Quotulatiousness

November 20, 2011

If you’re not paying for the service, you are the product

Filed under: Economics, Media, Technology — Tags: , , , , , — Nicholas @ 10:07

John Naughton points out that TANSTAAFL still applies, even to “free” services on the internet like Facebook and Twitter:

Physics has Newton’s first law (“Every body persists in its state of being at rest or of moving uniformly straight forward, except insofar as it is compelled to change its state by force impressed”). The equivalent for internet services is simpler, though just as general in its applicability: it says that there is no such thing as a free lunch.

The strange thing is that most users of Google, Facebook, Twitter and other “free” services seem to be only dimly aware of this law. Facebook, for example, handles the pages of 750 million users, enables more than half of that number to visit and update their pages every day and hosts more than 70 billion photographs. The cost of the computing and communications resources — in terms of server farms, energy, bandwidth and technical expertise — required to make this happen doesn’t bear thinking about. And my guess is that most Facebookers don’t think about it.

But it costs money — millions of dollars a month, every month. The monthly amount is called the “burn rate”. It comes from investors who make their cash available for burning in the hope that it will eventually pay off in terms of a stock market flotation or the evolution of a profitable business whose shares will be worth holding. In the internet era, the favoured strategy has been to “get big fast” (the title of a famous book about Amazon — that is, add users/subscribers at an exponential rate, and then find a way of monetising the resulting hordes.

November 19, 2011

Three reasons not to bail out student loan borrowers

Filed under: Economics, Education, Government, USA — Tags: , , — Nicholas @ 11:16

November 18, 2011

An antidote to the “OMG! China will eat our lunches” meme

Filed under: Americas, China, Economics — Tags: , , — Nicholas @ 12:02

For those inclined to worry overmuch about the rise of China as a world power (as opposed to merely as an economic competitor):

The real importance of this story does not, however, have much to do with Brazil’s jittery nerves about Chinese investment. It is to remind us about a key Chinese vulnerability that is often overlooked by pundits: China’s growing dependence on natural resources located far from its frontiers.

Beijing’s chosen national strategy — to achieve great power status by becoming the industrial workshop of the world — locks it into a complex and difficult set of dependencies and relationships with countries and markets all over the world. Access to those resources traps China in complicated geopolitical tradeoffs that can blow up in unexpected ways — as when China had to scramble to protect its citizens in Libya. Chinese companies become the object of public anger if they are seen to be economically exploitative, unwelcoming to local labor, or environmentally destructive. And, of course, in the event of a confrontation with the United States, China’s entire supply chain and overseas investments are helpless hostages.

Strategically, the only way out of this trap would be to build a blue water navy and air force that could threaten US command of the seas. But a build up of that kind would not only trigger a massive US response; other countries like Japan, India and Australia would join together to ensure that China did not overturn a maritime status quo that is well trusted by other world powers.

H/T to Jon, my former virtual landlord, for the link.

November 17, 2011

Snapshots from Greece

Filed under: Economics, Europe, Germany, Greece, Media, Politics — Tags: , — Nicholas @ 07:54

Brendan O’Neill has a few snippets from Athens:

‘Prime ministers should be chosen by us, not Angela Merkel,’ says the taxi driver taking me to the Acropolis. Taxi drivers here love talking politics, and they love hating Merkel. She’s treated as the arch villain of this tragedy. Magazine covers show a massive Merkel playing with Greek politicians as if they were dolls. Graffiti invites her to do things that are probably anatomically impossible. My advice to her is to avoid visiting Greece for the duration of The 100 Days. Probably longer.

•••

The taxi driver also tells me he can’t relate to Papademos. ‘He’s not a man of the people’. But it’s precisely Papademos’s lack of experience in dealing with the grubby, demanding demos that endears him to the EU elite, which fought tooth-and-catapult to have him installed as PM. As one European economist put it: for Brussels the great thing about Papademos is that he ‘speaks the language and shares the philosophy of [the] EU and ECB’ and that he ‘comes in without officially representing a party’. That is, he’s apolitical, unchosen, boring and bureaucratic — just the kind of politician the EU likes. It’s already a cliché, but that doesn’t stop it being true: Athens is now both the birthplace and graveyard of European democracy.

