December 28, 2003
Increased Productivity or a Higher Rate of Relative Surplus-Value?

To what degree is rapid growth in productivity a boon? How much of it is getting more stuff for the same inputs? And how much of it is squeezing more work out of workers for the same pay--in increase in what old Charlie Marx used to call "relative surplus value"? The San Francisco Chronicle's Sam Zuckerman has some thoughts: THE YEAR IN BUSINESS / Economy growing but many workers left out / Relentless cost cutting slows hiring, sends job overseas: The phenomenon of rising production, rising sales and flat or shrinking employment points to another feature of today's economy -- an astonishingly high rate of increase in productivity. In both the manufacturing and service sectors, output per hour of labor is now increasing at about three or four times the rate that prevailed during most of the last three decades. The usual explanation for rapid productivity gains is that employers are finally reaping the benefits of information technology. Computers are operating machinery, tracking inventory, answering customer questions and performing myriad other tasks that used to require a human being. But something else seems to be at work as well. Businesses have pared their staffs to the bone, forcing remaining employees...

Posted by DeLong at 10:50 AM

December 26, 2003
Needed: Lawyers as Well as Scientists

Indian pharmaceutical firms need lawyers as well as scientists: Generic Drugs From India Prompting Turf Battles: At 2 that cool winter morning last year when news trickled in that Dr. Reddy's Laboratories had successfully challenged the patent on a blockbuster hypertension drug in a New Jersey court, jubilant senior executives uncorked a bottle of Champagne. By daybreak, however, the celebration at Dr. Reddy's, a leading Indian drug maker based in Hyderabad, had come to an abrupt end. The patent holder, Pfizer Inc., loath to give up rights to the drug, Norvasc, with its worldwide sales of $3.8 billion last year, had announced that it would take the challenge to a higher court. One year later, the introduction of Dr. Reddy's version of the drug is still on hold, awaiting an imminent ruling from federal court in Washington, even though the company received final approval from the United States Food and Drug Administration. Pfizer has sued the agency over that approval, too. The Norvasc dispute is just one of many battles being fought between increasingly aggressive Indian generics makers and global drug companies increasingly fierce about protecting their turf. For decades, Indian drug makers honed their copycat skills under a domestic...

Posted by DeLong at 06:20 AM

December 21, 2003
Real Networks Sues Microsoft

Real Networks sues Microsoft: Silicon Valley | 12/19/2003: ...So does Real have a case? It certainly looks like it. From October 2001 to March 2003, for example, Microsoft's tying of its Windows Media Player to the Windows OS ensured that the software was preinstalled on about 95 percent of the estimated 207 million new PCs shipped during that time. RealNetworks' digital media player was preinstalled on less than 2 percent. Furthermore, Microsoft's standard contract with PC manufacturers prevents them not only from removing the Windows Media Player, but even providing a desktop icon for Real Networks. Sound familiar? "In a sense this is the next chapter following on the heels of the Netscape issue," Andrew I. Gavil, a law professor at Howard University, told the New York Times. "In some ways, it's become even more significant because of the expansion of the digital content issue."......

Posted by DeLong at 05:18 PM

December 17, 2003
Digiti[sz]ation

Simon London writes in the Financial Times about how the computer revolution has barely started: FT.com Home US: Type "digitisation" into Amazon.com's new Search Inside The Book feature and you get back a list of 1,176 titles. Along with the usual roster of authors and publishers, you also get to browse pages relevant to the search.... The new search feature is in itself a reminder that, more than a decade after digitisation became a buzzword, its impact is being felt in new and different ways. By scanning every page of 120,000 volumes - 33m pages in total - Amazon has for the first time brought a significant chunk of the English language book catalogue into the digital domain.... the long-term implications for authors, publishers and rival booksellers are profound. As with other media, once books are digitised they become not only easier to search but also easier to copy and share. The wider point is that while industries ranging from travel to securities trading have already been transformed by the transition "from atoms to bits" - a phrase coined by Nicholas Negroponte, head of the Media Lab at the Massachusetts Institute of Technology - other sectors are only now starting...

Posted by DeLong at 09:09 AM

November 06, 2003
Third Quarter Productivity

The third quarter productivity estimate is out: The Bureau of Labor Statistics of the U.S. Department of Labor today reported preliminary productivity data--as measured by output per hour of all persons--for the third quarter of 2003. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were: 7.4 percent in the business sector and 8.1 percent in the nonfarm business sector. Productivity increased 7.4 percent in the business sector, as output grew 8.8 percent and hours increased 1.3 percent. The 8.1 percent increase in nonfarm business productivity also reflected an 8.8 percent growth in output, with a 0.7 percent rise in nonfarm business hours. In manufacturing, productivity increases in the third quarter were: 8.6 percent in manufacturing, 14.7 percent in durable goods manufacturing, and 2.3 percent in nondurable goods manufacturing.......

Posted by DeLong at 07:05 AM

October 23, 2003
Dale Jorgenson Reworks the European and Japanese Data

He finds that the information technology revolution is taking hold throughout the OECD--and has been since the mid 1990s: Economist.com | Economics focus: ...Mr Jorgenson uses data for Europe and Japan which are adjusted to incorporate price deflators and measures of software expenditure similar to those used in America. Unfortunately, the detailed information needed to make these adjustments is available for most economies only up to 2000. Even so, the results are striking. For instance, they suggest that Japan's GDP grew by an annual average of 2.1% in the second half of the 1990s, compared with only 1.4% according to official statistics. Employing these revised data, Mr Jorgenson finds that in all G7 economies, not just America, a boom in IT investment helped to boost growth in the second half of the 1990s. Indeed, the contribution to GDP growth from IT capital spending was almost as big in Japan as in America%u2014although it was offset by a fall in investment of other sorts. All of the European economies also saw a marked increase in their IT capital stock, albeit smaller than in America. As in Japan, in many European countries this was partly countered by weaker non-IT investment. The second...

Posted by DeLong at 11:00 AM

October 21, 2003
How the @#&*& Do You Make Money on the Web?

Yet another attempt to figure out how to leverage a web reputation into $$$$. These are good, high-quality people--and I hope they succeed: Take Control Ebooks - Help You Need Now, from Leading Experts: It's time for you to Take Control with our highly practical, tightly focused electronic books! Written by leading Macintosh authors, edited by TidBITS, and delivered to your electronic doorstep within moments of "going to press," the Take Control ebooks provide just the technical help you need, all for the market-leading price of $5 each......

Posted by DeLong at 03:13 PM

September 23, 2003
One Telephone for Every Fifteen People

I don't know whether to be appalled that there are only 60 million telephones in India, amazed that there are as many as 60 million telephones in India, or astonished that India is adding phones at a rate of 20 million a year: Reuters--New Delhi, September 12: The Telecom Regulatory Authority of India (TRAI) said in a statement it expects the country's phone user base to cross 70 million by March as more people take advantage of some of the world's lowest tariffs. Combined additions of cellular, wireless in local loop (WLL) and fixed-line connections were 1.9 million in August, the regulator said in a statement released late on Thursday. "If a similar growth trend is maintained during the year, the total addition to the subscriber base is projected to exceed 20 million, taking the gross subscribers base of cellular and basic services beyond 70 million by end of fiscal year 2003-04," the statement said. More than a dozen telecoms firms, both private and state-run, compete for a slice of the country's booming telecoms sector. India has more than 40 million fixed-line customers, 17.4 million users of cellular services and the base for wireless in local loop mobility facilities exceeds...

Posted by DeLong at 06:21 PM

September 21, 2003
CDs and DVDs

Michael Booth writes about the difference between the music and the movie industry: DenverPost.com - ENTERTAINMENT Michael Booth: The best-selling "Chicago" movie soundtrack is available on CD starting at $13.86. The actual movie, with the soundtrack songs included, of course, plus additional goodies ranging from deleted musical numbers to the director's interview and a "making-of" feature, can be had for precisely $2.12 more. Therein lies the problem for a critically wounded music recording industry: The "Chicago" CD looks like a rip-off, and the DVD looks like a steal. Nearly everything the record companies have done wrong in the age of downloading has been done right by the movie studios. America's love for movies is stronger than ever, while the nation listens to music with smoldering resentment. While movie companies escort happy customers to newly-installed recliner stadium seats, the music companies escort their biggest fans straight to the courthouse. There is only so much time for entertainment in a busy day, and people will spend their leisure where they meet the path of least resistance. For every slight by the music world, there's a smarter parallel move by the cinema promoters: Not until 20 years after the introduction of the CD...

Posted by DeLong at 02:54 PM

September 12, 2003
The Pace of Information Technology Investment

An interesting graph: One of the many interesting things to glean from this graph is that--if we trust our hedonic computer price deflators--the pace of American investment in computers and peripherals today vastly outstrips the pace of investment during the bubble-boom. Of course, telecom investment is another story. And software investment is--again, if we trust our deflators--about where it was at the peak of the bubble-boom....

Posted by DeLong at 04:22 PM

September 11, 2003
Examples of Productivity Growth

Examples of productivity growth, useful for sprinkling into talks, from the Economist: Economist.com | Boosting productivity: ON ITS own, IT can boost productivity a lot. For example, it costs FedEx $2.40 to track a package for a customer who calls by phone, but only four cents for one who visits its website, says Rob Carter, the firm's technology boss. FedEx now gets about 3m online tracking requests a day, compared with only a few tens of thousands by phone. The potential to make further gains from IT is still considerable. The Hilton group, for instance, is about to test self-service check-in kiosks at its Chicago and New York hotels. Such kiosks are proving increasingly popular at airport check-ins. IBM, the market leader, says that 5m airline passengers a month now use its self-service check-in systems. But the most dramatic gains happen when companies use technology to understand better what they do in order to change how they do it, says Navi Radjou, an analyst at Forrester, a technology-research firm. The main issue slowing productivity gains down, he adds, is "grandma syndrome"--a reluctance to ditch tried and tested processes. The bravest grandma-ditcher of them all is probably Dell, a computer-maker. It...

Posted by DeLong at 03:28 PM

September 08, 2003
2002-2003 Productivity Growth

Next February the Commerce Department's Bureau of Economic Analysis is going to release its first estimates of production and productivity for the year 2003 relative to 2002. Next February's data release is highly likely to show a 2002-2003 year-over-year labor productivity growth rate of 4.0% or so--less than the 5.4% year-over-year of 2002 relative to 2001, but still faster than the growth rate in any year in the late 1990s boom. The rapid rates of innovation and efficiency growth of the new economy are alive and well, but buried underneath slower-than-desired demand and a truly lousy labor market....

