Technology Is Changing, Not Improving

Paul KrugmanOn Monday, Paul Krugman wrote about one of the great myths of modern times: the increasing pace of technological development. In The Big Meh, he noted that while we seem to have a lot of new technologies, they don’t seem to be revolutionizing our economy. But what new technologies? People see substantial technological advances where there are only constant technological shifts. Once upon a time Flickr was a big deal, but then we got Instagram. The best you can say about most of this kind of technological change is that it allows corporate interests to better monetize play. It’s all summed up in Peter Thiel’s quote, “We wanted flying cars, instead we got 140 characters.”

Krugman even starts out the article by mocking the Apple Watch. And rightly so! Apple is the ultimate technology company of the modern world. That’s because it doesn’t do much in terms of technology. It takes other people’s ideas and packages them nicely. But more than that, it is all about brand and about how the products that people consume define them. It is extremely sad — pathetic, in fact. But in terms of the broader on the country, it doesn’t mean anything in a direct way. The newest version of the iPhone will not make us more productive and any happiness it brings will be short lived indeed.

But Apple provides a good example of why we don’t see much in terms of economic growth. The company employs a relatively small number of Americans: less than 100,000. These are generally good, middle class jobs. And then the company employs a million or so people overseas — paying them almost nothing. This allows Apple to keep more the fruits of laborers. And this is why Apple has been sitting on piles of cash. Eventually, in 2012, it was necessary to pay out major dividends. And then there have been the massive stock buybacks. Apple has lots of money, but no ideas. Unless you think the Apple Watch is a new, much less important, idea.

What all this means is that Apple works as a way to increase inequality. None of this would be surprising if Apple were just a tech film. Apple employs roughly the same number of people employed by Google and Microsoft. But they are not hardware companies. Just the same, the focus of venture capital these days is not on hardware. They are all out chasing their tails looking for the next “killer app.” And that will be… what? An application that will allow people to share even more moments from their lives with other people who don’t care enough about them to be part of those moments? I understand that there was a lot of marginal utility when grandma could see what granddaughter was up to in almost real time. The marginal utility of any new gains in that area are essentially zero.

Krugman ended his column by noting that the exact things that are said about technology today were said about technology in the 1930s. Then as now, it was used as an excuse for why it was that companies like Apple were sitting on piles of cash and not hiring. Today, we hear that everyone ought to be computer programmers or the ill-defined “entrepreneurs.” It’s all silly. Those Chinese workers pumping out iPhones are not better educated or otherwise more capable of doing that work than are Americans. It’s all about incentives. As Dean Baker is fond of noting: globalization has only been allowed to destroy the jobs of the American middle class. Doctors, dentists, lawyers, and scads of other professions continue to enjoy economic protection.

SS Ideal X

I’m not a futurist; I don’t know where technology could go if our culture weren’t held captive by a bunch of little brains who are only interested in next quarter’s profit statement. But I do know that technologically speaking, there is more sound and fury than substance when it comes to technological innovation. Having a transistor radio was an improvement on the home radio, but it wasn’t anything close to as big a deal as the invention of radio itself. Now people want to make a big deal about Pandora on their phones or extra gigabytes for MP3s. These things are nice, but hardly revolutionary. When was the last time we had a technological revolution? Container ships have undoubtedly had a bigger effect on our lives than computers — much less the most recent iPhone.

Parasitic Credit Card Companies

David GlasnerA favorite tactic of the credit-card industry is to offer customers zero-interest rate loans on transferred balances. Now you might think that banks were competing hard to drive down the excessive cost of borrowing incurred by many credit card holders for whom borrowing via their credit card is their best way of obtaining unsecured credit. But you would be wrong. Credit-card issuers offer the zero-interest loans because, (a) they typically charge a 3 or 4 percent service charge off the top, and (b) then include a $35 penalty for a late payment, and then (c), under the fine print of the loan agreement, terminate the promotional rate on the transferred balance, increasing the interest rate on the transferred balance to some exorbitant level in the range of 20 to 30 percent. Most customers, especially if they haven’t tried a balance-transfer before, will not even read the fine print to know that a single late payment will result in a penalty and loss of the promotional rate. But even if they are aware of the fine print, they will almost certainly underestimate the likelihood that they will sooner or later miss an installment-payment deadline. I don’t know whether any studies have looked into the profitability of promotional rates for credit card issuers, but I suspect, given how widespread such offers are, that they are very profitable for credit-card issuers. Information asymmetry strikes again.

—David Glasner
Is Finance Parasitic?