•••

Yet the graffiti expresses exasperation as well as anger — a deep disappointment with Greek workers. Commonly scrawled phrases are ‘Wake up!’ and ‘Stop being slaves!’ You get the impression that the Greek left, which is rowdier and noisier than its western European counterpart, is as annoyed with the masses as it is with Merkel. In Syntagma Square, nothing much remains of the radical protest camp that so excited outside observers earlier this year and which provided the template for the global ‘Occupy’ movement. There is just a memorial tree, with political paraphernalia attached to it in remembrance of the camp. It’s like one of those shrines that pops up on roadsides where someone has been killed by a speeding car, only it is adorned, not with wreaths, but with balaclavas, goggles and batteries (which were thrown at the police). It has the unwitting whiff of being a gravestone not only for the Greek left, but for Greek politics itself.

November 16, 2011

The gender wage gap won’t go away

Filed under: Economics, Government, Politics — Tags: , , , — Nicholas @ 09:28

Kay Hymowitz explains that even with the best will in the world, the wage gap — often referred to as the 75-cents-on-the-dollar phenomenon — between men and women will persist:

Let’s begin by unpacking that 75-cent statistic, which actually varies from 75 to about 81, depending on the year and the study. The figure is based on the average earnings of full-time, year-round workers, usually defined as those who work 35 hours a week or more.

But consider the mischief contained in that “or more.” It makes the full-time category embrace everyone from a clerk who arrives at her desk at 9 a.m. and leaves promptly at 4 p.m. to a trial lawyer who eats dinner four nights a week — and lunch on weekends — at his desk.

I assume, in this case, that the clerk is a woman and the lawyer a man for the simple reason that — and here is an average that proofers rarely mention — full-time men work more hours than full-time women do. In 2007, according to the Bureau of Labor Statistics, 27 percent of male full-time workers had workweeks of 41 or more hours, compared with 15 percent of female full-time workers; just 4 percent of full-time men worked 35 to 39 hours a week, while 12 percent of women did. Since full-time men work more than full-time women do, it shouldn’t be surprising that the men, on average, earn more.

The other arena of mischief contained in the 75-cent statistic lies in the seemingly harmless term “occupation.” Everyone knows that a CEO makes more than a secretary and that a computer scientist makes more than a nurse. Most people wouldn’t be shocked to hear that secretaries and nurses are likely to be women, while CEOs and computer scientists are likely to be men. That explains much of the wage gap.

But proofers often make the claim that women earn less than men doing the exact same job. They can’t possibly know that. The Labor Department’s occupational categories can be so large that a woman could drive a truck through them. Among “physicians and surgeons,” for example, women make only 64.2 percent of what men make. Outrageous, right? Not if you consider that there are dozens of specialties in medicine: some, like cardiac surgery, require years of extra training, grueling hours, and life-and-death procedures; others, like pediatrics, are less demanding and consequently less highly rewarded. Only 16 percent of surgeons, but a full 50 percent of pediatricians, are women.

Don’t expect China to save your economy

Filed under: China, Economics, Government, Media — Tags: , , , , , — Nicholas @ 09:19

Jon, my former virtual landlord, sent along this link which should pour cold water on the notion that China will step in to save the economies of other countries:

China’s economy has a reputation for being strong and prosperous, but according to a well-known Chinese television personality the country’s Gross Domestic Product is going in reverse.

Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis — on the brink of bankruptcy. In his memorable formulation: every province in China is Greece.

The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube.

In the unusual, closed-door lecture, Lang gave a frank analysis of the Chinese economy and the censorship that is placed on intellectuals and public figures. “What I’m about to say is all true. But under this system, we are not allowed to speak the truth,” he said.