Posted by DeLong at 09:33 PM

Boggling the Mind

I tried to get Larry Meyer to put a number on his current estimate of trend productivity growth: he declined. I find myself in a similar situation: the productivity numbers through the recession and into the job-loss recovery are simply mind-boggling--even if they are substantially overstated for any of the host of possible suspect reasons, they are still mind-boggling: WSJ.com - Payroll Slump Has Economists Rethinking Ideas on Job Creation: Adecco, the temporary-employment company, is an example. Its U.S. revenue rose 6% in the second quarter from the year earlier, but during the same period it trimmed its payrolls 3% to about 3,200. Mr. Lyons said that was possible in part because of investments in technology that have allowed the company to train workers more efficiently. For the nation as a whole, worker productivity grew at an annual rate of 6.8% during the second quarter. Forecasters say it is on track to grow at a rate of nearly 7% in the third quarter. This is much faster than the 2% to 2.5% productivity growth rate that many economists believe is the nation's longer-term trend. The burst has some economists beginning to wonder if the nation's productivity potential is higher than...

Posted by DeLong at 06:52 AM

September 07, 2003
When Will Video-on-Demand Become Mainstream?

Arnold Kling has a corollary to the race between mass storage and bandwidth: Economics: information technology - Corante: The Bottom Line: I think that the correct answer to the question, "When will video on demand become mainstream?" is "Never."  By the time we have the bandwidth to make it work, we will have hard drives capable of storing all the movies ever made.  Maybe people will download brand new movies--but it also could turn out that they obtain updates to their movie collections via physical media....

Posted by DeLong at 06:50 PM

Three Criticisms of Productivity Statistics

Morgan Stanley's Stephen Roach has two criticisms of the amazing productivity statistics, both of which are, I think, half right. The first criticism is that we are overestimating the growth in the value of the white-collar work done. The second criticism is that we are underestimating the number of hours that white-collar workers are putting in: Morgan Stanley: This is where the productivity miracle falls apart, in my view. I honestly don't think we have a clue as to how to measure productivity in the white-collar services sector. The problems lie both in the numerator (output) and the denominator (labor input) of the productivity equation. The production of the proverbial "widget" makes measurement of tangible output in the manufacturing sector relatively easy by comparison. The intangible output of services is a different matter altogether. Measuring quality-adjusted value-added in knowledge-based activities is tough in theory and virtually impossible in practice. Yet that's exactly what the productivity metric requires us to do. Is it correct to measure the output of a software programmer, for instance, by the lines of code that he or she writes? Or the number of words that an analyst produces? Or is less more? To me, the efficient...

Posted by DeLong at 05:23 PM

Measuring Economic Growth

At least three people have written emails saying: Dear Professor De Long, I am curious about your reaction to the following article published in the FT on Friday 9/5. The author makes the point that a big fraction of reported GDP growth is an accounting mirage due to using "hedonic pricing". Could you please discuss this. Thanks a lot. The article is by Kurt Richebacher, former chief economist for the Dresdner Bank. His main point is: Investment in computers soared by $38.4bn, or 12 per cent, from $319.1bn to $357.5bn. The trouble is that much of this boom-like increase in computer investment never occurred. The apparent surge is a consequence of the hedonic deflator that US government statisticians use when measuring computer output and investment... pricing produced $32.1bn of GDP in real terms, about 43.9 per cent of the reported second-quarter GDP increase of $73.1bn. In its absence, GDP would have grown a mere $41bn, implying a growth rate of 1.68 per cent. The important thing about hedonic pricing is that it measures dollars that nobody pays and nobody receives... Briefly, I think Richebacher is mistaken: unless I am very confused, increased demand by businesses for computers accounted for only...

Posted by DeLong at 08:44 AM

Note: When Things Begin to Tell You Where They Are

Radio-Frequency IDentification begins to become a reality: The watershed moment for RFID | CNET News.com: ...Businesses can give suppliers the capability to produce RFID pallet or case labels with minimal technology--a browser session and a remote label printer. Then, as cases are unloaded from the truck through an RFID receiving portal, all the information associated with the tags gets captured and updated in real time for better inventory visibility......

Posted by DeLong at 08:09 AM

September 04, 2003
WOW!

This was not unexpected, but it is still amazing to see it in print: The Bureau of Labor Statistics of the U.S. Department of Labor today reported revised productivity data-as measured by output per hour of all persons-for the second quarter of 2003. The seasonally adjusted annual rates of productivity change in the second quarter were: 7.2 percent in the business sector and 6.8 percent in the nonfarm business sector....

Posted by DeLong at 09:03 AM

September 03, 2003
Econ 101b: Fall 2003: The Erosion of Okun's Law

We used to have considerable confidence in Okun's law: that an extra one percentage point rise (or fall) in the unemployment rate over a year would reduce (or boost) that real GDP growth by an extra 2.5 percent over that year because a rising (or falling) unemployment rate would also be accompanied by a falling (rising) share of the population in the labor force and by falling (rapidly rising) productivity. Productivity would fall when the unemployment rate rose for two reasons: first, even when factories are not running at full capacity they still incur substantial setup and maintenance costs; second, even when there isn't enough work for them to do firms would rather hold onto skilled workers than watch them drift away and have to pay to train their replacements the next time the wheel of the business cycle turns. Things have been different, however, in this recession (and to a lesser extent in the preceding early-1990s recession. The standard relationship between output growth and hours worked has gone substantially awry. See that branch poking out of the scatter diagram on the left side? That's the most recent data. (The smaller twig pointing out below and to the left...

Posted by DeLong at 04:22 PM

August 31, 2003
What Is the Impact of Poor Internet Security?

For one thing, it looks like life is pretty hellish if you are a U.C. Berkeley email sysadmin. UClink apparently did not come back up at noon on August 31, as had been scheduled: Welcome Back Students! Aug. 31: UCLink to be out-of-service Monday morning The configuration changes to UCLink were not finished in time today. Because of this, the downtime tomorrow will be necessary in order to complete the improvements. UCLink will be out of service on Monday, Sept. 1, from 8:30 to Noon. Aug. 31 - Sep. 1: UCLink Downtime Over the weekend, we will be making configuration improvements to UCLink in order to cope with the recent email virus attacks. UCLink will be out of service Sunday, August 31, from 8:30am until Noon. If we encounter problems, we will again take UCLink out of service on Monday, Labor Day from 8:30am until Noon. This message will be updated at Noon on Sunday. Aug. 27: Continued Slowdown UCLink continues to experience heavy loads due to receiving over 200,000 copies of the SoBig.f worm daily. Mail delivery is slow, some mail is being delayed up to 12 hours. All mail is being sent and received. System administrators continue to...

Posted by DeLong at 12:43 PM

August 20, 2003
Productivity Growth: America vs. Europe

Robert Gordon argues that a big chunk of the miraculous growth in U.S. productivity--and the bulk of the difference between the U.S. and the European experience--comes from the interaction of high investment in IT in the U.S. and the economic freedom to reconfigure retail and sell goods in high-volume from newly-built "big box" automobile-accessible stores: FT.com Home US: ...Where does Europe fit in? The data show that Europe's performance is worst in those industries that are heavy users of ICT, especially retail trade, which just happens to be where the US's productivity showing is strongest. America's retail productivity performance has all been achieved in stores newly built since 1990, not in existing stores. The new stores are the "big boxes" such as Wal-Mart, Home Depot and Best Buy, large new buildings set up on greenfield sites at interstate highway junctions, in suburbs and, increasingly, in inner cities. As these new stores reap the rewards of their size, openness and accessibility and drive smaller stores out of business, they bolster the average productivity of the US retail sector as a whole. While countries differ, Europe has many ways of stifling modern retailing, from green belts and land-use restrictions to laws that...

Posted by DeLong at 08:23 AM

August 19, 2003
Outsourcing Our Future?

Dan Gillmor and others are worried that we are outsourcing our future. Let's begin by clearing away some underbrush. First of all, the number of jobs in the United States is not set by what happens on the sea lanes--on what exports and imports the container ships carry from port to port. The number of jobs is set in the Eccles Building, by the Federal Reserve, which tries to hit the sweet spot: high enough demand to produce effective full employment, without so much demand that vacancies become so abundant as to lead inflation to run away. Sometimes the Federal Reserve does a good job and is lucky, and we have full employment with price stability. Other times the Federal Reserve is unskillful or unlucky, and we have accelerating inflation or high unemployment. It is certainly true that what happens in international trade affects employment in America. But the Federal Reserve can and does offset and neutralize impacts of trade that push employment away from where the Federal Reserve thinks the sweet spot of full employment is. So what, then, is the impact on the American economy when Singapore educates its people to become competent network developers, or India educates...

Posted by DeLong at 06:25 PM

Unbalanced Economic Growth

An amazing fact: Selling Gadgets in a Wal-Mart World"Of the 20 million DVD players sold this year in the United States, over half will be sold at $50 or less..."...

Posted by DeLong at 09:07 AM

August 18, 2003
By Contrast, Morgan Stanley Is More Than Bullish...

By contrast, Morgan Stanley is more than bullish on America. It is positively aurochish on the likely rate of economic growth in the current quarter. Let me give the mike to Richard Berner: Morgan Stanley: ...There's no mistaking the gathering momentum in U.S. economic activity, however.  Incoming data depict a rapidly accelerating economy: From just 1.4% in Q1, it now appears that growth could touch 5% in the current quarter.  And the strength is broadly-based, suggesting genuine staying power.  Upside surprises in both consumer and business capital spending have paced the improvement in demand.  Responding to tax cuts and the ongoing benefits from lower debt service costs, consumers stepped up spending sufficiently on vehicles and a variety of soft and hard goods in July so that even modest gains in August and September would likely yield a 4˝% real pace in the third quarter.  Fuelled by rising profitability, a broad-based replacement cycle, and stepped-up tax incentives for investment, businesses appear to be committing to increased capital spending.  While third-quarter data aren't yet available, sharp June gains in shipments and, more important, in advance bookings, hint at real gains in the high single digits... A 5% annual real GDP growth rate...

