What if we are measuring economic output incorrectly?

Imagine that your compass was 20 degrees out of alignment.

Imagine you didn't know that.

Good luck finding the North pole.

Now imagine life if our economic compass were 20 degrees off.

That's what Ezra Klein and Uwe Reinhardt are suggesting in two coincidentally synchronous articles ...

Ezra is responding to a NEJM report on the economic impact of RomneyCare (Massachusetts' health care reform, the template for ObamaCare):

Health care and jobs: Mixed news from Massachusetts - Ezra Klein - The Washington Post

... On the surface, the NEJM study looks to be great news for Massachusetts: health care jobs in the state have grown much faster than in the rest of the country since its reform law passed...

... But the study actually isn’t good news when you look into what type of health jobs propelled this strong growth. Most of it, the study authors conclude, came from an increase in administrative positions, jobs like billing specialists and office support staff. It’s quite likely that more people with health insurance mean more resources necessary to bill insurance companies and administer the business of health care.

An increase in those kind of jobs is great for employment. But it’s not so great for health care costs. It’s part of the reason that American doctors have administrative costs four times higher than their Canadian counterparts. It likely contributes to growing health care costs that have eaten up nearly a decade worth of increased earnings....

Ezra doesn't make the connection directly, but in the traditional model of measuring GDP this increase in administrative activity is economic growth.

Let that sink in a bit.

Now read Reinhardt (emphases mine)...

Uwe E. Reinhardt: Make-Work and the G.D.P. - NYTimes.com

... Suppose some evening a group of bored and mischievous teenagers slash tires on a number of cars in the parking lot of a shopping center. Distraught car owners call sundry nearby garages to send someone to fix the damage on the spot or tow the cars in for repairs. That work is speedily done, and the cars are ready for use again. The car owners pay the garage owners sizable repair bills.

This fictitious event leads to a number of questions:

1. Did the garages deliver value to the car owners?
2. Was gross domestic product increased or decreased?
3. Were the car owners better off, after paying the repair bill?

My answer to the first question is yes and to the second yes, as well, unless the garages had to give up other jobs with revenue equal to or greater than what they earn coming to the car owners’ rescue. To the third question, my answer is, it depends....

... In many instances, Person (or Enterprise) A delivers great value to Person (or Enterprise) B to extract the latter from a situation into which B should not have been put in the first place. We count in G.D.P. the value added by the extrication but do not detract the value destroyed by being driven into a precarious situation.

... Now think about the almost incomprehensible tax code that Congress has imposed. Think of it as a disaster of human making. To cope with it, individuals and businesses hire legions of lawyers and accountants who have deployed their human capital to understanding this bewildering code. These tax experts work hard and often brilliantly to shield their clients from taxes, usually achieving tax savings that are multiples of what they charge for their services...

... In many ways, our health care system mirrors our tax code — especially in its financing and health insurance facets. These can be made so complex and have been made so complex in the health care system in the United States that many decision makers in health care — patients, physicians, hospitals, employers and so on — need in-house or external consultants to find their way through the maze.

.. An academic health center may have a dozen or two dozen employees devoted to compliance. Such a center may employ several hundred billing clerks to cope with the myriad of private health insurance plans and policies, each with its own coverage, nomenclature and payment rules and requirements for prior authorizations...

... At Yale University I had the privilege of sitting in the classroom of the lateJames Tobin, an early Nobel laureate in economics and one of our profession’s greats. He distinguished between “enjoyable” and “nonenjoyable” G.D.P., with the latter including military spending or other “value added” from coping with either externally inflicted or self-inflicted damage done to our society. I often think of our revered professor when I contemplate the composition of this country’s G.D.P.

More than twenty years ago it occurred to me that different economic activities had different secondary multipliers. My focus was on the multiplier effect of military vs non-military activity. I was so impressed by my cleverness I wrote a letter on it to, I think, Time magazine. Of course it vanished, and subsequently I thought my "insight" was trivially obvious.

Maybe I shouldn't have given up so easily.