Despite Lang’s polished appearance on his high-profile TV shows, he said: “Don’t think that we are living in a peaceful time now. Actually the media cannot report anything at all. Those of us who do TV shows are so miserable and frustrated, because we cannot do any programs. As long as something is related to the government, we cannot report about it.”

China, for all its amazing growth and rising economic prospects for (some of) its population, is still not a modern economy. The government — specifically the military — is too deeply involved at far deeper levels than other governments and the reported economic figures may or may not have any relationship with reality. When your boss is a general, he has ways of ensuring that you report the “right” results that a civilian CEO cannot match. It’s not just your job you risk by reporting unwelcome results.

I’ve ridden this hobby horse, as Jon calls it, many times over the years.

November 15, 2011

Stephen Gordon: One does not simply end supply management

Filed under: Cancon, Economics, Food, Liberty — Tags: , , , — Nicholas @ 09:29

Stephen Gordon in the Globe and Mail‘s Economy Lab on the economically indefensible Canadian anomaly known as “supply management”:

The best way to get a rise out of Canadian economists is to ask us about our dairy supply management system. It’s simply indefensible: a government-enforced cartel whose only purpose is to generate high prices for what most would view as essential goods. This sort of arrangement wouldn’t be — and isn’t — tolerated in another sector of the economy. Nor is it tolerated anywhere else in the world. So the news that the federal government is considering putting supply management on the table in order to join the Trans-Pacific Partnership trade deal is guaranteed to generate a certain amount of excitement among my colleagues.

It’s hard to believe that the interests of 13,000 Canadian dairy farmers could consistently trump the interests of 34 million Canadian dairy consumers, but yet the system is still with us. Why can’t we simply end supply management and let consumers benefit from lower dairy prices?

The problem is that current dairy farmers are — for the most part — not earning monopoly rents from what they produce. In order to sell their output, dairy farmers must first obtain a permit to do so, and dairy quotas are not cheap: more than $25,000 per cow. To a very great extent, the higher prices that they receive simply cover this initial investment.

November 14, 2011

Beating up on the Boomer generation

Filed under: Economics, History, Media, USA — Tags: , , , — Nicholas @ 12:03

Walter Russell Mead has a bit of vitriol to spit at the Baby Boomers:

But at the level of public policy and moral leadership, as a generation we have largely failed. The Boomer Progressive Establishment in particular has been a huge disappointment to itself and to the country. The political class slumbered as the entitlement and pension crisis grew to ominous dimensions. Boomer financial leadership was selfish and shortsighted, by and large. Boomer CEOs accelerated the trend toward unlimited greed among corporate elites, and Boomer members of corporate boards sit by and let it happen. Boomer academics created a profoundly dysfunctional system that systemically shovels resources upward from students and adjuncts to overpaid administrators and professors who by and large have not, to say the least, done an outstanding job of transmitting the cultural heritage of the past to future generations. Boomer Hollywood execs created an amoral morass of sludge — and maybe I’m missing something, but nobody spends a lot of time talking about the towering cultural accomplishments of the world historical art geniuses of the Boomer years. Boomer greens enthusiastically bet their movement on the truly idiotic drive for a global carbon treaty; they are now grieving over their failure to make any measurable progress after decades spent and hundreds of millions of dollars thrown away. On the Boomer watch the American family and the American middle class entered major crises; by the time the Boomers have finished with it the health system will be an unaffordable and dysfunctional tangle — perhaps the most complicated, expensive and poorly designed such system in the history of the world.

All of this was done by a generation that never lost its confidence that it was smarter, better educated and more idealistic than its Depression-surviving, World War-winning, segregation-ending, prosperity-building parents. We didn’t need their stinking faith, their stinking morals, or their pathetically conformist codes of moral behavior. We were better than that; after all, we grokked Jefferson Airplane, achieved nirvana on LSD and had a spiritual wealth and sensitivity that our boorish bourgeois forbears could not grasp. They might be doers, builders and achievers — but we Boomers grooved, man, we had sex in the park, we grew our hair long, and we listened to sexy musical lyrics about drugs that those pathetic old losers could not even understand.

