Sunday, October 19, 2014

This Is What an Expansion Feels Like

Two graphs from the Pew Research Center:

Americans may not be raging optimists when it comes to finding work — perhaps “skeptical realists” is closer to the mark — but their self-assessment of the job market tracks pretty closely with official unemployment statistics.

It’s been a long time coming, because, really, that was a very nasty recession a few years back. But … people’s perception of the availability of jobs is back in line with what it was during the middle parts of the Bush expansion (say around 2004), and he unemployment rate is back where it was in the early middle of the Bush expansion (say around 2003).

Via I Love Charts.

Saturday, October 18, 2014

Why Is Macro So Hard? “This Is the Worst Thing Ever. And We’re All Going to Die”

David Harsanyi hits a homer with “This Is the Worst Thing Ever. And We’re All Going to Die.” from The Federalist.

Most of this piece isn’t explicitly about macroeconomics. But it gets at the point that one of the things that makes thinking about macroeconomics and policy so hard is the breathless negativity which politicians the legacy media condition us with.

Thursday, October 16, 2014

Some African Countries Bump Up Their GDP

I think you have to take this with a grain of salt, but some African countries are improving and revising their GDP numbers, and coming up with results that suggest their economies are a lot bigger than we thought.

Some of this is no doubt political.

But, do keep in mind that GDP is notoriously badly measured in poor countries. So there’s also a big “it’s about time” attitude that we should have towards better numbers.

And also, it’s a very good sign of improved economic activity that the governments of these countries can find the money to even consider doing this. Even if they’re fibbing about some of the numbers, it’s a costly undertaking that they wouldn’t do lightly.

Read the whole thing, entitled “Africa’s GDP Is Bigger Than You Think” in Bloomberg Businessweek.

Dentistry as an Economic Indicator

Bloomberg Businessweek has a piece this week entitled “The Dental Index Suggests Economic Pain Ahead”.

They provide some evidence from data on dental work and dental practices suggesting that the economy may be near its peak.

Of course, you always need to keep in mind that the problem with forecasting turning points if false positives, so this may not turn out to be anything.

Sunday, October 12, 2014

How Technology Makes More Effective Labor

In growth theory, we learn that labor is the hours we put in. Capital is the depreciable tools that make those hours more productive. Technology is the non-depreciable ideas that make us act like we have more virtual hours than actual hours.

This is effective labor. One way technology does this is by allowing us to control more pieces of capital at the same time.

Consider this video about how the desktop has evolved over the last 30 years:

Sunday, October 5, 2014

What Is Value? What Is Production? Do We Even Know Any More? Can We Even Know Any More?

GDP has always been flawed. It’s missing home production, and underground production, and leisure, and the flow of environmental services.

But, our hope has always been that what it’s missing is roughly in proportion to what it measures. If this is true, then GDP is still a good measure of overall value.

Except for consumer surplus. GDP has always missed consumer surplus, And this didn’t seem to matter much … until the internet started turning lots of measurable GDP into not-so-measurable consumer surplus.

Think about a music file that you obtain for something less than its retail price. The value to you is the same, but almost all of that value is now surplus instead of revenue for the music industry. This means GDP actually falls when you pirate a song.

And yet the well-being that GDP is supposed to measure actually goes up when society pirates songs. The reason is that as price falls, we move down along the demand curve. Yes, we’re reducing measurable revenue to the industry, but we’re increasing the triangle of consumer surplus in two dimensions: both the price we would pay but no longer do, and the number of people who find it in their interest to obtain and enjoy the song at the lower price.

N.B. I do recognize that there is a broken window fallacy that’s also involved with pirating music, but that’s not my concern here.

Anyway, I think I’ve got you convinced that there’s something new going on with consumer surplus. Now consider this video. This is a serious short film, and I’m sure the creators thought nothing of what it says for macroeconomics.

ASPIRATIONAL from Matthew Frost on Vimeo.

Did the two girls get something of value? Yes, I think it’s obvious they did. Does it enter into GDP? Of course not. That’s problem one.

But there’s a second bigger problem. How did they produce that value?

Hmmm. Let’s play macroeconomist. The girls combined labor, capital and technology to create value. What’s the labor? I suppose it’s the girls’ time (posing, clicking, tagging, texting, and harvesting the enjoyment that follows) and the time Kirsten Dunst is actually being photographed.* But what about the rest? The phones and the internet are capital. Now, there’s technology involved in both of those too, but it’s sort of boring for my purposes because it’s extant technology.

But what about Kirsten Dunst? Is there more to her than labor? If so, is she capital or technology? I think she’s a little bit of both, perhaps even quite a bit of both, since she’s a lot more important to producing this bit of value than anything else.