What Reindhardt describes is an aspect of the increasingly AI mediated "complexity wars". This is vast economic activity that is both destructive and creative.

We build castles and we tear them down.

We count this as economic activity.

What would our GDP per person growth look like over the past thirty years of innovation stagnation if we stripped out this "nonenjoyable" GDP activity?

Might explain a few things.

This is important.

Counterfeit Apple goods on Amazon - an interesting lack of enforcement

Amazon is selling a 45watt MacBook Air power supply for $20 less than Apple. The title is interesting: Amazon.com: Genuine Apple 45W MagSafe Power Adapter for MacBook Air A1244.

Why is the title interesting? Because of the word "genuine". Remember the old wisdom - "people's republics" are always tyrannies. Products that claim to be "genuine" often are not.

This particular product could be genuine. Not so the "apple" cables sold on Amazon for $2 instead of $20.

There's a lot of counterfeit Apple gear for sale on Amazon.

Amazon is increasingly a competitor with Apple.

I'm sure those two facts are not related.

Democracy in crisis: Not all votes are equal

This surprised me:

Notes on income inequality - Ezra Klein - The Washington Post

... Martin Gilens, a political scientist at Princeton University, has been collecting the results of nearly 2,000 survey questions reaching back to the 1980s, looking for evidence that when opinions change, so too does policy. And he found it—but only for the rich. Policy changes with majority support didn’t become law except when that majority support included voters at the top of the income distribution. When the opinions of the poor diverged from the opinions of the rich, the opinions of the poor did not appear to matter. If 90 percent of the poor supported a policy change, its chances of passage were no better than if 10 percent of the poor supported it...

American democracy is in poor health.

Apple 4.0 - take 2

I received some good comments on yesterday's Apple 4.0 post. They were interesting enough I'll address them in a f/u post.

Andrew M took exception to my claim that Apple's historically lackluster quality was improving. I admit, it's a mixed bag.

On the one hand, the build quality on my MacBook Air is excellent. Unlike my iBook and MacBook I don't expect the hinges to fail, and unlike my MacBook I don't expect the enclosure to begin disintegrating. On the other hand several of our iPhones have had flaky home buttons, and Apple's 2nd generation iPhone sync cables are crummy. I gave Lion 1.0 (10.7.0) credit for being better than I'd expected, but I expected a disaster. Many feel Lion is a disaster, with a poorly designed save/save as implementation, problematic app restart behaviors, and a nearly crippled Safari. MobileMe sync has been mangling my contacts, and today Apple server failures have been bricking iPhones.

I concede the point. Apple has shown quality improvements in some areas, and regressed in others. Quality is still below what we deserve. I am still hopeful Cook and Apple 4.0 will put more weight on quality than Apple 3.0 did.

Jeffrey Dutky said I didn't give Apple enough credit for moving to industry standard interfaces like Thunderbolt. At first thought I agreed with him, but then I realized physical connectors like the iPod cable are going away. Only power connectors are definitively physical, and only Apple sells them for Apple laptops.

Apple's device connectors now are wireless protocols supporting things like AirPlay and AirDrop. I believe both are proprietary. I hope Apple 4.0 will be open these types of connections, and enhance data freedom for all Apple applications.

Apple 4.0

Steve M was* a master Healer and Teacher at the Upper Peninsula Health Education Corporation (UPHEC), but his true love was HyperCard. He should have been a programmer.

One of Steve's jobs was to civilize an obnoxious (think Jobs sans glamour, sans genius) young physician. The other was to convert me to the way of the Mac.

That was 1989, in the days of Apple 2.0. Steve Jobs had been gone for four years.

It wasn't hard to convert me. In those days Microsoft was taking over the world, but their Intel products pretty much sucked. Their Mac products, Word and Excel in particular, were far better than their Windows equivalents.

The Mac had a rich range of software, like More 3.0. The Mac cost about 20-30% more than roughly similar PC hardware, but Mac hardware and software quality was excellent (no viruses then, so security was not an issue). Apple networking was a joy to configure, though the cracks were starting to show. Apple networks didn't seem to scale well.