What the Boomers as a generation missed (there were, of course and thankfully, many honorable individual exceptions) was the core set of values that every generation must discover to make a successful transition to real adulthood: maturity. Collectively the Boomers continued to follow ideals they associated with youth and individualism: fulfillment and “creativity” rather than endurance and commitment. Boomer spouses dropped families because relationships with spouses or children or mortgage payments no longer “fulfilled” them; Boomer society tolerated the most selfish and immature behavior in its public and cultural leaders out of the classically youthful and immature belief that intolerance and hypocrisy are greater sins than the dereliction of duty. That the greatest and most effective political leader the Baby Boom produced was William Jefferson Clinton tells you all you need to know.

November 13, 2011

Tyler Cowen on traditional values

Filed under: Economics, Liberty, USA — Tags: , , , — Nicholas @ 12:54

In his latest New York Times column, Tyler Cowen looks at the relationship of wealth to traditional values of self-discipline and hard work:

The Occupy Wall Street movement has raised important questions about the respect paid to wealth in our society. There is a good deal of unfairness in the American economy, and by deliberately targeting the “top 1 percent,” the demonstrators have opened up a dialogue that is quite useful.

Nonetheless, as someone from a conservative and libertarian background, I find that I am hearing too much talk about riches and not enough about values. It’s worth recalling why so many Americans have respected the wealthy in the first place.

The United States has always had a culture with a high regard for those able to rise from poverty to riches. It has had a strong work ethic and entrepreneurial spirit and has attracted ambitious immigrants, many of whom were drawn here by the possibility of acquiring wealth. Furthermore, the best approach for fighting poverty is often precisely not to make fighting poverty the highest priority. Instead, it’s better to stress achievement and the pursuit of excellence, like a hero from an Ayn Rand novel. These are still at least the ideals of many conservatives and libertarians.

The egalitarian ideals of the left, which were manifest in a wide variety of 20th-century movements, have been wonderful for driving social and civil rights advances, and in these areas liberals have often made much greater contributions than conservatives have. Still, the left-wing vision does not sufficiently appreciate the power — both as reality and useful mythology — of the meritocratic, virtuous production of wealth through business. Rather, academics on the left, like the Columbia University economists Joseph E. Stiglitz and Jeffrey D. Sachs among many others, seem more comfortable focusing on the very real offenses of plutocrats and selfish elites.

Stephen Harper’s government is not small-c conservative

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 12:44

The National Post editorial board surveys the federal government’s economic record and discovers it’s really the old Liberal party in disguise:

There is no question the Harper government has been profligate and could easily cut federal spending dramatically without doing further damage to the economy. Since 2006, the Tories have increased nominal federal spending from about $175-billion to just over $250-billion. That’s a shocking rise of almost 43%. Even after accounting for inflation and population growth, plus factoring out the money the Conservatives have spent on anti-recession stimulus (over $75-billion), the real growth in federal spending since 2006 has been nearly 10%.

The size of the federal civil service has increased rapidly, too, as has its composition. The Tories have added 13% to the rolls of the bureaucracy in just five years. Some of this is the result of their expansion of the military, police and border service, but much of it has nothing whatever to do with national security. Health Canada, for instance, has seen a nearly 50% increase in its staff under the Tories, the largest percentage increase of any department.

Mr. Flaherty would not have to be motivated by ideology to pare some of that spending and hiring back. If the Tories simply reversed federal spending to the levels they were at when the worldwide financial crisis hit in the fall of 2008, Ottawa’s budget would be balanced this year. Even if the Tories wanted to hold off on any cuts in transfers to individuals — such as pensions and GST credits — and preserve provincial transfers, they could still find enough cuts to non-essential spending to return to balance in two years.

