economics

Big article in the NYT previewing a biography of Bell Labs.

Michael Mandel rightly recognizes his own work in the agenda of the author, which is to establish a strong link between these fathers of many of today’s technologies and the alleged absence of such breakthroughs today.

I like stories of heroes building THINGS like real men do. You know, in factories and stuff. But in the rush to mood affiliation, nobody seems to want to confront two critical counter-factuals:

1. If Bell Labs hadn’t existed, would none of these technologies have existed today?
2. If Bell Labs still existed, would we have any different technologies today/tomorrow?

I hope that this book tries to delve into the scientific context of these researchers’ work. I’m reminded of a line about Einstein that went something like this: “most of his breakthroughs would have been discovered a few months or years after him by someone else: the world was ready for it. General relativity was different. We’d probably still be scratching our heads if he never came along.”

It’s a counterfactual, so who knows if that could be true. Regardless, I’d say it takes a serious shove to put these Bell Labs guys up on that pedestal.

Looks like oil prices are climbing again. If the economy keeps recovering, this increase is going to last a big longer than the last few. Calculated risk looks to James Hamilton in these situations. I’ll swipe a quote from an old Hamilton post via CR:

In my 2003 study, I found the evidence favored a specification with a longer memory, looking at where oil prices had been not just over the last year but instead over the last 3 years. My reading of developments during 2011 has been that, because of the very high gasoline prices we saw in 2008, U.S. car-buying habits never went back to the earlier patterns, and we did not see the same shock to U.S. automakers as accompanied some of the other, more disruptive oil shocks. My view has been that, in the absence of those early manifestations, we might not expect to see the later multiplier effects that account for the average historical response summarized in the figure above. If one uses the 3-year price threshold that the data seem to favor (e.g., equation (3.8) in my 2003 study), the inference would be that we’ll do just fine in 2011:H2, because oil prices in 2011 never exceeded what we saw in 2008.

Great stuff. We’re in a world where oil prices have stayed up long enough that the economy is adjusting to a new level of scarcity.

The other day we are treated to some more analysis:

The first question to be clear on is which crude oil price we’re talking about. Two of the popular benchmarks are West Texas Intermediate, traded in Oklahoma, and North Sea Brent. Historically these two prices were quite close, and it didn’t matter which one you referenced. But due to a lack of adequate transportation infrastructure in the United States, the two prices have diverged significantly over the last year.

Interesting stuff. Here’s a lot more from Hamilton on the Keystone XL pipeline. He’s definitely the best authority I know of on this stuff.

Anyway, now that it’s high oil price season again, I’m reminded of something Scott Sumner has taught me to watch out for, which he always talks about. I’m calling it his standing order: Never reason from a price change.

So what does this mean? Start with this quote:

One factor that’s been driving Brent and WTI up over the last few weeks has been rising tensions with Iran. But why should threats or fears alone affect the price we pay here and now? Phil Flynn, a senior market analyst at PFGBest Research in Chicago, offered this interpretation…

Ok, pop quiz: what happens to oil consumption in the US?

Think about what happens to consumption as the oil price rises and you’d say that consumption goes down. But you’d probably be wrong.

Sumner teaches us to ignore the price change when talking about its effects. Focus on the cause of the price change. What does a big problem in Iran mean for the US economy, other than oil? Not much.

The right answer, then? Oil consumption doesn’t change.

Michael Mandel’s article on the app economy is up. My initial comments here, though they now sound off mark against Mandel’s Atlantic piece.

My favorite bit:

Historically, industries that are job leaders during recessions tend to drive the expansion that follows. Once again, we confirm that innovation creates jobs in ways that cannot be anticipated beforehand. This is the future of industrialized countries.

It’s interesting to imagine what a world with a more substantial app economy would look like. More distributed, more virtual. This would probably be an economy marginally less dependent on large capital deployments and more dependent on open-source projects to upgrade infrastructure.

I’d be very interested to hear Tyler Cowen speculate on the implications for the app economy on TGS.

Some earlier comments of mine on the app economy.

Ho, ho, ho, I chuckle. This one’ll rile ’em up!

from MR.

Here’s a story on the Federal reserve of the 70s. Stagflation. Worst episode ever.

The upshot is that some guy named Arthur Burns got called to his doom as chair of the fed at the beginning of that era. Going in he was a VERY Bernanke-esque ‘best candidate available’. He understood monetary policy. Milton Friedman was a buddy and sang his praises. He espoused cutting-edge views on the drivers of inflation and these views are held as correct thirty years later.