I stayed with Macs during my Informatics fellowship - until 1997. By then, twelve years after Jobs had left Apple, they weren't obviously better than the Wintel alternatives. Apple's OS 7 had terrible trouble with TCP/IP; it was even worse on the web than Windows 95. Windows 2000** was better than MacOS classic and Dell hardware was robust.

It took twelve years for post-Jobs Apple to become as weak as the competition. We were a Windows household from about 1997 to @2003, when I bought a G3 iBook. By then Apple was back. The Apple 3 recovery took about 5 years.

Now we're in the Apple 4.0 era. I suspect it began about 2010.

Apple 4.0 will behave like a publicly traded corporation (PTC), instead of the freakish anomaly it has been. It can't be Apple 3.0. On the other hand, I'm hopeful that Jobs last invention will turn out to be a new way to run a corporation; a reinvention of Sloan's GM design. It's clear that this is what he's been aiming at over the past few years. I stopped underestimating Jobs years ago. If anyone can fix the dysfunctional PTC, it would be Jobs.

Apple 4.0 won't have the glamour of 3.0. It may, however, do some things better. I believe Apple's product quality has been improving over the past two years. They're beginning to approach the quality of early Apple 2.0. Apple 4 may start to play better with others, even begin to support standards for information sharing instead of Jobs preference for data lock and proprietary connectors.

Apple 4.0 will have less art, less elegance, less glamour -- but it might have more engineering. Less exciting, but better for me.

I'm optimistic.

--

* Still a great Healer, but our UPHEC passed on. Steve isn't teaching these days.
** Windows 2000 was better than XP and Vista and Windows 7, but that's another story. Microsoft's post 2000 fall was much more dramatic than the slow decay of Apple 2.0.

Update 10/12/11: I respond to comments on quality and connectors in a f/u post.

Netflix train wreck

Emphases mine:

Netflix Abandons Plan to Rent DVDs on Qwikster - NYTimes.com

...We underestimated the appeal of the single web site and a single service,” Steve Swasey, a Netflix spokesman, said in a telephone interview. He quickly added: “We greatly underestimated it."...

So we weren't the only family to dump streaming in favor of DVD, while looking for any alternative to the Netflix we'd come to despise.

What an astounding debacle. It's time for Hastings to go.

Good news for the USPS.

Siri, the Friendly AI

The iPhone 4S video shows a young runner asking Siri to rearrange this schedule. It doesn't show him running into the path of another Siri user driving his convertible.

Siri is the iPhone AI that understands how your phone works and, in theory, understands a domain constrained form of natural language. It has a long AI legacy; it's a spinoff from SRI Artificial Intelligence Center and the DARPA CALO project.

When Siri needs to know about the world it talks with Wolfram Alpha. That's where the story becomes a Jobsian fusion of the personal and the technical, and Siri's backstory becomes a bit ... unbelievable.

Siri was launched as the unchallenged king of technology lay dying. The Wolfram part of Siri began when Jobs was in exile ...

Wolfram Blog : Steve Jobs: A Few Memories

I first met Steve Jobs in 1987, when he was quietly building his first NeXT computer, and I was quietly building the first version of Mathematica. A mutual friend had made the introduction, and Steve Jobs wasted no time in saying that he was planning to make the definitive computer for higher education, and he wanted Mathematica to be part of it...

Over the months after our first meeting, I had all sorts of interactions with Steve aboutMathematica. Actually, it wasn’t yet called Mathematica then, and one of the big topics of discussion was what it should be called. At first it had been Omega (yes, like Alpha) and later PolyMath. Steve thought those were lousy names. I gave him lists of names I’d considered, and pressed him for his suggestions. For a while he wouldn’t suggest anything. But then one day he said to me: “You should call it Mathematica”...

... In June 1988 we were ready to release Mathematica. But NeXT had not yet released its computer, Steve Jobs was rarely seen in public, and speculation about what NeXT was up to had become quite intense. So when Steve Jobs agreed that he would appear at our product announcement, it was a huge thing for us.