The report from Greece

Filed under: Economics, Europe, Germany, Greece — Tags: , — Nicholas @ 12:16

Michael Petrou and Stavroula Logothettis survey the Greek debt crisis in a report that Maclean’s cheekily headlines “Acropolis Now”:

“We are finished as a nation,” says Marko Gjini, a 39-year-old unemployed construction worker in Athens. “The country has been sold off. We have no say in anything anymore. Greece is owned by the Germans.”

Like many Greeks these days, Gjini is bitter and despondent because of his country’s financial mess, and the austerity measures that have been imposed in an effort to contain it. His wife, Aleka, a public hospital nurse, has seen her income drop from 1,200 euros a month to 800 euros. Now, facing more taxes and cuts to public expenditures, the family expects to have a net monthly income of less than 500 euros. Marko and Aleka are investing whatever money they can toward English lessons for their twin eight-year-old boys in the hope that they might have a better future somewhere else. “Let the government fall,” says Gjini, “[German Chancellor Angela] Merkel is the boss now anyway.”

[. . .]

For Vaso Gildizi, a Greek freelance writer, events in Cannes were “a national humiliation for the country.” The Greek prime minister was scolded like a schoolboy and sent home. The incident didn’t sit well with many Greeks who were already sour on the bailout deal and the euro itself.

“We’re bankrupt,” says 44-year-old Vasilia Paneli, owner of Bliss, a trendy café a short walk from Syntagma Square and the parliament in Athens. “We know it. The EU knows it. And yet we continue this Greek tragedy. A referendum would at least give us a voice, a chance to speak up for our future.” Paneli was unmoved by French and German threats that a referendum on the bailout deal would have meant a vote on whether to remain in the eurozone. She’d rather Greece leave it. “It’s self-serving,” she says. “I say let’s go back to the drachma.”

[. . .]

William Antholis, a senior fellow at the Brookings Institution think tank, likens flirting with a return to the drachma to “threatening suicide to avoid a lynching.” Greece is in for a painful few years whatever happens, he said in an interview with Maclean’s. The austerity measures are going to bite. But leaving the euro, he says, would be disastrous. The costs could include a run on Greek banks, as people sought to withdraw euros before they were changed to drachmas. Some banks would probably collapse. Greece would likely default on its debts, and would be unable to pay pensions and salaries. Some sectors of the economy built on export might benefit from a new, devalued currency, but at the expense of much heavier blows elsewhere.

November 10, 2011

Teachers in the US are not underpaid

Filed under: Economics, Education — Tags: — Nicholas @ 09:41

An article in the Wall Street Journal examines the facts over the common belief that public school teachers are underpaid:

A common story line in American education policy is that public school teachers are underpaid — “desperately underpaid,” according to Education Secretary Arne Duncan in a recent speech. As former first lady Laura Bush put it: “Salaries are too low. We all know that. We need to figure out a way to pay teachers more.”

Good teachers are crucial to a strong economy and a healthy civil society, and they should be paid at a level commensurate with their skills. But the evidence shows that public school teachers’ total compensation amounts to roughly $1.50 for every $1 that their skills could garner in a private sector job.

[. . .]

Education is widely regarded by researchers and college students alike as one of the easiest fields of study, and one that features substantially higher average grades than most other college majors. On objective tests of cognitive ability such as the SAT, ACT, GRE (Graduate Record Examination) and Armed Forces Qualification Test, teachers score only around the 40th percentile of college graduates. If we compare teachers and non-teachers with similar AFQT scores, the teacher salary penalty disappears.

While salaries are about even, fringe benefits push teacher compensation well ahead of comparable employees in the private economy. The trouble is that many of these benefits are hidden, meaning that lawmakers, taxpayers and even teachers themselves are sometimes unaware of them.

[. . .]