Posted by DeLong at 10:47 AM

August 15, 2003
Good Industrial Production News for July

A surprisingly large jump in industrial production in July--especially considering that manufacturing employment fell by half a percent, by 71,000 in July: from 14.68 to 14.61 million: FT.com Home US: US industrial production rose at its fastest pace since January last month, adding to the evidence that economic growth is accelerating. Output rose by a robust 0.5 per cent over the month, its third consecutive gain and well ahead of expectations of a 0.2 per cent rise. The figure was boosted by a steep rise in utility output - which economists said reflected the greater use of air conditioning - and strong car sales, which have been helped by a new round of incentives. But the rise in output was relatively broad-based, with a particularly strong 4.2 per cent rise in home electronics... "This will increase confidence that we have a recovery on our hands," said Mark Cliffe, chief economist at ING. "There is now a fighting chance of getting growth of above 4 per cent by the end of the year." It's only one month, and manufacturing is not the same thing as industrial production, but it's interesting to see industrial production rising at a 6% per year rate...

Posted by DeLong at 09:26 PM

Output and Hours Since 1960

Some more two-year centered moving averages since 1960: this time it's nonfarm business real output and nonfarm business total hours worked. Once again (and unsurprisingly) we are outside the bounds of previous experience in the modern American economy: The little twig on the left side of the figure shows the moving-average data for 2000-2002. Never in any two-year period in the modern American economy's experience have hours fallen so fast. Given what has happened to hours in the recent past, the standard historical pattern would lead you to expect output to be falling at 2.5% per year or more--and you would expect productivity growth to be negative, not positive and in excess of 4% per year. We are indeed in uncharted waters. Not that we should mind--extraordinarily rapid productivity growth is a wonderful gift. But it does pose different problems for economic management to solve than the ones we had gotten used to......

Posted by DeLong at 10:43 AM

More Good GDP (and Productivity) News About the Second Quarter

News about the economy in the spring released since the initial estimate of second-quarter GDP growth tells us that the second-quarter growth rate is likely to be revised upward significantly--from a 2.4% annual growth rate to perhaps a 3.0% annual growth rate. This is excellent news for production and productivity: Forbes.com: Analysts see U.S. 2nd quarter GDP upward revision: Merchandise trade data out on Thursday showed exports rose a healthy 2.4 percent in June, while in real terms, which is what matters for gross domestic product, the trade deficit narrowed sharply to $47.23 billion from $50.04 billion in May. The [trade] deficit was much smaller than that assumed by statisticians in the advance measure of GDP released on July 31, suggesting trade subtracted less from growth than the 1.56 percentage points initially estimated. The trade news comes hot on the heels of significant upward revisions to retail sales figures for both May and June. On Wednesday the Commerce Department unexpectedly upped its June estimate of sales to a rise of 0.9 percent from 0.5 percent, while May now shows a gain of 0.5 percent when it was flat before. The sudden discovery that consumers spent a lot more than first...

Posted by DeLong at 09:54 AM

Productivity Growth

Productivity Growth: Nightly Business Report: August 18, 2003 The betting now is that the latest GDP growth number will be revised upward to a 3.0% annual growth rate. This makes everybody happy. But everybody is also unhappy: the employment news is bad: hours worked fell at a 2.2% annual rate in the spring. How can production grow yet employment fall? Because of productivity. Productivity shot ahead at a 5.7% annual rate. Rapid productivity growth tells us that the economic news is probably going to be schizo--good news about production, but bad news about employment for quite a while. Bosses, investors, and those secure in their jobs will probably feel a healthy recovery. Those without jobs and who fear they might lose their jobs will probably feel like it's still a recession. It is also very good long run news: it tells us that the swift pace of improvement in and adoption of high tech is continuing and is producing big benefits. In the past four years the share of American households online has risen from 33 to 59 percent. And this year in America digital cameras will outsell film-based cameras. If only demand growth matched the growth of America's productive...

Posted by DeLong at 08:43 AM

August 13, 2003
The Information Age Means Fiercer Competition

The Information age means increasing returns to scale--write-once, run-everywhere. But it also means that it is easier to get... information. Which means that all of the hassle and ignorance factors that produced local monopoly power are bypassed. Which means fiercer competition and better deals for consumers: Economist.com | Travel and tourism: ...The other revolutionary influence on the business is the internet. The web has become a vast clearing house for the travel industry's overcapacity: the more deals it offers, the more buyers it finds. Forrester, a research company, reckons that travel is now the largest e-business in the world, with American consumers this year spending more than $27 billion on travel online. PhoCusWright, an online travel consultant, reckons that 30% of all travel business will be booked online by 2005. Ken Chenault, boss of American Express, expects 20% of all corporate travel to be booked online this year, up from just 1% two years ago. Less and less do tourists wander passively into travel agents' offices and take whatever has been pre-packaged for them. They increasingly indulge in "dynamic packaging", surfing the net to combine their own low-cost airline tickets with hotels' special online offers. Some do it themselves; others...

Posted by DeLong at 08:08 AM

August 09, 2003
Productivity Growth Trends

The Economist focuses on this past quarter's productivity growth number, without taking a look at the larger picture: Economist.com: Output has dipped and climbed, but has the trend rate of growth risen? Economists are still far from a consensus.... When the productivity figures did pick up in the second half of the 1990s, all of the assorted gurus, bulls and nerds claimed vindication. Even Mr Greenspan became a cheerleader for the new economy, albeit a rather taciturn and oblique one. The cheers faded as the stockmarket bubble burst and the economy went into recession. But the collapse in share prices does not itself disprove the notion of a new economy. The bears can be right without the nerds being wrong, because technological revolutions do not always pay off for the people who bought stocks in them. The railroad investors of the late 19th century, for example, made no money from their stakes in America's rail companies, but most agree that the economy as a whole benefited. Productivity gains can be real, without showing up in your dividend payments. The gains might go to workers, in the form of higher wages, or they might show up in the creation of new...

Posted by DeLong at 08:48 PM

August 08, 2003
I'm Not as Smart as I Thought I Was

Topic: I'm Not as Smart as I Thought I Was Ah. I thought--from GDP and aggregate hours data--that we would have a 4% per year productivity growth quarter in the spring of 2003. I was wrong: we had a 5.7% per year productivity growth quarter. It is amazing that nonfarm business hours worked can fall--and fall at a 2.2% annual rate--in a quarter in which nonfarm business output can rise at a rate of 3.4% per year. If only we had demand rising fast enough to employ more rather than fewer people, the performance of the American economy would be truly amazing. PRODUCTIVITY AND COSTS: Second Quarter 2003 The Bureau of Labor Statistics of the U.S. Department of Labor reported preliminary productivity data--as measured by output per hour of all persons- -for the second quarter of 2003. The preliminary seasonally adjusted annual rates of productivity change in the second quarter were: 6.1 percent in the business sector and 5.7 percent in the nonfarm business sector. In the business sector, productivity grew as output rose 3.2 percent and hours dropped 2.7 percent. A similar pattern occurred in nonfarm businesses, output grew 3.4 percent and hours fell 2.2 percent. In manufacturing, the...

Posted by DeLong at 08:01 PM

July 31, 2003
Ka-Ching!

Is this really true? FT.com / Comment & analysis / Analysis: The internet retailer's [Amazon's] improvement on its own most optimistic sales guidance can be put down largely to currency effects and to a smash hit: the sale of more than 1.4m copies of Harry Potter and the Order of the Phoenix. Did Amazon really sell 1.4 million copies of Harry Potter and the Order of the Phoenix in the one and a half weeks of the second quarter in which it was on sale?...

Posted by DeLong at 09:25 PM

The Information Economy Is Still Coming

Just because there are no dot-com fortunes being made by garage entrepreneurs and venture capitalists doesn't mean that the information age and the information economy have gone away: Digital (Fill in the Blank) Is on the Horizon: The technology world has been preoccupied in recent years by the boom-and-bust investment cycle... the dot-com bubble... the Nasdaq.... But there has been no such boom-and-bust cycle in the embrace of digital technology and its promise of benefits for communication, automation and new forms of art. And consumers, rather than paring back, are increasingly turning to all sorts of digital gadgets and services--cameras, music players, videodisc players, advanced television sets, cellphones, instant messaging, e-mail, online shopping, high-speed Internet access. "It's a step-by-step upward trend," said Nicholas Donatiello, president of Odyssey, a market research firm in San Francisco. Since 1999, just before the technology boom collapsed, the percentage of households in the United States with personal computers... has... increased to 64 percent from 50 percent... the share of households online has risen to 59 percent from 33 percent, and the use of digital cameras has climbed to 17 percent of households from less than 3 percent.... Digital cameras are expected to outsell film-based cameras...

Posted by DeLong at 09:20 PM

Yes! Good GDP News!

Yes! The second quarter (April-June) showed significantly faster real GDP growth than I (and everybody else) had been expecting: GDP grew at a 2.4% per year annual rate (meaning that second-quarter real GDP was 2.4%/4 = 0.6% higher than first-quarter real GDP. Now IIRC, average hours worked were down 0.2% in the second quarter vis-a-vis the first quarter, and employment was down in the second quarter by 0.2%, meaning that Americans worked 0.4% fewer hours in the second quarter than the first quarter--that labor input shrank at a 1.6% per year annual rate. Combine a 2.4% per year rate of growth of real GDP with a -1.6% per year rate of growth of labor hours, and you have a 4.0% per year rate of growth of labor productivity. That's a very impressive number for the long run. But in the short run it drives a big wedge between the (relatively good) production news and the (relatively bad) employment news. GDP growth accelerates in 2Q - Jul. 31, 2003: Gross domestic product (GDP), the broadest measure of economic activity, grew at a 2.4 percent annual rate in the quarter after growing at a sluggish 1.4 percent rate in the first quarter,...

Posted by DeLong at 11:46 AM

July 30, 2003
High-Tech Investment

Signs that there will be another telecom investment boom, someday: BW Online | August 4, 2003 | Verizon's Gutsy Bet: ...Verizon plans to roll out fiber-optic connections to every home and business in its 29-state territory over the next 10 to 15 years, a project that might reasonably be compared with the construction of the Roman aqueducts. It will cost $20 billion to $40 billion, depending on how fast equipment prices fall, and allow the lightning-fast transmission of everything from regular old phone service to high-definition TV. No competitor yet dares follow suit, fearing it could be their financial Waterloo. "We'll watch them closely and go to school on them if they have found something economic," says Ross Ireland, chief technology officer at SBC Communications (SBC ) Inc., the second-largest phone company after Verizon. Seidenberg is being no less aggressive when it comes to the wireless technology that has consumers and companies equally abuzz -- Wi-Fi. In an unprecedented move, Verizon is blanketing Manhattan with more than 1,000 Wi-Fi hotspots that will let any broadband subscriber near a Verizon telephone booth use a laptop to wirelessly tap the Net for the latest news, sports scores, or weather report. If the...