He gave a lovely talk, discussing how he expected more and more fields to become computational, and to need the services of algorithms and of Mathematica. It was a very clean statement of a vision which has indeed worked out as he predicted....

A while later, the NeXT was duly released, and a copy of Mathematica was bundled with every computer...

... I think Mathematica may hold the distinction of having been the only major software system available at launch on every single computer that Steve Jobs created since 1988. Of course, that’s often led to highly secretive emergency Mathematica porting projects—culminating a couple of times in Theo Gray demoing the results in Steve Jobs’s keynote speeches.

... tragically, his greatest contribution to my latest life project—Wolfram|Alpha—happened just yesterday: the announcement that Wolfram|Alpha will be used in Siri on the iPhone 4S...

Siri's backstory is a good example of how you can distinguish truth from quality literature. Literature is more believable.

Siri isn't new of course. We've been in the post-AI world since Google displaced Alta Vista in the 1990s. Probably longer.

What's new is a classic Jobs move; the last Jobs move made during his lifetime. It's usually forgotten that Apple did not invent the MP3 player. They were quite late to the market they transformed. Similarly, but on a bigger and longer scale, personalized AIs have been with us for years.  AskJeeves was doing (feeble) natural language queries in the 1990s. So Siri is not the first.

She probably won't even work that well a while. Many of Apple's keynote foci take years to truly work (iChat, Facetime, etc). Eventually though, Siri will work. She and her kin will engage in the complexity wars humans can't manage, perhaps including our options bets. Because history can't resist a story, Siri will be remembered as the first of her kind.

Even her children will see it that way.

Update 10/12/11: Wolfram did a keynote address on 9/26 in which he hinted at the Siri connection to Wolfram Alpha: "It feels like Mathematica is really coming of age. It’s in just the right place at the right time. And it’s making possible some fundamentally new and profoundly powerful things. Like Wolfram|Alpha, and CDF, and yet other things that we’ll have coming over the next year." The address gives some insight into the world of the ubiquitous AI. (No real hits on that string as of 10/12/11. That will change.)

OWS Recruiting poster by Hargrave Yachts

Via G+. An obvious Occupy Wall Street recruitment poster has been cleverly planted in Yachts International Magazine as a (flash) ad for a Hargrave mega yacht.
Since I wonder how long the ad will actually last online, here's a screenshot and some copy ...

"We used to sell yachts as luxury items, in todays' world they're really a necessity.

Years ago buying .. the 136' Hargrave "DREAMER" ... was ... a once in a lifetime reward for those of you who made sacrifices ...

... Today things have changed ... successful people have now become the target of every two bit politician from the White House on down ...

... being on the water has become a necessity for today's entrepreneur ... a refuge where they can leave the inanity of today's world ..."

On the water, far away from the peasants.

Diabolically clever OWS. I'd never have figured Hargrave as one of your covert operations.

[Note: By a freak accident I managed to completely obliterate this post, but I was able to restore it.]

Why rationalists like OWS

Philosophically I'm closer to OWS than to the Tea Party. In terms of policy, I'm reluctantly closer to Clinton/Gore than to anarcho-socialism.

So why am I an OWS supporter?

I think I can put it into a picture like this ... [1]

The Y axis is volume in the American discourse; that's what enables political "courage". The X axis represent a range of governing policies. The blue box is the limits of the rational -- the range of policies that are most likely to lead to a relatively long and happy life for human civilization, democracy, and us.

Obama is to the left of that range (I'm deliberately flipping this with the conventional left/right picture of American politics.).

In the middle is GDKK - Gordon (hey, it's my blog), DeLong, Klein and Krugman -- in rough alignment with my TP to OWS spectrum.

At the right is Occupy Wall Street.

Without OWS the rationalists are at the far right of this X axis, and the "middle" of the American discussion is outside the bounds of reason. In this context a Carbon tax, for example, is inconceivably radical.

With a healthy OWS movement the volume shifts.

I think that will help.

[1] Google's drawing tool app is amazing. It's the best part of the Google Apps suite at the moment, which is saying quite a bit.

