the fit of the model more than future tense.  That is, future tense was a better predictor than 99% of the linguistic variables.  For comparison, Dediu & Ladd’s test of the link between linguistic tone and Microcephalin/ASPM found that the hypothesised link was stronger than 98.5% of many thousands of links between genetic and linguistic factors.

Assorted links

1. A non-English-speaker imitating an American accent (badly).

2. Can peer grading work for MOOCs?  And troubled students in MOOCs, including MOOC murder as a concept.

3. Paul Krugman drives the deeply innocent Miles Kimball into a flurry of response.  Here are some EU interchanges and reactions with Krugman, the last tweet cited is classic mood affiliation.

4. Does Chinese have a word for “nerd”?  Here is a new book on the economics of baseball.

5. Is Los Angeles falling behind?

Online Education and Jazz

A common responses to my article, Why Online Education Works, is that there is something special, magical, and “almost sacred” about the live teaching experience. I agree that this is true for teaching at its best but it’s also irrelevant. It’s even more true that there is something special, magical and almost sacred about the live musical experience. The time I saw Otis Clay in a small Toronto bar, my first Springsteen concert, the Teenage Head riot at Ontario Place these are some of my favorite and most memorable cultural experiences and yet by orders of magnitude most of the music that I listen to is recorded music.

In The Trouble With Online Education Mark Edmundson makes the analogy between teaching and music explicit:

Every memorable class is a bit like a jazz composition.

Quite right but every non-memorable class is also a bit like a jazz composition, namely one that was expensive, took an hour to drive to (15 minutes just to find parking) and at the end of the day wasn’t very memorable. The correct conclusion to draw from the analogy between live teaching and live music is that at their best both are great but both are also costly and inefficient ways of delivering most teaching and most musical experiences.

Edmundson also says this about online courses:

You can get knowledge from an Internet course if you’re highly motivated to learn. But in real courses the students and teachers come together and create an immediate and vital community of learning. A real course creates intellectual joy, at least in some. I don’t think an Internet course ever will.

Edmundson reminds me of composer John Philip Sousa who in 1906 wrote The Menace of Mechanical Music, an attack on the phonograph that sounds very similar to the attack on online education today.

It is the living, breathing example alone that is valuable to the student and can set into motion his creative and performing abilities. The ingenuity of a phonograph’s mechanism may incite the inventive genius to its improvement, but I could not imagine that a performance by it would ever inspire embryotic Mendelssohns, Beethovens, Mozarts, and Wagners to the acquirement of technical skill, or to the grasp of human possibilities in the art.

Sousa could not imagine it, but needless to say recorded music has inspired many inventive geniuses. Edmundson’s failure of imagination is even worse than Sousa’s, online courses are already creating intellectual joy (scroll down).

(Sousa was right about a few things. Recorded music has reduced the number of musical amateurs and the playing of music in the home. Far fewer pianos are sold today, for example, than in 1906 when Sousa wrote and that is true even before adjusting for today’s much larger population. Online education will similarly change teaching and I don’t claim that every change will be beneficial even if the net is good.)

Sousa and Edmundson also underestimate how much recording can add to the pursuit of artistic excellence. Many musical works, for example, cannot be well understood or fully appreciated with just a few listens. Recording allows for repeated listening and study. Indeed, one might say that only with recording, can one truly hear.

Recording also let musicians truly hear and thus compare, contrast and improve. Most teachers will also benefit from hearing and seeing themselves teach. With recording, teaching will become more like writing and less like improv. How many people write perfect first drafts? Good writing is editing, editing, editing. Live teaching suffers from too much improv and not enough editing. Sometimes I improv in class–also called winging it–but like most people I am usually better when I am better prepared. (Tyler, in contrast, is the Charlie Parker of live teaching.)

Sousa and the modern critics of online education also miss how new technologies bring new possibilities. For Sousa then, as for Edmundson today, the new technologies are simply about recording the live experience. But recorded music brought the creation of new kinds of music. Indeed, a lot of today’s music can’t be played live.

In his excellent 1966 disquisition, The Prospects for Recording (highly recommended, fyi), pianist Glenn Gould said that using the technology of the studio “one can very often transcend the limitations that performance imposes upon the imagination.” The same will be true for online education.

Addendum: Andrew Gelman comments.

I never knew there were turmeric futures (MIE)

Turmeric futures prices on Wednesday shot up by 3.23 per cent to Rs 6,330 per quintal as speculators created fresh positions, driven by an improvement in demand in the spot market amid lower output expectations.

Turmeric is perhaps my favorite spice and I sprinkle plenty of it on the Indian rice I cook.  The article is here, via James Crabtree.

Words of wisdom

Austerity is the result of countries’ democratic decisions to wait until the last minute before acting, under the pressure of the markets, mainly by raising taxes rather than implementing long-waited reforms. Denying this, by claiming that austerity has been imposed on countries – rather than self-inflicted – and looking for scapegoats, is the biggest threat to democracies going forward.

That is from Lorenzo Bini Smaghi.  I would put it this way: the higher the “multiplier,” the more we should be asking: why doesn’t the private sector want to reemploy these people?

Bill Gates reviews Acemoglu and Robinson

He doesn’t like the book so much. Here is his bottom line:

This points to the most obvious theory about growth, which is that it is strongly correlated with embracing capitalistic economics—independent of the political system. When a country focuses on getting infrastructure built and education improved, and it uses market pricing to determine how resources should be allocated, then it moves towards growth. This test has a lot more clarity than the one proposed by the authors, and seems to me fits the facts of what has happened over time far better.

He also objects to the critique of foreign and, and the review closes with this:

As an endnote, I should mention that the book refers to me in a positive light, comparing how I made money to how Carlos Slim made his fortune in Mexico. Although I appreciate the nice thoughts, I think the book is quite unfair to Slim. Almost certainly, the competition laws in Mexico need strengthening, but I am sure that Mexico is much better off with Slim’s contribution in running businesses well than it would be without him.

The pointer is from Jeffrey Sachs.