Posted by DeLong at 12:17 PM

July 25, 2003
A Form of Government Regulation with Few Critics

The coming of the Do Not Call registry: Economist.com | The Do Not Call Registry: IT HAS been one of fastest commercial rebellions of all time. Since the National Do Not Call Registry was opened in late June, Americans have registered more than 27m telephone numbers. Any telemarketer who rings up one of those numbers after the system starts on October 1st will face fines of up to $11,000 per call. The Federal Trade Commission (FTC) expects 60m residential phone lines--roughly a third of the total in America--to be registered within the first year. The Do Not Call list is an odd mixture of technophilia and technophobia. It is certainly a sign of the potency of the internet; around 80% of the don't-call-me numbers were registered online. Yet it is also a shriek of fury against the invasiveness of modern marketing--and one the president understands. George Bush, whose administration is usually thought of as staunchly pro-business, inaugurated the measure at a White House ceremony. Telemarketers are an easy target. They place around 65m calls a day, few of them welcome. The business, which brought in $100 billion in sales last year, was given a spurt in the late 1990s both...

Posted by DeLong at 01:35 PM

July 23, 2003
Looking Forward to Fast GDP Growth and a Lousy Labor Market

Bernanke, McTeer, and Greenspan worry that even the relatively strong GDP growth they hope emerge will be accompanied by a lousy labor market, and perhaps downward pressure on inflation and prices. Why? Because they (like me) think that the rapid productivity growth of the new economy is still burbling away inside the economy's foundations, and driving a big wedge between output growth and employment growth. Dark linings in the economic clouds - Jul. 23, 2003: Then Fed Governor Ben Bernanke said Wednesday that gross domestic product (GDP), the broadest measure of the nation's economy, could grow at a 3 percent rate the rest of this year and a 4 percent rate next year, but he added that the unemployment rate would still be as high as 6 percent by the end of 2004. What's more, Bernanke said stronger GDP growth would do nothing to stop a recent slide in inflation that's alarmed many economists. The worry: that the economy could get hit by deflation, an unstoppable drop in prices that has hounded Japan's economy for much of the past decade. "Even if the economy recovers smartly for the rest of this year and the next, the ongoing slack in the...

Posted by DeLong at 07:43 PM

July 21, 2003
Amazon Wants to Help You Look Inside the Book

Amazon's big problem has always been that you cannot browse. You cannot open up a book and read ten pages in its middle if you are shopping at Amazon. Now Amazon is trying to think of ways to get around this problem. And this "look inside the book II" program could be really useful, and really effective. It not only lets you browse, it tells you which of the many books is the one you want to look inside. Amazon Plan Would Allow Searching Texts of Many Books: xecutives at Amazon.com are negotiating with several of the largest book publishers about an ambitious and expensive plan to assemble a searchable online archive with the texts of tens of thousands of books of nonfiction, according to several publishing executives involved. Amazon plans to limit how much of any given book a user can read, and it is telling publishers that the plan will help sell more books while better serving its own online customers. Together with little-publicized additions to Amazon's Web site, like listings of restaurants and movie showings, the plan appears to be part of a strategy to compete with online search services like Google and Yahoo for consumers' time...

Posted by DeLong at 08:05 AM

July 17, 2003
Location, Location, Location

One of the most bizarre (from my perspective at least) aspects of the late-1990s high-tech boom in America was its extraordinary concentration in Silicon Valley. With technologies that for the first time allowed a sufficient density of communication that you could do your work and still be well-connected and well-plugged in anywhere with a power socket and a phone line, the premium to being within driving distance or bicycling distance of the Sand Hill Road offramp to Interstate 280 rose to extraordinary and amazing levels. Why? And will things be different in the "next time" as the next wave of high-tech development accelerates? : CONSIDER three snapshots of the IT industry today. First, look at the centre of the business at the turn of the century--Silicon Valley. Parts of this high-tech region to the south of San Francisco, which were buzzing with activity only three years ago, are coming to resemble an industrial wasteland populated by squirrels, racoons and "for lease" signs. In the city of Santa Clara, where almost half of all office space is vacant, rents run at around $1 per square foot, compared with $6.50 in late 2000. Some larger tenants in the city are even...

Posted by DeLong at 12:41 PM

July 13, 2003
We Are Big Brother

Global Positioning Systems and the Wonderful Wide World of Location, Location, Location. From Fast Company: Fast Company | The Sky's the Limit: ...I am egging on an executive in a GPS conglomerate... trying to get him to tell me how "location awareness" is going to change the world the way that, say, electricity did. He's holding back.... I can tell he's had bigger thoughts. He lets down his guard all at once. "Imagine," he says, "the end of property crime. Everything that has any value and could be stolen -- a car, a laptop, a piece of construction equipment" (not to mention every ship, plane, truck trailer, and toddler) -- "everything like that will know its location and be able to report it. We can go even further: You tell your laptop that it should only find itself at your office or your home. And if it finds itself in a car trunk, it wakes up, notices that it's in the wrong place, calls your cell phone, and says, 'Hi, this is your laptop. I'm at this location on this map you see. Is that okay?' " Then the executive goes one step further. He starts talking about insurance companies...

Posted by DeLong at 06:47 PM

July 03, 2003
Does 802.11 Need a "Business Model"?

Does 802.11 ("WiFi") need a "business model"? Dan Bricklin says it does not: instead, it needs user utility--which it has in spades... SATN.org: Comments from Bob Frankston, David Reed, Dan Bricklin, and others : David Weinberger points to an article in today's Boston Globe that talks about the WiFi "Bubble Bursting". Yet another article saying WiFi is in trouble because people won't pay for access at the local coffee shop. Sounds like the old "broadcast" mentality: Something isn't interesting or valuable unless it provides a service that a big company can charge for. It seems the fact that millions of people are buying and installing (at their own expense) WiFi for their own purposes and not just to charge others is completely uninteresting to these pundits. This is like the thinking that P2P could only be used for sharing things that would otherwise be sold mass-market. The fact that we'd want to share our own stuff is of little interest to these people. Of course, the fact that the market for "my own radio" -- i.e., cellular -- is so much bigger than broadcast is missed. The sharing of personal images with non-strangers will be huge, too, as it's been...

Posted by DeLong at 12:11 PM

June 21, 2003
Forthcoming Federal Reserve Rate Cut

The Washington Post's John Berry puts his ear to the ground and guesses that the Federal Reserve will cut interest rates next week by 0.50 percentage points (a 60% chance) or by 0.25 percentage points (a 40% chance). That seems about right to me--but his sources are much, much better than mine. One bone to pick, however. John Berry says that economists were "surprise[d]" by the fact that "recovery has been halting and 'jobless' despite huge doses of monetary and fiscal stimulus." This economist hasn't been surprised. Simply look at the late-1990s boom and the structural sources of the acceleration in productivity growth, and a "jobless recovery" looked like a definite possibility. Rate Cut Looking Like a Sure Thing (washingtonpost.com): ...Federal Reserve officials, concerned there is still no sign of the solid pickup in U.S. economic growth needed to foreclose the possibility of deflation, appear certain to cut their target for overnight interest rates next week. There is broad agreement among investors and analysts that a rate cut is coming, but there is disagreement about whether policymakers will lower their 1.25 percent target by a quarter-percentage point or by a half-point. The latter seems to be more likely as a...

Posted by DeLong at 06:48 AM

May 29, 2003
Our Current Semi-Recession

The Wall Street Journal's John Hilsenrath thinks about the fact that the rapid productivity growth of the "new economy" means that output has to grow faster than 3.5% per year for unemployment to fall. That the productive capacity of the American economy is rising so rapidly is a powerful reason for more stimulative short-run policies--and is the thing that makes the Bush administration's failure to propose a significant, real stimulus package a considerable shame. WSJ.com - This Recovery Feels Like Recession: Economy Expands, Payrolls Shrink: ...Payrolls in the electronics sector, and for producers of industrial equipment, have declined for 28 straight months. In communications, payrolls have fallen for 24 months. In the securities and airline industries, they have fallen in 16 of the past 24 months. In some ways, this is the downside of a productivity boom that created much optimism about the economy during the 1990s. Productivity growth means that companies are squeezing more output from existing workers. Over the long run, most economists agree productivity growth is good for workers, because it tends to lead to higher wages. But in the short run, it is creating a problem. Worker productivity has been growing faster than the overall economy....

Posted by DeLong at 07:51 AM

May 13, 2003
Ludwig Siegele Surveys IT

Ludwig Siegele's survey of IT for the Economist is out. Quite good......

Posted by DeLong at 11:41 AM

May 06, 2003
Om Mani Padme Low-Overhead Classifieds with High Accountability

Internet Guru--no, Internet Boddhisatva--Doc Searls meditates on the meaning of the facts that Overture and Google are profitable:  See what happens when you disintermediate everything? : If you want to see the future of advertising, and of the stuff it supports, consider the growing fortunes of Overture and Google.  Overture's preliminary revenue report for the last quarter verges on a $1 annual billion run rate. That's for advertising, folks. Remember how that business model was supposed to suck? Welcome to one walking disproof of that. The company has also been running at gross profit margins way upwards of 90%. Google is in the same business, although they aren't public like Overture, so we don't know what their revenues are. We can be sure they aren't small.  Like I said here, the new advertising game is low-overhead classifieds with high accountability. The holy grail: Ads that work by making themselves useful. Period. We're almost there.  Disintermediated are agencies and other go-betweens that served as massive reduction gears in an industrial machine that never worked that well in any case (if you just consider the waste).  Gaze into the crystal ball, and wave goodbye to Business as Usual.  Bye-bye to ad agencies. Bye-bye...

Posted by DeLong at 02:41 PM

May 05, 2003
Still More on iTunes Music Store

Adam Engst has been one of the keenest-eyed and most thoughtful observers of the internet since the days when it was little more than a gleam in DARPA's eye. Here he gives his view--an amazingly optimistic and positive view--of Apple's new iTunes Music Store: Adam Engst, TidBITS: We've now had a week to play with the new iTunes Music Store, to analyze how well it is implemented, and to think about the effect it could have on Apple, the recording industry, artists, the peer-to-peer file sharing networks, and even physical music stores.... Let's be real. The reason the iTunes Music Store exists at all is because Apple is using AAC files that include digital rights management (DRM) technology. Without including some sort of DRM, Apple would have stood an igloo's chance in Florida of working out a deal to license songs from the major record labels. AAC isn't about digital rights management; it really is aimed at doing a better job - both in terms of compression and quality - than the MP3 format. But Apple's implementation of AAC also provides hooks for digital rights management that prevents casual copying.... This DRM information enables Apple to implement four restrictions...

Posted by DeLong at 09:48 PM

May 04, 2003
Why Low Profits in Silicon Valley Are Good

Edward Hugh makes an interesting and under-recognized point about how the relative lack of profits in Silicon Valley is (or might be) good news for the information age: Interesting point this: the lack of price leverage in the technology sector is transferring more power to the end users. This is all part of a fairly predictable process of techological evolution. After the initial surge of speculative activity, the real benefits of the arrival of railway and telegraph were felt in the broader industrial economy which grew more rapidly as a consequence. As the internet and the PC come of age, the interest moves downstream, to individuals and companies who will try and realise the enormous productivity and welfare benefits which are there for the taking in the age of connectivity. Of course, the big unanswered question is still whether the rate of expansion in user markets can grow fast enough to absorb the shock of the Moore's Law driven upward pressure on capacity and downward pressure on prices, and hence turn a deflationary conundrum into a growth explosion.......

Posted by DeLong at 09:30 AM

May 01, 2003
Steve Jobs Has My Number

The Economist writes that ...the launch on April 28th of a new online music service by Apple, a computer maker, could be a big step forward. The new service, called iTunes Music Store, rejects monthly subscriptions for a simpler model: each track from its 200,000-track library costs $0.99. Once purchased and downloaded, a track can be copied on to as many as three computers, burned on to CDs, and transferred on to Apple?s popular iPod portable music-players. There is no need to buy an entire album just for one or two tracks. And Apple's boss, Steve Jobs, hopes that because there is no subscription fee, purchasing a track will become an "impulse buy". Many people, he observes, happily spend $3 on a cup of coffee. If this past week is representative, Steve Jobs has got my number....

Posted by DeLong at 10:02 PM

April 25, 2003
Is There a New Microsoft?

The Economist sounds extremely, extremely grouchy about the new, cooperative Microsoft--as if it has as much reality as the "New Nixon" had... Economist: ...Remarks by Steve Ballmer, the company?s chief executive, speaking to the Wall Street Journal ahead of the April 24th launch of Windows Server 2003, suggest that Microsoft?s imperialistic instincts remain intact. Mr Ballmer declared that the new operating system would include many technologies in one bundle and links to other Microsoft products. So, beyond the gesture of revealing more details of its coding, it doesn't seem as if Microsoft?s trusted strategy?enter a market, dominate and then exploit it?has changed that much. It is just that the market to be exploited is no longer that of desktops but of servers, those powerful network computers that are mostly used in corporate computing. Moreover, although Microsoft said that it would loosen its licensing agreement to lower royalty payments and release information previously only available to those who had signed confidentiality agreements, none of the details of just how this would work are yet available, and rivals have learned to their cost that what Microsoft promises and what Microsoft delivers are not always the same. The concessions, remember, did not represent...

Posted by DeLong at 02:51 PM

April 20, 2003
Center for Information Work Productivity

Erik Brynjolfsson will be running a Center for Information Work Productivity at MIT to actually figure out how information technology actually boosts productivity. One key interesting thing: America's bosses really dislike Instant Messenger....

Posted by DeLong at 08:34 PM

March 27, 2003
AOL Time Warner Searches for a Business Model

CNET reports: AOL Time Warner pulls free Net magazines | CNET News.com: AOL Time Warner will move the free Web sites for a number of magazines into its America Online proprietary service, signaling the media giant's attempt to fortify AOL with exclusive content. Beginning Sunday, the popular magazines People and Entertainment Weekly will no longer offer content on their Web sites for free. Content will be accessible only to magazine subscribers and AOL members. Newsstand buyers are granted access to content on the publication's Web site, but only for the duration of the magazine edition they purchase. In the month or so following the initial launches, other titles will make the same move, including Teen People, Sports Illustrated Kids, Real Simple, InStyle, Sunset, Southern Accents, Time for Kids, Costal Living, Cooking Light, Southern Living and Parenting. "We are making the move from the content being available for free, and (instead are) making it so you have to have a relationship with us," said Peter Costiglio, a Time Inc. spokesman... If we are representative, it's going to work. The Nine-Year-Old really likes the "Time for Kids" website......

Posted by DeLong at 01:53 PM

March 17, 2003
Moore's Law Comes to Telecom

Why are WorldCom's physical assets worth only 1/4 what they paid for them? Some people blame incredibly stupid management. I have always ascribed the write-down of the market value of telecom assets to vastly greater progress in telecommunications software control than had been expected--if you can push ten times as many bits through a fiber as you had thought you would be able to, that kinda cramps your ability to make money off of the scarcity of fiber. Kevin Werbach and Scott Rafer seem to have a somewhat different take, but I'm not quite sure what it is. New York Times: "WorldCom's hard assets, including its network, are now worth almost 75 percent less than what they had cost." UPDATE: Scott Rafer's take on the same announcement. He thinks we're ascribing different causes to the writedown, but I think we agree. Worldcom's problem is that it didn't build its business (and capex plans) with Moore's Law in mind. [Werblog]...

Posted by DeLong at 07:16 PM

Imminent Death of UNIX and Apple Postponed. More at 11

For more than a decade now--ever since Intel's chips began to eat the SPARCs for lunch--I have been expecting the imminent death (any year now) of UNIX and of Apple, any year now. What UNIX had going for it was that it ran on workstations, but then Intel began making workstation-class chips cheap. What Apple had going for it was a more coherent and less brain-taxing illusion of what was going on inside the computer, but certainly Windows 95 was good enough. What Microsoft had going for it was mammoth economies of scale. Selling their operating system cheap had gained them an enormous market share. This meant that development costs could be amortized across an enormous user base--and thus per-user development costs were tiny. More important, if you were an outside developer writing programs, you could write for Windows and have a large potential market, write for UNIX and have a small potential market consisting of early adopters and heavy users, or write for Apple and have a small potential market of insane cultists. It seemed to me clear that developers would gravitate toward Windows. That more on more interesting uses would appear on Windows first and on UNIX and...

Posted by DeLong at 10:00 AM

March 07, 2003
Notes: Infrastructure and Economic Development

Roeller and Waverman (2001), "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," American Economic Review (September), 91:4, p. 909 ff. Telecommunications infrastructure and economic growth: 21 countries over 20 years. "for high levels of telecommunications infrastructure the impact on economic growth is substantially larger" ...threshold effects at 40% market penetration... i.e., near universal service......

Posted by DeLong at 10:43 AM

February 26, 2003
Notes: Weber (Steve, Not Max): The Success of Open Source

I've been reading Steven Weber's forthcoming Harvard University Press book, The Success of Open Source. He has a great deal of very interesting things to say, and I have not yet managed to wrap my mind around and synthesize all of them: Steven Weber: The Success of Open Source: "People often see in the open source software movement the politics that they would lke to see -- a libertarian reverie, a perfect meritocracy, a utopian 'gift culture' that celebrates an economics of abundance instead of scarcity, a 'virtual' or electronic existence proof of communitarian ideals, a political movement aimed at replacing obsolete 19th century capitalist structures with new 'relations of production' more suited to the information age." "No one says that hierarchical coordination is efficient, only that it is less inefficient than alternatives." The problems of: Motivation: Why do highly-talented programmers voluntary allocate some or a substantial portion of their time and mind-space to a joint project for which they will not be compensated?: "Humans often have a passionate relationship with their creations and their work, humans wish to share, humans find 'value' in rewards other than money. Each of these attitudes exists within open source, as each exists everywhere....

Posted by DeLong at 04:33 PM

September 12, 2002
Who Benefits Most from the High-Tech Revolution?

David Wessel writes about one of the secrets of the new economy: the principal productivity gains and cost reductions are found not in IT-making but IT-using industries. Indeed, given the fierceness of competition in (most) IT-making industries, not just the productivity gains but the profits are likely to be found in IT-using industries, both here and abroad. WSJ.com - Capital: ...Ireland is proudly turning itself into the Silicon Isle. The Philippines and Thailand boast of their electronics exports. But one of the biggest beneficiaries from information technology is Australia, which hasn't any high-tech industry at all. Yet it is one of the few economies to have enjoyed a 1990s surge in productivity (or output for each hour of work) as impressive as the one the U.S. has seen. Its secret: import high-tech gear that others make. As in the U.S., the spread of bar-coding, scanning and inventory-management systems is making Australian wholesalers much more efficient, and that is paying economywide dividends. Compared to its population, Australia has more secure servers, the sort used in e-commerce, than anyone else besides the U.S. and Iceland (that is another story). "Australia is far better off being an importer of information- and communications-technology equipment...

Posted by DeLong at 01:48 AM

September 09, 2002
A Platonic Dialogue on Eldred v. Ashcroft

A Platonic Dialogue on Eldred v. Ashcroft Ignoramus Inquisitivus: I have a question. Why did the Supreme Court grant cert. [that is, agree to hear and decide] in Eldred v. Ashcroft [the case arguing that the most recent copyright extension act was unconstitutional because Article 1, Section 8, Clause 8 of the Constitution gives Congress the power to grant copyrights only for limited times, and only to promote the useful arts--and since the extension act was not intended to promote the useful arts Congress did not have the power to lawfully enact it]? One natural way to decide would be to say, "The Commerce Clause gives ample power for Congress to do whatever it wants as far as economic regulation is concerned. I§8¶8 covers patents and copyrights and should be read in a way consistent with the overall Commerce Clause to give the Congress effective plenary power..." A second way would be to say, "Congress has granted patents and copyrights for limited times, 100 years is a 'limited' time, 1000 years would be a 'limited' time, so what is the problem?" Realisticus: But this is not a Supreme Court that accepts cases simply to affirm the Appeals Court decision, and...

