(Nominal) Income, Cost-of-Living, and Real Income (by Profession)

Rasmussen College has a great site that allows you to input professions, and then get a ranking of all 50 states by nominal and real income.

The Bill Arrives

With great fanfare last year the EU released updated GDP figures that includes information on prostitution, illegal drug use, and other underground aspects of an economy that were not counted before.

And this year, the EU wants the UK to cough up a bigger contribution because their economy has done better than the average European one … in part because of the bigger numbers from prostitution and drugs.

The payment, described by officials as a “surcharge” follows a change to the way the EU calculates gross national income to include previous hidden service industries, including such prostitution and illegal drugs.

Tim Worstall points out that just because you can count the GDP doesn’t mean you can raise the tax revenue from those sectors.

I’d add that since you probably can’t raise the money from those sectors, this amounts to a higher tax on legal sectors because the UK tried to count the illegal sectors.

This is analogous to taking a family containing a drug abuser, and telling the straight members of the family they have to work harder because one member of the family is having extra fun.

The bureaucrats at the EU have to be have a pretty screwed up worldview not to see that. Or … they just want the cash (and will use whatever excuse is handy).

Misinformation, and the Drive for Income Equality

There’s new and provocative research out of Sweden entitled “Richer (and Holier) Than Thou? The Effect of Relative Income Improvements on Demand for Redistribution”.

… A vast majority of Swedes believe that they are poorer, relative to others, than they actually are. This is true across groups, but younger, poorer, less cognitively able and less educated individuals have perceptions that are further from reality.

To put it more bluntly, people pushing an agenda for income redistribution will have better luck if their target market is young, dumb, and ignorant.

Then the authors try a little social engineering:

… We conduct an experiment by randomly informing a subsample about their true relative income position. Respondents who learn that they are richer than they thought demand less redistribution and increase their support for the Conservative party.

Their evidence of this is based on before and after responses to survey questions, not actual voting records.

Wanna’ Work at Google? (Not Required)

From the Business Insider piece entitled “The One App You Need On Your Résumé If You Want A Job At Google" (read more: http://www.businessinsider.com/matlab-software-skills-needed-for-jobs-at-google-2014-10#ixzz3GniQv7jC).

Google's former svp/product management Jonathan Rosenberg was in London with chairman Eric Schmidt …

… Schmidt had some more down-to-earth advice. Google really needs data analytics people and folks who have studied statistics in college, he said.

Big data — how to create it, manipulate it, and put it to good use — is one of those areas in which Google is really enthusiastic about.

And then Rosenberg said something really interesting. If you want to work at Google, make sure you can use MatLab, he said.

And, who’s the only SUU professor who has experience with Matlab? Yours truly. I gave up trying to get funding to buy Matlab for SUU about 10 years ago … no one had any vision about what it would be used for.

FWIW: I wouldn’t even worry about Matlab just yet. In order to use Matlab you really need to have taken linear algebra. I wouldn’t even worry about linear algebra yet though. In order to take linear algebra, you need two semesters of calculus. And that’s not business calculus, or ECON 2500. So, there’s a plan: Calculus I, Calculus II, Linear Algebra, talk to Tufte about learning Matlab.

This Is What an Expansion Feels Like

Two graphs from the Pew Research Center:

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.

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.

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.

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:

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.

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?