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Strong opinions, weakly held

Month: July 2010 (page 3 of 3)

The state of liberal economic thinking the economy

Brad DeLong captures the general line of thinking in an article for The Week, entitled Keynes & Co. have lost the stimulus argument. In it he explains why he’s pessimistic about our current economic situation, things the government can do to restore economic growth, and why the government probably isn’t going to do any of those things. Here’s his summary of the current situation:

The good news is we have avoided another Great Depression. But it seems ill-advised for Barack Obama to stand up on a Friday morning in early July and say that the economy is “headed in the right direction” (even if, as he said, “we are not headed there fast enough”) and to highlight “the sixth straight month of job growth in the private sector.” The employment-to-population ratio has been flat since November. Over the past six months–since the downturn ended–the U.S. economy has not been recovering from its near-depression, and not been putting a greater and greater portion of its potential labor force to work. Rather, it has been bumping along the bottom. There is a big difference between the economy getting “better” and the economy “no longer getting worse rapidly.”

Ultimately, I come down on Krugman/DeLong side in this debate. There are specific things the government needs to do to get the deficit under control (or, alternatively, it could just do nothing), but those are structural changes to the federal budget. In the meantime, we need economic growth.

Two companies that don’t understand identity

There are two growing identity-related controversies that I’m keeping an eye on today.

The first is ScienceBlogs’ decision to add a blog sponsored by Pepsi to its stable. ScienceBlogs publishes many highly regarded blogs, and authors there are concerned that the Pepsi blog will hurt their credibility. Just take a look at the front page of ScienceBlogs and you’ll see that most of the posts are about the new corporate blog. One blogger is abandoning his blog for now. Another says that paid content is going to cost ScienceBlogs its reputation. There are many, many more examples.

The other news that caught my eye was game company Blizzard’s decision to start publishing the real names of posters on their official forums. Blizzard makes a bunch of games that people generally play under aliases they choose. They have World of Warcraft or Diablo characters that have their own names, or handles that are used for real time strategy games like Starcraft. These names were also used on Blizzard’s community forums. Recently they launched a system called RealID that enables you to connect with friends using your real name, so that they can chat with you and see what you’re doing, regardless of which game or character you’re playing. You can even link your RealID to your Facebook account. Now they’ve decided that when you post on the company’s official forums, your real name will be displayed on your posts. This decision has set off a fit of nerd rage the likes of which have seldom been seen.

In both cases, companies have misunderstood how people regard them. I’m not sure that having a blog posted by Pepsi employees hurts the credibility of other blogs on ScienceBlogs, as long as the blog is clearly labeled as such. I don’t think any less of James Fallows because Clive Crook also has a blog at The Atlantic, for example. The big problem, as I see it, is the interaction of paid content with pseudonymous blogging. There are few things academics prize more than their integrity, and ScienceBlogs’ decision to accept paid content is perceived as a threat to the integrity of the other bloggers at ScienceBlogs. How are they to know that one of their fellow pseudonymous bloggers isn’t a corporate shill for Exxon? The problem isn’t Pepsi’s blog, per se, it’s the shadow it casts on other blogs that lack full attribution.

Blizzard’s problem is that they don’t understand that most of their customers see a bright line between “game life” and “real life.” Few people want Google searches for their name to turn up results that include them arguing with some orc on their server who killed them by surprise a couple of years ago. Many people don’t even let other players know the names of all of their characters, much less their real names. Indeed, the ability to forge a somewhat independent identity for your game persona that’s separate from your real life persona is one of the key attractions of online gaming. And yet Blizzard seems to want to turn their games into Facebook games, where not only do you play, but you also share your game activities with everyone you know. This is a serious misapprehension of their audience, and it has blown up in their face in a spectacular way. I expect that Blizzard will wind up reversing itself completely before too long.

There’s a lesson in here for these companies that’s similar to the one Facebook keeps failing to learn with all of their privacy problems — identity is a big deal, and when you start mucking with the boundaries, bad things happen.

Update: See Broken Toys for more on Blizzard’s identity issues.

Why is the government is blocking access to oily beaches?

I’ve been reading stories about the government at every level blocking access to areas affected by the oil spill pretty much since the oil spill started. Just this weekend, Duncan Davidson reported on new restrictions on journalists documenting the effects of the spill in, Should it be a Felony to Cover the Oil Spill? Glenn Greenwald rounds up news of law enforcement officers working with BP personnel to prevent journalists from covering the spill. He also notes that this pattern of behavior precedes the spill — law enforcement previously detained a freelance photographer for photographing a refinery in Texas City, Texas. The reasons why the government might not want people to see how bad it is on the Gulf coast these days are obvious, but the calculus is depressing. The government sees the costs of harassing journalists who are trying to document the spill as being lower than the costs of people seeing the effects of the spill.