Posted by DeLong at 07:06 PM

Stephen Roach on "The Great Failure of Central Banking"

I don't agree with Stephen Roach that the Federal Reserve should have made interest rates higher and tried to make unemployment higher in the late 1990s in order to diminish investment spending and collapse the stock market bubble. In my view, the time to deal with any problems created by the bubble's collapse is when the bubble collapses--not before. Relative to a lower-stock prices, lower-investment, one-percentage-point-of-unemployment-higher bubble-popping path for the U.S. economy in the late 1990s, the actual path that we took gave us an extra $1 trillion of real production. You can complain about how that $1 trillion was distributed. You can regret that a large chunk of it--$200 billion?--was spent on investments that have much lower social value looking forward than their social cost. You can fear the damaging consequences of banruptcy and fraud on the economy. But you have to argue that these drawbacks from the fallout are quantitatively very large for the cost-benefit analysis to go Stephen Roach's way. Nevertheless, he makes his case more strongly than anybody else does: Morgan Stanley: ... Yet out of this glorious disinflation a new inflation was borne -- asset inflation. And central bankers didn’t have a clue how to...

Posted by DeLong at 09:58 AM

September 08, 2002
Cory Doctorow on DRM-in-Practice

The principal serious objection to tight control over content by IP rights holders is made by those who argue that by so doing they destroy most of the utility--and most of the consumer surplus--of the technology. Here Cory Doctorow makes this argument, with details, as applied to Toshiba's new clone of Apple's iPod: Boing Boing: A Directory of Wonderful Things: ...Toshiba's new digital music player shows us more evidence that (consumer electronics) (digital rights management) = a**. The DRM vendor's mantra is, "DRM needs to be invisible, it needs to get out of the way of legitimate activity and only crop up when the user tries to infringe on copyright." A good sentiment, but it's more wishful thinking than design specification, as the new Tosh Mobilphone demonstrates. The Mobilphone is an iPod clone with a 5GB drive and a USB 2.0 interface. The iPod, of course, rules for a number of reasons, but one of the biggies is that by using FireWire to synch MP3s with your computer, the iPod is capable of filling itself up with music in a matter of minutes. USB 2.0 leapfrogs FireWire and delivers even greater speed. So far, so good. But for "security" reasons,...

Posted by DeLong at 02:20 PM

September 06, 2002
High-Tech Investment

High-Tech Investment If you read your business pages, you might well think that business purchases of computers are way down. Guess what? They're not. This year it looks like America's businesses are going to buy 13% more in the way of quality-adjusted computers and peripherals than in any previous year. In 2001--the only year in which real investment in computers and peripherals fell--quality-adjusted purchases fell by only 3%. Spending on computers and peripherals has indeed fallen. But that's because computers have become cheaper--a lot cheaper--not because American business is installing less computer power this year than in the past. Things look less bright if you aggregate up all high-tech investment--not just real investment in computers, but also software and "other": real investment in this broader category this year will be 4 percent below its year-2000 peak--but still higher than in any year other than 2000. Why the different pattern? The falloff in telecom investment. We are no longer spending a fortune digging holes and stuffing large quantities of fiber optic cables down them....

Posted by DeLong at 05:34 PM

American Labor Productivity Growth Trends

Labor Productivity Growth Trends Bill Nordhaus just gave a paper on U.S. productivity growth. One problem with the subject is that the year-to-year data are so noisy: errors in measuring output this year, errors in measuring output last year, errors in measuring hours worked this year, and errors in measuring hours worked last year all disturb the numbers reported for any given year. As a result, such papers almost always divide the time period up into a few chunks--1977-1989; 1989-1995; 1995-2001--and simply compare averages over those chunks. But the time series is considerably richer. So while Bill was talking, I found myself (a) taking the annual data, (b) adjusting productivity growth for the business cycle (for productivity growth jumps by 0.39 percent for each percentage point increase in this year's unemployment rate, and falls by 0.77 percent for each percentage point increase in last year's unemployment rate), and (c) taking a centered five-year moving average (using our current forecasts for 2002, and taking a truncated four-year not-centered moving average for 2001). The resulting series--the "actual" and the "trend"--are plotted as the green and the red line in the figure below: As a measure of the underlying pace of potential economic...

Posted by DeLong at 05:28 PM

July 30, 2002
Steve Case Is Really Smart

I have always thought that AOL Czar Steve Case's purchase of Time-Warner was a true act of business genius. If the synergies between access, bandwidth, and content turned out to be there, the unified company would make a fortune. If the synergies did not turn out to be there--or if people came to their senses about valuations--or if something else happened to prick the bubble--then AOL's shareholders would not only own a dial-up internet service provider but also real, live media properties with real, live, actual earnings. Either way, a win-win situation for Case and his AOL tribe. By contrast, it was a win for Time-Warner only if the synergies really were there. Their genius in agreeing to the merger is no longer so apparent today. Here, Doug Rushkoff puts his version of this point very, very well: :: Douglas Rushkoff - Weblog ::   AOL RIP? Back on the day when AOL bought Time/Warner, the New York Times asked me to write an OpEd for them. "What does it all mean?" my assigning editor asked. What I wrote was that AOL's purchase of Time/Warner heralded the end of the dot.com bubble. AOL was cashing in its casino chips. And...

Posted by DeLong at 09:11 AM

July 29, 2002
Steve Lohr on How Low IT Prices Encourage Adoption

Steve Lohr of the New York Times makes a point that too many people still ignore: lower prices and "normal" profits (or losses!) for high-tech firms are an enormous benefit to consumers, and greatly encourage the spread of technology. If you believe--as Stanford's Paul David does--that the big economic and social payoffs will come from serendipitous uses that are only discovered after lots of experience, then low prices are necessary for this process of learning-by-using to commence. I think Paul David has a very good chance of being right on this. Technology Climate Is Gloomy, but Its Future Still Seems Bright ...over the long haul, the technology sector will generate more than its share of business opportunity and economic growth -- as it has since the 1960's, when computers appeared in big companies, universities and government agencies. Sure, excess capacity and price-cutting make the current business environment brutal for the producers. But not for the consumers. The numbers for the technology in use worldwide -- personal computers, cellphones, handhelds, digital cameras, DVD players, MP3 music players and households online -- all continue to grow apace. And the expansion of the technology goes beyond digital devices. Increasingly, computer science has...

Posted by DeLong at 12:04 PM

July 14, 2002
Amazon Becomes a Real Company, with a Real Stock Price

Business Week thinks Amazon will turn a profit in 2003. That will make it a real company: one that can be valued by its revenue, its costs, and its growth prospects, rather than by the beauty of the castles in the air. That also means it will be worth--perhaps--something less than $20 a share, rather than the more than $110 a share of its December 2000 peak valuation. BusinessWeek Online:Remapping Amazon's Course STREET WISE By David Shook Even if it hits full-year profitability in 2003, as expected, chances are its stock won't be sailing much higher anytime soon. Anyone who has followed the path of Amazon.com's (AMZN ) stock since it reached a record high of $113 in December, 2000, knows that investing in this company requires a gut check. The price fell to a record low of $6 after September 11, but investors who got in at that level were rewarded, as the shares crept up to $20 in May. Now, after a recent swoon to around $13.50, shares are back near $15. You can read the trajectory several ways. For one thing, Amazon looks like a dot-com survivor -- part of an elite group that's getting smaller by...

Posted by DeLong at 08:13 PM

July 10, 2002
Michael Mandel Reminds Us How Much of the Benefits of the Boom Remain

Michael Mandel reminds us that the collapse of the NASDAQ bubble does not erase the gains of the pre-bubble boom: productivity is much higher (and growing rapidly), incomes are much higher, wages are much higher, and--if you diversified or were lucky--real stock prices are still considerably higher than they were back in 1995. BW Online | July 15, 2002 | Commentary: The Boon behind the Bubble ...These gains are reflected in the financial reports of the leading tech companies, which show just how much the demand for technology has increased. For all their current problems compared with the height of the boom, Intel (INTC ) and Sun Microsystems (SUNW ) have about doubled their 1995 sales, while Microsoft's (MSFT ) revenues have more than quadrupled. And Cisco Systems Inc. (CSCO ), despite having absorbed a disastrous inventory write-off in 2001, reported sales in the latest quarter of almost $5 billion--more than eight times its sales of $581 million in the first quarter of calendar 1995. That's a striking increase in growth, even if much of it came through acquisitions. Surprisingly, these tech companies have held on to much of the stock gains they have racked up since 1995 despite the...

Posted by DeLong at 09:48 AM

July 06, 2002
The Ten Copyright Crimes of Tomorrow

Ernest Miller of lawmeme reacts to Turner CEO Jamie Keller's declaration that, among other things, your right to go to the bathroom while watching TV is not unlimited: "I guess there's a certain amount of tolerance for going to the bathroom..." LawMeme: Legal Bricolage for a Technological Age - Top Ten New Copyright Crimes Jamie Kellner, chairman and CEO of Turner Broadcasting... said some very interesting things, including characterizing those who skip television commercials as thieves: "[Ad skips are] theft. Your contract with the network when you get the show is you're going to watch the spots. Otherwise you couldn't get the show on an ad-supported basis. Any time you skip a commercial or watch the button you're actually stealing the programming." To help develop Mr. Kellner's unfortunately common (at least in Hollywood) view of copyright, LawMeme offers the top ten new copyright crimes: 10. Watching PBS without making a donation. You know who you are, you cheap ... 9. Changing radio stations in the car when a commercial comes on. Future radios will prevent listeners from changing channels when a commercial comes on. The RIAA has not yet taken a position on whether it is permissible to switch channels...

Posted by DeLong at 08:53 AM

July 03, 2002
Google Doesn't Worry About Stickiness

Jason Kottke meditates on how Google understands the web--how it is eager to make its website an elastic place that you use to trampoline to the rest of the web, rather than a sticky place that it is hard to get away from. kottke.org :: Elastic, not sticky | Google now has this bit of text on the bottom of each of their results pages now: "Try your query on: AltaVista Excite Lycos Yahoo!" Click on Excite (for example) and it takes you directly to an Excite search results page for whatever term you were searching for. What's going on here? Google linking directly to competitors' Web sites? Have they gone insane? What Google is doing here is instructive for most companies offering online content or services. Google knows their search results are good and displayed in a useful way. You want to wander off to Excite? That's ok because they know you'll be back soon. Google doesn't care about stickiness (which is a nearly unattainable goal unless you're AOL or Yahoo!)... they know that you're not going to spend all your online time at their site. They care much more about making their site elastic: vistors aren't stuck in...