Then he got assimilated.

Suddenly the rhetoric changed. Suddenly HE thought it was a good idea to keep those purse strings pulled wiiiide open. Suddenly he conjured up the demons that lie in wait under the beds of inflation hawks everywhere and set them loose upon the land.

Those boogeymen were real back in those olden days. And they were worse than Voldemort and they were ARTHUR BURNS’ fault.

Except that they weren’t, of course. Burns lost his soul and free will when he assumed the mantle of great status. He is no more an author of 70s stagflation than Bubba was of the Internet bubble or Dubya of the Afganistan war. These things are bigger than the personalities ‘in charge’ who, in societies like ours, merely reflect the median view as faithfully as possible.

Sumner then nails it:

Over the last few years I’ve occasionally argued that macroeconomists as a class are mostly to blame for the global economic crisis, not bankers or regulators. Seeing what happened under Burns makes me even more convinced that we macroeconomists are to blame.

Those who criticize Bernanke would do precisely what he has ‘done’ in his place, which is to hold up a small candle of influence to the fusion reactor of policy direction. He is a high status observer and were he out in the wild, the Bern-ank’s blog would be just as exasperated as the next.

Perhaps.

And part of it is looking the other way; part of it is this claim I make that there’s over 100 economists in the United States that think they are in the top 10 of economists, right? So they think they are in the running for Chair of the Fed or the Council of Economic Advisers or the National Economic Council, and so they hold their fire. I think we are a little bit captured.

By 1999, Goldman’s reputation had recovered to its previous zenith–to the point that a public offering again was possible. Its partners had debated the merits of such a change for years, and, even when the decision was made to go forward, the decision was reached only after vigorous debate and much disagreement. In favor of going public were those partners who saw a need for a larger capital base to allow the firm to compete in the increasingly globalized economy with the larger players both in the U.S. and overseas. Furthermore, once a public market was established for its shares, Goldman would have a currency other than cash with which to acquire other businesses and grow into financial services it could not afford to enter as a private partnership. On the other side of the argument were those partners who were worried about the impact that transition to a public firm would have on the firm’s culture. Heretofore, the firm had been known for its low ego and gang-tackling ethos, with aggressive personalities kept in check by the partnership potential that was strongly linked to both productivity and cultural fit.

What neither the firm’s partners nor outside observers were able to foresee was the resulting change in the firm’s risk tolerance. Goldman Sachs was the last of the major Wall Street houses to go public. (Donaldson, Lufkin and Jenrette had been the first in 1970.) As of May 4, 1999, all of Wall Street were now playing with other people’s money (whose acronym, OPM, is not coincidentally pronounced “opium” in financial circles).

That’s a former Goldman Partner.

What goes unsaid is that it isn’t just shareholders and bondholders that got screwed. It’s that, somehow, lax oversight can lead to systemic armageddon.

Congress is auctioning off wireless spectrum and my blogroll is silent. I’m astonished.

Where’s Tabarrok? Hazlett? Mandel? All of these guys have had pretty strong opinions on this kind of thing before.

Anayway, businessweek has some decent coverage. As does the NYT, from which I quote (ignoring the crap about the Payroll tax, which I believe is actually a secondary issue here):

The measure would be a rare instance of the government compensating private companies with the proceeds from an auction of public property — broadcast licenses — once given free.

The auctions, which are projected to raise more than $25 billion, would also further the Obama administration’s broadband expansion plans and create a nationwide communications network for emergency workers that would allow police, fire and other responders from different departments and jurisdictions to talk to each other directly.

Let’s not mess around. This is big. Real big. From Businesweek:

Back when TV broadcasters had power—that is, over members of Congress, and not in wattage at home—they had the best spectrum, in the frequency range that carries well and through walls. But television signals interfere with each other, and so the FCC has always had to guarantee gaps, adequate spaces between cities and signals to ensure that The Cosby Show in Washington was not compromised by Cheers on the same frequency in Baltimore. I am not dating myself with these references; I am dating the dominance of broadcast television. These gaps of unused spectrum, which get wider as population density thins and fewer stations broadcast, are called “white spaces.”

It’s these white spaces that are going up for auction. Get ready for a speed boost and innovation explosion.

Here’s the best metaphor I can think of.

Wireless broadband before:

And after: