Monday, April 4, 2016

Brush up on your macro, Gavyn Davies

Gavyn Davies - the internet and the productivity slump. There's so much wrong here that one angry blog can't do it enough injustice:

How much would an average American, whose annual disposable income is $42,300, need to be paid in order to be persuaded to give up their mobile phone and access to the internet, for a full year? Would it be more, or less, than $8,400 for the year? Ponder that question – its importance will become apparent later.

Rant below, to save some readers time.

Thus we are introduced to the utterly specious argument that TFP numbers are only what they are because something something internet something something technology something something Web 2.0.

Why has productivity growth slowed down so much in all major economies (both advanced and emerging) in the past decade?

To some extent, this has been a continuation of a much longer term trend in the advanced economies (see box below), but some of it is a new phenomenon. The slowdown in labour productivity growth accounts for most of the massive disappointment in output growth in the world since just before the Great Financial Crash in 2008. In the US, for example, productivity growth since 2005 has been 1.8 per cent per annum lower than it was in the prior decade, a deterioration of momentous proportions.

Someone wants to blame the slowdown on technology.

2005? Hm. That number sounds familiar:

Ah, that's it. 2005 was the year that corporate profits pre-tax and after-tax surged to their highest level since WWII demobilization.

There's the null hypothesis for you, Gavyn. Maybe higher profits are instead a sign of increasing market power, whose built-in Pareto inefficiency would automatically lead to lower productivity.

An optimistic explanation for this change is that the arrival of the internet and mobile technology has led to output gains that are not being correctly identified in the national accounts. If that is the case, then both real GDP and labour productivity might be higher than shown in the official GDP statistics, and the “slowdown” in productivity growth might not be genuine after all.

How are output gains not being correctly identified in the national accounts? You mean there is income going unrecorded? You mean there's payments to factors that aren't being identified?

Or is this the same old tired argument that "something something internet something something technology something something Web 2.0", therefore there's output that's somehow not generating income? There's factor utilization not leading to profit? As if the capitalist free-market economy has somehow gone nuts and decided to hand everyone free candy?

The first is the possibility that the ongoing improvement in the quality of digital products is being underestimated, so the official price indices applied to such products are systematically too high. If that is the case, then inflation is lower than the official data show, and real output is higher. The productivity puzzle automatically diminishes if this is the case.

Oh god, it's all mixed up with the idea of consumer utility as thing-in-itself.

Look, why should anyone bother to estimate the "ongoing improvement in the quality of digital products"? If digital products are producing more output and income now than they were 50 years ago, then sure fine that's productivity improvement: you can account for it in dollars. But if you're going to fiddle the national accounts to represent the nonmonetary "utility" improvement of a faster CPU or mobile telephony, you're going to end up with bullshit numbers that have nothing to do with output and income.

It's especially silly-looking now that I've read some Marilyn Waring, who notes that a big part of "utility" has been systematically excluded from economic accounting because it's got to do with women and therefore has nothing to do with "income".

A second possible cause of the MMH raises even thornier questions. This is the notion that much of the welfare benefits from consuming digital products is missing from the GDP data.

In the UK, an average citizen spends 20 hours per week using the internet, about double the time spent in 2005. Much of the content consumed is charged at extremely low or zero marginal prices in the market, so it is given very little weight in the GDP data.

Even those economists who are sceptical about the MMH tend to concede that GDP may be severely underestimating consumer welfare, especially for products that did not exist a decade ago (eg Facebook and You Tube).


(1) Welfare? Since when did economists give a shit about that? And if it doesn't affect income or output, then why the fuck equate "welfare TFP" with "output TFP"?

(2) What is the economic value of 20 hours a week on Facebook? For the purpose of national accounts, it's the value of the advertising, the cost of connectivity, the electricity usage, and that's it. It's what is paid for. Why are people trying to ascribe a surplus value to facebook? And, even better, who the fuck thinks there's a consumer surplus to using facebook that nobody's paying for, but which should still be included in national income accounts?

(3) Since when did consumer surpluses magically appear out of nowhere? 20 years ago the average UK citizen would have spent those 20 hours watching Corrie, doing gardening, complaining about the Tories/Labour, and masturbating. Are economists accounting for the tech boom's drastic negative effect on masturbation and political whinging?

Productivity is the ability to generate income from factors of production. Income is measured, hours worked is measured, capital is measured.

And capitalism doesn't give people utility for free.

This sort of airy-fairy horseshit is why an angry sociopathic Philosophy BA like me is needed in the economics field.

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