Posted by DeLong at 03:06 PM

The Upward Shift in Gross Investment in America

Before the 1990s there was some evidence for a long, slowly-moving upward trend in the volume of investment relative to GDP. Many Republican politicians (and a few analysts) thought that the Reagan tax cuts of the early 1980s had generated an investment breakthrough: they looked at the rise in investment from 1982 to its 1984 peak, projected this rise forward, and forecast rapid economic growth as it was "morning in America." But whatever supply-side incentives did in the mid- and late-1980s to boost demand for investment funds, the large federal deficits (and the swing in the balance of payments back toward zero) did more to drain the pool of savings and reduce the supply of potential investment funds. Anomalously, the later 1984-1989 stage of the 1980s expansion saw not rising but falling investment relative to GDP. The 1990s, by contrast, saw a stunning explosion of investment in America. A fall in private savings was greatly outweighed by a combination of the Clinton administration's successful commitment to deficit reduction, the return of foreigners' willingness--nay, eagerness--to invest in America, and stunning declines in the relative prices of high-tech investment goods that gave firms undertaking investment projects much more bang for the buck....

Posted by DeLong at 01:12 PM

June 30, 2002
Bet on Europe to See a "New Economy" Boom in the Next Decade

The second half of the 1990s saw an astonishingly large productivity boom in America. Moreover, the productivity boom did not come to an end when the recession began. Only a strong underlying tide of increased efficiency and productivity from the use of high-tech computer and communications equipment can reconcile the steep American "unemployment recession" coupled with the non-existent "output recession": The U.S. unemployment rate has risen by two full percentage points over the past six quarters, yet production has not fallen at all, but has risen by 2.4%. But why was the boom so tightly confined to the United States? Why wasn't it a world-wide boom? Why wasn't it at least an industrial core-wide boom? There is, after all, nothing in the air or water that makes high-tech equipment work better in San Francisco or New York than in Frankfurt, Lyons, or Edinburgh. The past four years have seen analysts puzzle over slow relative growth--especially slow relative growth in Europe--outside the United States. Some analysts from the Bundesbank suggested that it was all due to the undercounting of production in Europe, but this had a hard time explaining the component of the U.S. productivity acceleration found not in computer-making...

Posted by DeLong at 06:07 PM

June 24, 2002
The Mysterious Incident of the High-Tech Boom Confined to the United States in the Nighttime

The 1990s saw a boom in America--a boom all agree was driven by modern high-tech. But why was the boom seen only in America? There's nothing in the water that makes high-tech work better here than in France or Germany. Sherlock Holmes once noted the "mysterious incident of the dog in the nighttime." What was mysterious? That the dog did not bark. The absence of the boom elsewhere is our puzzling not-barking dog. And this puzzle has four possible answers: First, the dog is barking but we are wearing earplugs--that poor quality statistics elsewhere keep us from noticing. Second, the dog is muzzled--that red tape in Europe makes economic transformation hard and slow. Third, the American dog barked too much--and then the NASDAQ crash spanked it with a rolled-up newspaper. Fourth, the dog is just waking up--for there is a range of places from Finland to Sweden to Ireland to Australia where the high-tech boom is clearly audible. I bet on the fourth possibility. I'm Brad DeLong...

Posted by DeLong at 06:12 PM

June 18, 2002
The Future of Video: The Implications of Hyper-Cheap Storage

Stewart Alsop is always worth listening to. Here he serves up his vision of what massively plunging storage costs mean for the future of video entertainment. It's an interesting race--between computation, storage capacity, and bandwidth. I'm becoming convinced that what kind of future we live in depends on which becomes cheapest fastest. Fortune.com ALSOP ON INFOTECH: I Want My File-Served TV! Let me offer up a vision of the future of television. I'm a director of TiVo, the publicly held company that makes those personal video recorders (PVRs) that allow you to record TV programs onto a hard drive to watch whenever you like. (My venture capital firm, NEA, was an early investor in TiVo but no longer owns shares of the company. I personally own shares.) At last week's board meeting, another director, John Hendricks, the chairman and CEO of Discovery Communications, brought up the phrase "file-served television." I first heard Hendricks say those words two months ago, and they've been bugging me ever since. Last week I figured out why--it's because file-served television seems the only sensible future for television. If I'm right, that's good news for TiVo, and for consumers as well....

Posted by DeLong at 10:21 PM

David Garcia of Nettime on the Value of the Net: Talking to People Who Know What You Desperately Need to Know

We forget how many people there are in the world who would benefit from talking to other people--people they don't know--who have some valuable experience to share with them. We are social, communicative animals. Here David Garcia of Nettime discusses how his daughter's double hip operation and recovery was made much easier by the net-created ability to reach out and touch exactly the right group of people Date: Tue, 18 Jun 2002 11:36:59 +0200 Subject: Re: <nettime> where has all the bandwith gone? From: "David Garcia" <davidg@xs4all.nl> To: nettime-l@bbs.thing.net The fact that the masses (all of us I suppose) "were and always will be buying dreams" does not mean that dreams are all we ever want or need. When my three year old daughter recently had to undergo operations on both her hips, it was natural for us to look for what was out there in terms of the knowledge that a hard pressed Dutch medical establishment was unable to provide. We turned to the net to find what was known about her specialized hip condition and, surprise surprise, the really useful knowledge (that has been invaluable in helping us through this difficult process) came from a list and website...

Posted by DeLong at 09:49 PM

June 15, 2002
Wired Writes About the Crash of George Gilder

George Gilder wrongly claimed in the 1970s that feminism was going to wreak havoc on America, wrongly claimed in the 1980s that the Reagan Revolution would ignite a boom, rightly claimed in 1989 that IT was a very big deal, and wrongly claimed in the 1990s that the "telecosm" was going to make his clients rich. One in four is not a good record. Now Wired's Gary Rivlin looks at the aftermath.

Posted by DeLong at 09:02 AM

June 14, 2002
My Friend Daniel Froomkin Writes About How the World Wide Web Created His Dream Job

Daniel Froomkin saw All the President's Men a few too many times in high school, and so after college he entered the journalism profession with... unrealistic expectations about freedom, voice, seriousness, and elbow room. So did he succumb and become a bitter time-server? No. Instead, he used modern information technology--the world wide web--to snag his dream job. Of course, IMHO, it may stay his dream job only as long as he can convince his bosses at the Washington Post that allowing him his elbow room is the way to keep the Post's Washington-area classified-ad franchise from leaking away to other internet businesses. Dan Froomkin on Web Journalism Why The Web Can Work So Well for Journalists By Dan FroomkinSpecial to Poynter.orgDan Froomkin, who was named editor of washingtonpost.com in November, wrote this piece originally for the newsletter of the Michigan Journalism Fellowship program, where he was a member of the class of 1996. The article is reprinted with permission. Washingtonpost.com recently won five top honors at the 2001 EPpy Awards, sponsored by Editor and Publisher Interactive. One winter day in Ann Arbor about five years ago, I realized I was just too old-fashioned for the modern newspaper business. So I...

Posted by DeLong at 12:35 PM

June 09, 2002
Barrons on Kleiner Perkins and the Internet Boom

Barrons snipes at John Doerr and Kleiner Perkins. The list of failures is long--Go (which Doerr swears would have been a success if not for Microsoft's use of FUD), Webvan, Healtheon, @Home, Homestore. But what Barrons doesn't highlight is that you expect 80 to 90% of ventures to fail, and that the astonishing magnitudes of John Doerr's successes make his overall record very good indeed... Barron's Online - Barron's Cover June 10th, 2002 Pied Piper of the 'Net: How John Doerr sparked the Internet boom and brought home big profits By MARK VEVERKA There's an old adage among stock peddlers on Wall Street: "When the ducks quack, feed them." Never was the quacking louder than during the Internet bubble of the late 1990s, and never did brokers have an easier time selling shares. In all, 439 dot.coms came public between 1995 and 2001 raising $33.5 billion, according to Thomson Financial.Central to this process was the West Coast venture capital firm Kleiner Perkins Caufield & Byers and its most visible general partner, L. John Doerr. As the Internet mania rose to its peak, Doerr maintained a steady drumbeat of enthusiastic predictions. Repeatedly, he told anyone who would listen, "We are participating...

Posted by DeLong at 12:54 PM

June 07, 2002
The Information Economy and Inequality

David Card and John di Nardo take on the idea that we understand what has been driving changes in U.S. relative wages in the past several decades--and that it is "skill biased technical change"... Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles David Card, John E. DiNardo NBER Working Paper No.w8769 Issued in February 2002 ---- Abstract...

Posted by DeLong at 01:10 PM

June 05, 2002
Profits and Productivity

In the 1990s profits, as measured by the national income accountants, peaked in 1997. Thereafter--even as productivity and production in the entire economy grew more rapidly than they had in a quarter-century--profits fell. The benefits of the wave of innovation in information technology and economic growth in the last years of the twentieth century flowed not to corporations' shareholders but to consumers in the form of lower prices and to workers in the form of high wages and salaries. There had been a debate about whether the coming of information technology would subject American businesses to more competition, as better information technology made it easier to comparison shop, or subject to less competition, as first movers exploited economies of scale and scope to acquire entrenched monopoly positions. The answer, of course, is "both"--America is a big place where lots of things can happen. But it seems clear that the first happened more than the second: that the late 1990s saw a profit squeeze as the benefits of economic growth went overwhelmingly to workers and consumers. The joker was that America's businesses did not tell their investors that profits had peaked in 1997. By 2000 the S&P 500 firms were...

Posted by DeLong at 11:44 AM

May 30, 2002
David Reed: Did You Try Google?

It happened again. I told a friend about a new program. He wants a URL. I say "Did you try Google?" and he says "oh ... yeah." He doesn't need a URL...

Posted by DeLong at 02:18 PM

May 24, 2002
Why Has the IT Revolution Come Slowly to Europe?

The Economist reports on an OECD working paper--“The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data”, by Stefano Scarpetta, Philip Hemmings, Thierry Tressel and Jaejoon Woo. OECD working paper 329, 2002 <http://appli1.oecd.org/olis/2002doc.nsf/linkto/eco-wkp(2002)15/$FILE/JT00125006.PDF>--that tries to account for why both unemployment and productivity growth have been unsatisfactory in most of continental Europe over the past decade. Scarpetta et al. may finally have found the smoking gun linking labor and product market overregulation to poor economic performance...

Posted by DeLong at 02:25 PM

May 23, 2002
Strong American Relative Growth

During the 1990s, U.S. economic growth by far outstripped that of the other major industrial economies.

Posted by DeLong at 02:27 PM

May 15, 2002
Freedom to Innovate?