Tyler Cowen on Andy Grove on American competitiveness

Tyler Cowen responds to the Andy Grove essay I linked to previously. I think Cowen, who rejects the essay wholeheartedly on economic grounds, gets the better of the argument. There’s no doubt in my mind that in the greater scheme of things, globalization is a strong positive force in the world. People in rich countries get better stuff at lower prices, and people in poor countries do gradually move up the economic ladder. The jobs in Chinese semiconductor factories may not be great compared to jobs in America, but they’re still better than peasant farming in China. However, the benefits of globalization are not evenly distributed, and if we’re going to commit to globalization as a project, we should also commit to providing a strong social safety net for people who are losing out to globalization as well.

Andy Grove on startups

Intel founder Andy Grove on startups:

Startups are a wonderful thing, but they cannot by themselves increase tech employment. Equally important is what comes after that mythical moment of creation in the garage, as technology goes from prototype to mass production. This is the phase where companies scale up. They work out design details, figure out how to make things affordably, build factories, and hire people by the thousands. Scaling is hard work but necessary to make innovation matter.

The scaling process is no longer happening in the U.S. And as long as that’s the case, plowing capital into young companies that build their factories elsewhere will continue to yield a bad return in terms of American jobs.

One case against further stimulus

If you, like me, read a lot of liberal blogs, you see people arguing every day that the best thing the government can do right now is spend more money to stimulate the economy and restore economic growth. For example, it’s become clear that the spending in the stimulus bill in 2009 has been offset fully by the contraction in government spending at other levels that resulted from falling tax revenues. And the general argument is that as long as interest rates are low for government bonds, we should take advantage and borrow money to prop up the economy. I find this argument persuasive, so I’m on the lookout for solid counterarguments.

Analyst John P. Hussman, in a long (and important) article arguing that the economy is not really in recovery and that the worst is yet to come, describes a pattern that we’re seeing right now:

From an inflation standpoint, is important to recognize the distinction between what occurs during a credit crisis and what occurs afterward. Credit strains typically create a nearly frantic demand for government liabilities that are considered default-free (even if they are subject to inflation risk). This raises the marginal utility of government liabilities relative to the marginal utility of goods and services. That’s an economist’s way of saying that interest rates drop and deflation pressures take hold. Commodity price declines are also common, which is a word of caution to investors accumulating gold here, who may experience a roller-coaster shortly. Over the short-term, very large quantities of money and government debt can be created with seemingly no ill effects. It’s typically several years after the crisis that those liabilities lose value, ultimately at a very rapid pace.

Reinhart and Rogoff continue, “Episodes of treacherously high inflation are another recurrent theme. Indeed, there is a very strong parallel between our proposition that few countries have avoided serial default on external debt and the proposition that few countries have avoided serial bouts of high inflation. Even the United States has a checkered history. Governments can default on domestic debt through high and unanticipated inflation, as the United States and many European countries famously did in the 1970’s.

“Early on across the world, the main device for defaulting on government obligations was that of debasing the content of the coinage. Modern currency presses are just a technologically advanced and more efficient approach to achieving the same end. In many important episodes, domestic debt has been a major factor in a government’s incentive to allow inflation, if not indeed the dominant one. If a global surge in banking crises indicates a likely rise in sovereign defaults, it may also signal a potential rise in the share of countries experiencing high inflation. Inflation has long been the weapon of choice in sovereign defaults on domestic debt and, where possible, on international debt.”

This is why many smart people are talking about inflation even though we’re currently experiencing deflation. On one side, we have the risk of inflation or default down the road if we keep borrowing money now. On the other side, we have the risk of a deeper, more painful recession and less economic growth down the road if we go with austerity. And we have two parties in Congress who are making decisions about what to do based on their immediate political future rather than the long term interest of the country. We are so screwed.

Our endless patience with the low road

Jim Henley on the human tendency to tolerate the failure of “low road” approaches to solving problems while we keep “high road” solutions on a tight leash:

Across a whole range of problems there’s a class of responses I’ll dub the “low road” and another class I’ll call the “high road.” Examples of the former include war, torture, sanctions and blockades, imprisonment, aversive conditioning of all types (spanking; “dominance”-based animal training). Examples of the latter include diplomacy, rapport-building, civil disobedience, the free exchange of goods and ideas, decriminalization and rehabilitation, positive conditioning (of humans and animals).

I don’t presently care to argue that there is never any “need” to go down any given low road. In some cases I may support some low roads for some purposes. Locking up murderers, for instance. In other cases – torture – I have a much easier time saying “Never go there.” But what we see over and over again is that we judge high-road approaches as failures unless they produce nigh-instant and complete favorable results, while we show nearly infinite patience for journeys down the low road.

So very true, and yet rarely commented upon.

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