See also:

• Roots of the irrational in American politics: pre-dementia and religion 7/11
• Why is the modern GOP crazy? 7/11
• Isn't this what the GOP really thinks? 3/11
• A taxonomy of American politics (the boundaries of the rational are attitudes to the weak 2/11)
• Sympathy for the devil: Anything good in RyanCare? 5/11

Comparing carriers and networks for iPhone owners: AT&T, Verizon and Sprint

Reading this Marco Arment post, I wonder if I should have gotten Emily the 64GB model. I didn't think about what it meant to capture HD video. More than a phone discussion though, it's a carrier comparison. There's a lot I didn't know (emphases mine) ...

Which iPhone 4S should I get? – Marco.org

... Under ideal conditions, AT&T has the best data speeds and Verizon has the best voice quality, but almost nowhere actually provides ideal conditions, so it really depends on which carrier sucks the least in your area.

All three carriers’ plans are priced in the same ballpark.

People often say that Verizon covers fringe areas better, but in my experience, AT&T is comparable — sometimes one works and the other doesn’t, but neither more often than the other.

I don’t have much experience with Sprint, but the little I’ve had suggests that it doesn’t quite provide the coverage and strength that Verizon and AT&T do. Sprint phones can roam on Verizon’s network if there’s absolutely no Sprint signal, but in practice, that doesn’t happen often, and the phones will prefer a weak Sprint signal to a strong Verizon signal.

Sprint is the only carrier offering “unlimited” data.

Verizon messes with your data uncomfortably — they recompress JPEGs to save bandwidth, and they watch the sites you visit to collect (and presumably sell) the aggregate stats.

... any iPhone 4S you buy in the U.S. with a contract at a subsidized price (less than $649) is still carrier-locked. You can’t change carriers later...

The carrier lock really sucks. Even after you've paid your $800 or so for your $650 phone, it's still carrier locked. Of course it's two years old by then, but Emiiy's 2 yo 3GS still works real fine. Yet another reason that American geeks hate mobile phone companies.

If you're trying to find out which carriers work in your area, my friend Robert M recommends Antenna Search as a guide to your local towers. I discovered my home is in an area with relatively few antennae -- except for 3 immediately nearby. We don't have coverage problems.

Agriculture and population: which came first?

We're used to thinking that human population (and human misery) boomed when we switched to agriculture. Now it appears that a post-glacial population boom may have inspired agriculture ...

Dienekes’ Anthropology Blog: Major population expansion in mtDNA of East Asians

... the further analysis showed that the population expansion in East Asia started at 13 kya and lasted until 4 kya. The results suggest that the population growth in East Asia constituted a need for the introduction of agriculture and might be one of the driving forces that led to the further development of agriculture...

The crash of 08: an 8.9% collapse in GDP

The Great Recession, or, as I prefer, the Lesser Depression, included one of the worst quarters in American history ...

Could this time have been different? - Ezra Klein - The Washington Post

... The Bureau of Economic Analysis, the agency charged with measuring the size and growth of the U.S. economy, initially projected that the economy shrank at an annual rate of 3.8 percent in the last quarter of 2008. Months later, the bureau almost doubled that estimate, saying the number was 6.2 percent. Then it was revised to 6.3 percent. But it wasn’t until this year that the actual number was revealed: 8.9 percent. That makes it one of the worst quarters in American history....

The M word

We commies have a problem.

We are dependent on the money of corporations and the votes of the masses. It's not our only problem. We have to hold together a coalition across tribe and culture.

Since they're dedicated to the end of civilization, it's a good thing the GOP has problems too. Gopers have to sign up for a set of mandatory untruths on science, history and economics for example. This makes it hard for the GOP to retain non-sociopathic rationals, much less secular humanists.

That's not their big problem though. Their big problem is theological. A party famous for intolerance has to pretend two quite different religions, Mormonism and Christianity, are the same. (Trust me, I'm an atheist. These religions have more in common than Islam and Judaism -- but not much more.)