Lurking behind the legal case that is now Unsettling States v. Microsoft has always been a whispered sotto voce claim by Microsoft that competition--in the market for PC operating systems, for office productivity suites, for browsers--is a bad thing. Technological innovation needs a single, strong, dominant, monopolistic firm to set the standard, and to tell the industry when it is time for the standard to change. Whenever I make this (possibly true, possibly false) point, I refer to UNIX-on-micros in the 1980s, when an operating system technologically superior to MS-DOS went nowhere because the lack of a dominant standard-setter prevented growth and allowed the emergence of enough small incompatibilities to fragment the market and discourage applications development (which led John Doerr to once say that I knew nothing about UNIX in the 1980s, applications development, or software markets.) I have never been able to evaluate this argument satisfactorily. But last week something happened to one of its biggest boosters. Keith Teare, CEO of Real Names, who had favored the maintenance of Microsoft's monopoly in web browsers as pro-consumer because "without Microsoft [to set the standard, and make sure that Real Names's products are included in the standard set of browser...

Posted by DeLong at 02:54 PM

May 07, 2002
Free Pants!

"Free pants!" I say, coming into the bedroom, waving them around. "Yes, dear," says Ann Marie.

Posted by DeLong at 03:09 PM

May 01, 2002
Information Technology Sets the Pace

US productivity growth is bouncing along nicely. From the beginning of 1995 to March 2001 – the peak of the business cycle, according to the National Bureau of Economic Research – labour productivity grew at an annual rate of 2.77%, just over twice its tempo of 1.34% a year from 1973 to 1995. Nearly all observers agree that the extraordinary wave of technological innovation in computer and communications equipment brought about the improvement. But will it last? I believe it will. Which begs another question: why is productivity growth in the European Union still lagging behind? A chorus of voices agrees that America’s productivity "miracle" stems from the revolution in IT (information technology). Kevin Stiroh, an economist for the Federal Reserve Bank of New York, writes that "all of the direct contribution to the post-1995 productivity acceleration can be traced to the industries that either produce [IT capital goods] or use [IT capital goods] most intensively, with no net contribution from other industries… relatively isolated from the [IT] revolution." Steven Oliner and Daniel Sichel, both Federal Reserve Board economists, declared in 2000 that "the rapid capital deepening related to information-technology capital accounted for nearly half of this increase" in labour-productivity...

Posted by DeLong at 07:58 AM

April 26, 2002
First Quarter 2002 GDP Release

In the fourth quarter of 2001 U.S. businesses shrunk their inventories by $30 billion. In the first quarter of 2001 U.S. businesses shrunk their inventories by $9 billion. This reduction in the rate at which inventories declined all by itself induced a +3.1 percentage point swing in the rate of real GDP growth between the fourth quarter of 2001 and the first quarter of 2002....

Posted by DeLong at 03:31 PM

April 20, 2002
New Rules for the New Economy

New Rules for the New Economy? by J. Bradford DeLong and Lawrence H. Summers The crash of IT stocks and the slowdown in much of the developed world have dented people’s faith in the "new economy." The road ahead may be bumpy, but we believe that technological advances in data processing and communications are leading in a new direction. The economy based on these advances will be "new" because some of the rules by which we have lived will have to change. Economic progress is not just a matter of markets and technological innovation. As the economy's structure changes, government policies must change as well, or economic development will be stunted. Consider the British agricultural revolution before 1800, which was an essential prerequisite for the industrial revolution that followed. The enclosure movement extinguished common rights to land and allowed landowners (at the cost of great suffering, to be sure) to experiment with new, more productive techniques. Had institutions and laws not changed, that particular economic transformation would have not happened. Or look at the US at the 19th century’s end – "the furnace where the future was being forged," as Leon Trotsky said. Mass production, large corporations, a continent-wide market,...

Posted by DeLong at 12:16 PM

Is the "New Economy" a Fad?

Is the "New Economy" a Fad? by Lawrence H. Summers and J. Bradford DeLong A year ago the "new economy" was seen by many as having repealed the laws of economic gravity: stock prices, productivity, and employment were to go ever up and never to go down. NASDAQ’s crash and the worldwide slowdown have caused many to think that the much vaunted "IT revolution" was just another speculative bubble. How important, then, will the technological revolutions in data processing and communications be in the long run? Can we really speak of a "new economy" and what does it portend? No one has a crystal ball and predictions are apt to be wrong. Nevertheless, we believe that the long-run economic impact of the "new economy" is likely to be very large indeed. Some technological innovations change our lives but have no lasting effect on the economy as a whole. The revolution in illumination is a good example. In 1800, an American household spent 4% of its income on candles, lamps, oil, and matches. It now spends less than 1% and consumes more than a hundred times as much artificial illumination. The real price of light fell by a thousandfold over the...

Posted by DeLong at 12:14 PM

Anatomy of the NASDAQ Crash

Anatomy of the NASDAQ Crash by Lawrence H. Summers and J. Bradford DeLong Why have high-tech stock market values fallen so far in the past year-and-a-half? What does the crash of the NASDAQ (and of smaller IT exchanges around the world) tell us about the future of the "new economy"? Conventional wisdom nowadays holds that the NASDAQ crash exposed the "new economy" as a conjuring trick of smoke and mirrors. It incarnated the irrational exuberance that often breaks out as a boom peaks, and did not deliver deeper or permanent changes in the economy. It is more likely, however, that the NASDAQ crashed because it became clear that dominant market positions in high tech-based businesses were not sources of profits unless accompanied by substantial barriers to entry B and that such barriers to entry for new potential competitors were becoming remarkably hard to create. Over a wide range, the dominant effect of the "new economy" has been to make competition more effective, not to create new advantages based upon economies of scale. The crash was thus the result of a realization by investors that the "new economy" was, in most sectors and for most firms, unlikely to lead to large...

Posted by DeLong at 12:11 PM

April 12, 2002
Was the New Economy Oversold?

But if you hang out with the professional forecasters and builders of economic models, you hear a very different story. They are impressed by how small the recession of 2001 has been in terms of lost output, how rapid productivity growth has been throughout the recession...

Posted by DeLong at 03:55 PM

March 20, 2002
Patron Saint of Open Source

In honor of St. Columba of Ireland, Patron Saint of the Open-Source Movement: In honor of Saint Patrick's Day, here's a reminder that one of Ireland's other patron saints, Saint Columba, may have pioneered the anti-copyright movement way back in the sixth century (A.D. 555, to be exact): St. Columba had borrowed from the monk a fine manuscript of the Gospels, and Columba had made a copy of the borrowed book, before returning it. The monk claimed the copy also as his; the saint disputed this. His argument in defence reads not unlike the defence made by modern infringers of copyright: "I confess that the book in question was copied from the manuscript of Finnen. But it was with my own industry and toil and burning of the midnight oil. And it was copied with such care that Finnen's manuscript is in no way injured by the act of copying. Moreover, my object was to preserve more surely the best parts of the book and employ them for the greater glory of God. Hence I do not admit that I have done any injury to Finnen; nor am liable for restitution, nor am at fault in any way." But Dermot,...

Posted by DeLong at 09:59 PM

February 05, 2002
ipaqs

Unless the average experience was very different from mine, a lot of people left that meeting thinking that neither Compaq, Microsoft, nor Accenture should be trusted with any part of Our Digital Future...

Posted by DeLong at 04:16 PM

February 22, 2000
Looking Into the Encyclopedia

A Fire Upon the Deep Many years ago I was reading A Fire Upon the Deep, a science fiction novel by Vernor Vinge, and I was curious about where Vinge had gotten the name "Qeng Ho"--which in the novel was the name of a group to which the protagonist had belonged in the distant past. So I went downstairs to my then newly-acquired copy of the Encyclopedia Britannica and looked up "Qeng Ho." I found nothing. But were I looking not eight years ago but today, instead of going downstairs I would lean to my left, type http://www.britannica.com/ into my web browser, type "Qeng Ho" into the search box, press "RETURN", and thus immediately search not just the full text of the Encyclopedia Britannica but also the internet, a collection of 70 magazines, and also Barnes and Noble's database of books. I would find a lot. Smack at the top center of the results page would be what I was looking for: the Encyclopedia Britannica's article on the fifteenth-century Chinese admiral Cheng Ho [or Zheng He, depending on how you like your Chinese characters Romanized]. The first thing I would discover was that Vernor Vinge had committed an error: he...

Posted by DeLong at 04:38 PM

January 15, 2000
A Talk in Phoenix About Key Information-Economy Issues

What Kind of an Historical Turning Point? J. Bradford DeLong http://www.j-bradford-delong.net/ delong@econ.berkeley.edu Notes for a talk for the Global Business Policy Council Millennium Meeting, Phoenix, AZ, January 13-16 2000 962 words If the key element of technology in the industrial age was the application of nonhuman energy to production--the creation of tools for shaping matter--the key factor of technology in tomorrow's age looks to be the automation of information--the creation of tools for thought and organization. This doesn't mean that the future will see only innovation in information technologies. But it does mean that innovations in data processing and communication are likely to shape the organization of the economy, and of the rest of society as well. Let me make four observations about four challenges that it looks like we face as we turn from the end of the second to the beginning of the third millennium, as our new information technologies begin to have a bigger and bigger effect on our world. And let me say that these are challenges that we may or may not successfully meet: First, where the industrial age has taken us will shape the effects of the revolutions in organization and communication that we...

Posted by DeLong at 04:24 PM

October 30, 1999
Getting a Head Start on Writing an Important New Category of Software

Review of Charles Ferguson, High Stakes, No Prisoners by Michael Froomkin and Brad DeLong Charles Ferguson has written a very honest book. That honesty is one chief reason to read it: he dishes the dirt on Netscape, Microsoft, his lawyers, his venture capitalists, and not least himself. But his very honesty gives the reader some critical distance--and gave us the tools to question how long the core conclusions of the book will continue to apply. In 1993 Charles Ferguson--MIT-trained engineer, consultant, and high-tech industry analyst--had a brilliant idea: the world needed a visual development software tool to create online information systems. The tool had to be visually-oriented to be useful to the non-programmers who knew the information. Yet the tool had to be sophisticated to allow organizations to structure their data in useful ways. Ferguson sunk his then-life savings into his idea. He created his software corporation, Vermeer. With his partner, Randy Forgaard, he assembled a very good programming staff. He raised venture capital. He pursued the enterprise with monomania mixed with paranoia. And by the end of 1995 there was code that was more sophisticated than the code of potential competing programs like NaviPress, Netscape Composer, or PageMill, and...

Posted by DeLong at 03:06 PM