What Came First in TPP: the Trade or the Cronyism

Tyler CowenOne interesting thing about the Trans-Pacific Partnership (TPP) is that libertarians are on both sides of it. There are what I would consider the stupid libertarians, who are in favor of the deal because they are for anything that seems like it will make the rich richer. These are the kinds of libertarians who are against unions and for the liberty-destroying “right to work” laws. If we exclude the people who are libertarians simply because it is a presentable form of neo-confederacy (and that is most of them), the majority of libertarians are of this kind: people who just think the rich are super-keen and need to be ever rewarded. This group includes Tyler Cowen — hero of subgeniuses everywhere!

Timothy B. LeeBut there is a small fraction of the libertarian movement that is actually in favor of individual liberty. This group will generally be against the TPP. They understand that this treaty is not much about trade. What it is primarily about is providing handouts to powerful economic interests. So I was pleased to see that, as I had previously noted, Timothy B Lee is one of the better kinds of libertarians. He’s still wrong about exactly what libertarianism would bring, but he is at least trying to create a better world for all, not just for those who are already doing well.

Over the weekend, Lee wrote, Why Killing Obama’s Trade Deal Could Be Good for Free Trade. Cowen had claimed that if the TPP gets shot down, future trade deals could be worse as a result. Why that would be isn’t clear. His followups seemed to be a lot of magic thinking: he believes it because he’s already decided that the TPP must be good. Lee, in refreshing contrast, was clear as could be: it’s the cronyism, stupid!

The US has been using trade deals to push counterproductive copyright and patent policies on the rest of the world since the 1990s. Each time a deal comes up for a vote, supporters play up the trade provisions and downplay the corporate giveaways. If the TPP is approved, we can expect the same kind of terms in the next trade bill the US negotiates.

And conversely, if the failure of the TPP is seen to be due to all of the corporate giveaways in the deal, then future deals would be seen as DOA if they included them. As Lee put it, “When special interest groups started lobbying for another round of goodies, US trade negotiators would be able to say, ‘We’d love to help but we can’t risk having the deal rejected.'” The only question is whether future trade negotiators would see it that way.

But on that issue, Lee is also right: none of the major players arguing against this treaty are doing so out of a sense of protectionism. The number one thing that I hear people talking about is that it strengthens intellectual property rights, which will increase costs everywhere. The second thing I hear most often is the threat that the TPP could cause to democratic governance through the strengthening of investor-state dispute settlement — the unaccountable international legal system that could force countries to pay companies for laws that the court claims are hurting companies’ profits.

On the other hand, so what if future trade negotiators don’t take that lesson away from the defeat of the TPP? Surely after the defeat of the Transatlantic Trade and Investment Partnership (TTIP) for similar reasons, they would learn. And if not for that one, maybe the next. Whatever it takes. Although I have to say: I don’t see us getting more of these treaties if there aren’t major businesses able to get special treatment. The barriers to trade are already low. The TTP (and TTIP) didn’t come about because governments were itching for them. Now, the point of these deals seems to be very little besides the cronyism. I think they start with the cronyism and then come up with other things that will allow them to be sold.

Dealing With Inequality Requires Progressive Taxes

Family Legacy

This cartoon sums up a fact of our economic system. And it provides all the information you need to appraise the claim so loved by conservatives, “We don’t care about equality of outcomesopportunity.” What they mean is that they don’t care about either. It’s really quite simple: equality of opportunity — or even anything in the same ballpark — is a lie if equality itself is too far out of kilter. The conservatives who don’t care about inequality are just the modern day royalists. They want to enforce the current class makeup of society, but rather than use the idea of “blood” they use the far less reasonable idea of “meritocracy.”

The great cure-all for inequality is “education.” I’ve written about this a lot over the years. It is based on a correlation. Not surprisingly, people with college degrees make more money than people without college degrees. Of course, I’m highly skeptical of the mechanism here. For one thing, it is easier to get a college degree if you are stupid with rich parents than it is if you are smart with poor parents. So to some extent, a college degree is simply an indication of class. But the real reason that people push education is because it is a way of saying, “We can’t do anything right now!” And then they have another couple of decades to come up with a new reason why the rich should never be taxed.

Matt BruenigSo when Bernie Sanders (or Barack Obama) suggest that college be free, I’m not exactly inspired. That’s not to say that I don’t think it is a good idea. But it is not the panacea that many people think it is. As a result, I was very interested to read a recent article by Matt Bruenig, Wealth Inequality and Student Debt. In it, he provided a very useful thought experiment.

First, consider our current system for funding higher education. Two students — one rich and the other poor — go to a college that costs $100,000 for four years. The rich student gets no government assistance, but her parents pay the $100,000 and she ends up with no debt. The poor student gets $50,000 from the state, and nothing from her parents. She ends up with $50,000 in debt. Thus, the rich student is $50,000 ahead of the poor student.