This is a lot to pretend, but it doesn't seem as hard as, for example, worshipping both Christ and Mammon. It would be doable -- except for the Hell problem. Many GOP Christians believe in Hell, and they believe consorting with heretics is one way to get there. Mormonism is heresy; no doubt there. An eternity in Hell is a high price to pay for winning an election.

Maybe the GOP will patch this up -- but I think they're going to have to choose. They'll either have to offend Mormons and Romney supporters or offend their entire Christian Base.

Despite his current dominance, I don't think Romney will be the GOP candidate. If he is, he'll have a hard time harnessing the base.

If Perry is the alternative, expect Obama to ask if he'd have been welcome at Perry's *head ranch.

Considering the horrible odds against Obama's reelection he'll need more of this Irish luck.

Anonymous

Google is trying to enforce full transparency in their, large, corner of the web. I think they're making a terrible mistake.

I can see why they do it though. Most large sites can't handle the spam attacks routed through anonymous posting.

Gordon's Notes, though, we're not so big. Most of the comments I get are anonymous (excepting Martin and MaysonicWrites). Many of them are excellent. Fortunately Google's AI is now pretty good at killing the spam attacks, so I can easily manage the low volumes I get. [1].

Anonymity is something a *cough* specialty blog like GN can support.

[1] Sure would help if Google gave me an RSS feed of comment counts though - so i know there are new ones to inspect. As it is comments go immediately to recent posts and I get a notice by email, but older post comments can sit around until I notice and authorize them.

99%

Of course I support Krugman's army. Not because they have answers; but because humans are the neurons of the mass mind. OWS is thinking in action. If nothing else, it's a start on a very long struggle.

Klein, Salmon and Collins have done a good job on the scene. Klein suggests the 1% may be feeling some heat ...

A breakdown of trust - Ezra Klein - The Washington Post

At a medical-innovation conference in Cleveland this week, I heard chief executive officers complain about being treated like “criminals,” about profit being regarded as intrinsically suspicious, about the president saying unkind things about oil companies, about exemplars of hard work and success being viewed as greedy rather than productive. Like Rodney Dangerfield, the rich may be making money, but what they really want is respect.

Even worse, they said, was the fact that their every suggestion for getting the economy back on track was denounced as a self-serving grab for more profits. Shouldn’t it be obvious to everyone that it’s better to give corporate America a tax holiday for overseas income, because otherwise the money will never return home? Isn’t it clear that we need more high-skills visas for foreigners? Have we seen the airports in Asia? Doesn’t the U.S. realize that if Germany and China and South Korea roll out the red carpet for companies, giving them every tax advantage and regulatory break to locate there, that the U.S. must up the ante?

The CEOs have a point. Not on the tax holiday for overseas income -- that’s a scam. But the U.S. could make it easier to do business here. We do need more high-skills visas. We do need to reform our tax code, reduce our deficit, upgrade our education system and repair our infrastructure. We even need to compete with the incentives these companies receive to relocate their factories and research centers; it’s a fact of the modern economy, and we can’t pretend otherwise.

But the self-pitying, self-righteous tone of these complaints misses the big picture, and makes the underlying problem worse: The rest of America doesn’t trust corporate America right now. The rich have been getting fabulously richer, corporate America is sitting on trillions in cash reserves, and where has that gotten the rest of the country? A shabby, jobless recovery in the early Aughts, followed by a credit bubble, followed by a crash in which ordinary Americans had to bail out Wall Street, followed by the worst economy in generations...

Krugman has said the something similar -- the OWS gang can't be as dangerously incompetent as the titans of industry and Wall Street. My recent post on the crummy option for middle-class investing is partly a reflection of this global mistrust. Why should we trust the financial statements publicly traded companies are producing? And if we can't trust those statements, how can we trust stock funds?

Good job OWS and OccupyMN. Keep at it.

The rest of us don't have to merely stand and wait. Even if we can't physically join OWS, or even local movements like Occupy Minnesota, we can donate though. Start with $25. (PS. The donation worked without providing a phone number of email address. The inevitable paper spam will at least help our ailing USPS.)