She’s definitely capital in that she’s productive, and her productivity will depreciate if not cared for. A name will help with this idea; how about “Dunstware”. I think it is fair to say that an actress like this would be very concerned about the potentially rapid depreciation of her Dunstware.

But she’s also technology: a productive, non-rivalrous idea, that can be used repeatedly without being consumed. Call this “Dunstfulness”. This picks up the idea that you’re never going to be in a photo with Kirsten Dunst unless she brings her Dunstfulness with her; photoshopping is still possible, but then it’s really a form of technological spillover in which someone can use Dunstfulness without necessarily having permission to do so.

That’s mind blowing. Could you, just a few minutes ago, have conceived of a person’s … personness … as a form of technology?†

It’s get’s better. Dunstfulness is a technology for which there are network externalities that aren’t even based on production. Consider a theorem. Yes, it has network externalities because it can be used repeatedly to create new value. Dunstfulness is better than that: she can repeatedly create value (in the girls’ friends) without be used at all.

So, Dunstfulness is a technology that should be measured with our national wealth. And, it’s capable of helping to produce something valuable that should be measured in our GDP.

Further, our GDP, which does measure all the production values that go into creating Dunstware, and is clearly not going to measure the long-term investment made in creating Dunstfulness. And yet, no doubt, a lot of people along the line involved in that no doubt envisioned their work as an investment in Dunstware or Dunstfulness.

Whoa.

* Can we even use the word “photographed” for what happens in the video?

† Yes, I had to use a website that collects suffixes to come up with these names.

Saturday, October 4, 2014

What Is Value? What Is Production? Do We Even Know Any More? Can We Even Know Any More?

GDP has always been flawed. It’s missing home production, and underground production, and leisure, and the flow of environmental services.

But, our hope has always been that what it’s missing is roughly in proportion to what it measures. If this is true, then GDP is still a good measure of overall value.

Except for consumer surplus. GDP has always missed consumer surplus, And this didn’t seem to matter much … until the internet started turning lots of measurable GDP into not-so-measurable consumer surplus.

Think about a music file that you obtain for something less than its retail price. The value to you is the same, but almost all of that value is now surplus instead of revenue for the music industry. This means GDP actually falls when you pirate a song.

And yet the well-being that GDP is supposed to measure actually goes up when society pirates songs. The reason is that as price falls, we move down along the demand curve. Yes, we’re reducing measurable revenue to the industry, but we’re increasing the triangle of consumer surplus in two dimensions: both the price we would pay but no longer do, and the number of people who find it in their interest to obtain and enjoy the song at the lower price.

N.B. I do recognize that there is a broken window fallacy that’s also involved with pirating music, but that’s not my concern here.

Anyway, I think I’ve got you convinced that there’s something new going on with consumer surplus. Now consider this video. This is a serious short film, and I’m sure the creators thought nothing of what it says for macroeconomics.

ASPIRATIONAL from Matthew Frost on Vimeo.

Did the two girls get something of value? Yes, I think it’s obvious they did. Does it enter into GDP? Of course not. That’s problem one.

But there’s a second bigger problem. How did they produce that value?

Hmmm. Let’s play macroeconomist. The girls combined labor, capital and technology to create value. What’s the labor? I suppose it’s the girls’ time (posing, clicking, tagging, texting, and harvesting the enjoyment that follows) and the time Kirsten Dunst is actually being photographed.* But what about the rest? The phones and the internet are capital. Now, there’s technology involved in both of those too, but it’s sort of boring for my purposes because it’s extant technology. But what about Kirsten Dunst? Is there more to her than labor? If so, is she capital or technology? I think she’s a little bit of both. She’s definitely capital in that she’s productive, and her productivity will depreciate if not cared for. But she’s also technology: a productive, non-rivalrous idea, that can be used repeatedly without being consumed.

That’s mind blowing. Could you, just a few minutes ago, have conceived of a person’s … personness … as a form of technology?

It’s get’s better. Kirsten Dunst is a technology for which there are network externalities that aren’t even based on production. Consider a theorem. Yes, it has network externalities because it can be used repeatedly to create new value. Kirsten Dunst is better than that: she can repeatedly create value (in the girls’ friends) without be used at all.

So, “Kirsten Dunst-ness” is a technology (let’s just call it Dunstness) that should be measured with our national wealth. And, it’s capable of producing something valuable that should be measured in our GDP.

Further, our GDP, which does measure all the production values that go into creating a Kirsten Dunst, is clearly not going to measure the long-term investment made in creating Dunstness. And yet, no doubt, a lot of people along the line envisioned their work as an investment in Kirsten Dunst to create Dunstness.

Whoa.

* Can we even use the word “photographed” for what happens in the video?