One important caveat: Our research is in terms of averages. The best public school teachers — especially those teaching difficult subjects such as math and science — may well be underpaid compared to counterparts in the private sector.

H/T to Monty, who writes:

Spiking another myth: public school teachers are not underpaid. Public-sector employees tend to assume that private-sector workers get paid a lot more than they actually do. Public-sector employees also tend to undervalue their own (expensive) benefit packages, and don’t include them in their base salaries. Career public-sector workers would be shocked at how little money comparable private-sector workers actually make, especially when private-sector benefits are compared to public-sector benefit packages.

November 9, 2011

Under attack by overwhelming economic forces, French and Germans consider retreat to citadel

Filed under: Economics, Europe, France, Germany — Tags: , — Nicholas @ 14:42

If they’re floating ideas like this, the Euro is done:

German and French officials have discussed plans for a radical overhaul of the European Union that would involve establishing a more integrated and potentially smaller euro zone, EU sources say.

French President Nicolas Sarkozy gave some flavor of his thinking during an address to students in the eastern French city of Strasbourg on Tuesday, when he said a two-speed Europe — the euro zone moving ahead more rapidly than all 27 countries in the EU — was the only model for the future.

The discussions among senior policymakers in Paris, Berlin and Brussels go further, raising the possibility of one or more countries leaving the euro zone, while the remaining core pushes on toward deeper economic integration, including on tax and fiscal policy.

As in any retreat, some outlying forces (countries) will have to be sacrificed to save the main body (France and Germany). A small retreat may not be enough — but Greece, Italy, Spain, and Portugal are likely to be left outside the walls.

November 8, 2011

The difference between economic models and theories

Filed under: Economics, Media — Tags: , , — Nicholas @ 09:34

Emanuel Derman looks at the “physics of an economic crisis” and explains the difference between economic theories and economic models. I had originally quoted a few passages from the article, but the site forbids re-use without written permission.

November 7, 2011

“It is a sad state of affairs when an amazing feat of engineering is only seen in bleak environmental and misanthropic terms”

Filed under: Americas, Economics, Environment, Pacific — Tags: , — Nicholas @ 09:16

Nick Thorne wonders why the soon-to-be-completed road link between Peru and Brazil, the Interoceánica, has gotten such poor press in the west:

In July this year, an amazing feat of engineering and testament to the progress of Latin America went almost completely unreported in the Western media. With the opening of the Puente Billingshurst, a half-mile suspension bridge across the Madre Dios river, the interoceanic highway or Interoceánica neared completion. Soon, a long-held dream will finally come true: for the first time, a road will stretch all the way from the Pacific to the Atlantic, crossing the whole of South America.

The road starts in the Peruvian capital, Lima. It crosses the Andes, reaching a highest point of 4,850 metres (higher than Mont Blanc), then plunges into the rainforest, crosses several tributaries of the mighty Amazon, and after a total of 3,400 miles it reaches the Atlantic coast of Brazil. Much of the route has been in place for decades, but a 460-mile middle section was still missing. With the opening of the bridge, the road’s completion is in sight.

Comparisons have rightly been made between the Interoceánica and the first North American transcontinental railroad completed in 1869. In Brazil, the highway has already been dubbed ‘the road to China’. In 2009, China overtook the US as Brazil’s largest trading partner. Chinese trade will be able to use the Peruvian ports on the Pacific coast, cutting out a long detour via Cape Horn or the Panama Canal. While Brazil will be the main beneficiary, Peru will benefit as a middle-man. The think tank Bank Information Centre estimates that the highway will lead to a 1.5 per cent annual increase in GDP in Peru. The highway will facilitate greater regional integration and is a real symbol of Latin America’s economic awakening. A triumphant banner along the highway reads ‘once a promise, now a reality’. In 2006, a mere 3,500 people crossed the border from Peru to Brazil. By 2009, with the partial completion of the highway, this had already increased ten-fold to 35,000.

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