Bernie SandersSecond, consider the Sanders system for funding higher education. Both students pay nothing for college. But the rich student’s family still gives her $100,000 — perhaps as a down-payment for her first house. So she ends up $100,000 ahead and the poor student ends up even. In the first case, the poor student ends up $50,000 worse off. In the second case, the poor student ends up $100,00 worse off. This means that the more progressive system actually increases inequality more than the current system.

Note that this is true whether we are looking at the student alone, or the student’s family. And it is worse than even this makes out. Because a college degree for the rich student is going to be worth more than the college degree of the poor student. The rich student will simply have more opportunities based upon her connections. So the reward for that $100,000 investment is almost certainly far greater than the reward that the poor student gets from her $50,000 investment.

All of this highlights the fact that we need a highly progressive tax system. This, of course, is why the rich are so stuck on the idea of a flat tax. It is considered by them to be “fair.” But, of course, in the case above, it clearly isn’t. The tax system folds back on itself, because it doesn’t benefit the poor as much as it ought to. In the most basic sense, the rich student’s parents should be paying at least $50,000 more in taxes than the poor student’s parents pay. And when it comes to the upper middle class, that may well be the case. But when it comes to the truly wealthy, that isn’t the case at all. As I noted during the 2012 election, in Mitt Romney’s most recent tax year (2011), he had paid almost exactly the same tax rate that I did, even though I had made about $20,000 that year and he had made more than $13 million.

Clearly, there are more specific solutions to this problem. For example, we could just pay the tuition of poor students and not leave them in debt, even as we did nothing for rich students. But ultimately, the “free college” solution is the best. We just have to figure out how to tax everyone fairly. Until we do that, all is lost.

Morning Music: Ann Sexton

Anthology - Ann SextonAnn Sexton is a great soul singer from the 1970s, who had a fair amount of success but who never exactly broke out. She had a couple of songs that made it into the R&B top 100 — enough to get some attention, but not enough to make her rich. So after releasing two albums in the 1970s, she retired to what would generally be considered a normal life.

And then in 2003, Alejandro González Iñárritu used her song “I’m Losing You” in his film 21 Grams. This caused a bit of flurry of interest in Sexton on the internet. Eventually, she was tracked down and performed her first concert in three decades in 2007. The following video shows her at the Baltic Soul Weekender, back in 2008. Then there was a a lot of activity in her career, but after 2010, I don’t see much. Certainly, her website hasn’t changed since that time. But it is hard to say. Like a lot of great American musicians, Sexton is more popular in the UK. So maybe she’s over there performing nonstop. Or maybe she’s retired; she did turn 65 this last February.

Regardless, enjoy this song:

Anniversary Post: Dracula

DraculaOn this day in 1897, Bram Stoker’s Dracula was first published. Vampires have always been a problem for me. Call it the caribou problem. As you may remember, the caribou of North America were starving to death because there were no predators to thin the herd. So wolves had to be reintroduced to save the caribou from their success. But imagine if every caribou killed turned into a wolf. Very soon, there would be no caribou and only wolves and then there would be no wolves because they would all starve to death. This is the kind of thing that I think about with regard to Dracula.

I’m also not that keen on the epistolary novel. Even when Stoker wrote it, it was coming to be obsolete. Really: what is the point of it anyway? It is a literary affectation that doesn’t seem to provide much of anything in exchange. But people at the time certainly seemed to like the novel (those who read it anyway). And it is still quite popular, but I think that has more to do with Bela Lugosi than Bram Stoker.

It’s hard for me not to compare Dracula with Frankenstein. And as much as it is possible to discern a theme for the mess of the former, it does not appeal to me. In an important sense, the two novels are opposites. Frankenstein presents a monster created by the society itself. The fault lies with the society that cannot deal with an outsider. Dracula presents a monster as an external contagion; the fault most definitely does not lie with the society for rejecting the outsider.

Thus, even though Dracula appeared three-quarters of a century later, its humanity had regressed. Frankenstein is a liberal — even radical — allegory of our treatment of the “other.” Dracula is a conservative allegory about how we must be fearful of the “other.” It is a story that would be welcomed by Pamela Geller and other bigots both more and less extreme. It would be welcome by them, that is, if they understood it.

Still, Dracula is a good adventure story. And if you love the British Empire and hate Romanian gypsies, well, you can hardly go wrong. That’s especially true if you don’t have anything better to do, like drink… wine?

Happy anniversary Dracula!