Where have you read this before:
The physical economy is anemic, struggling, biased toward inflation, and shrinking in many developed countries. Almost everything we do in the physical economy is paid for with money. We use dollars to measure most of the activity. If more dollars are spent or earned, we conclude that the economy is growing.
The virtual economy is robust, biased toward deflation, and growing at staggering rates, everywhere. A lot of the services provided to us in the virtual economy are free. If we paid dollars for those services, they would be counted as part of the GDP and would add to economic growth. But we don’t so they are not counted.
Using the virtual economy in place of the physical economy enables consumers to save lots of money. For example, consumers can substitute Google News for their newspaper. The cost of a USA Today subscription is $275. His earnings will look the same, but he has more money at his disposal and more or less the same consumption. Essentially, he is earning more, but neither his income nor GDP will show it.
Bill Davidow, in an article at The Atlantic, has touched one of the fundamental problems complicating our efforts to adapt to a post-Cold War world. Our metrics don’t work.
The vast, accelerating revolution in information technology has produced improvements in our lifestyles which, while impressive, are also radically deflationary. When millions of people shift to buying cheaper ebooks instead of traditional print books they create exciting new markets with new opportunities for authors to bypass literary gatekeepers and reach a new audience. They also create a giant hole in economic output by traditional measures.
As I’ve pointed out before, a new car bought this year typically costs slightly less in inflation-adjusted terms than it did thirty years ago. That vehicle has a slew of features from safety measures to a Bluetooth phone connection that didn’t even exist back then, but that lower price results in a drop in measured output. We can expect to see a similar dynamic in healthcare as higher rates of insurance coverage begin driving down medical costs. We are experiencing a revolution in the economic value available to everyone, sometimes free, that shows up in our economic metrics as declining output.
Economists have been mulling this problem for a while, but it will be tough to fix it. Economics as a discipline has biases built into its foundations that feed this distorted understanding of value. Until we devise an alternative, GDP will be yet another example of the ways that Economics is failing us.
Chris Ladd is a Texan living in the Chicago area. He has been involved in grassroots Republican politics for most of his life. He was a Republican precinct committeeman in suburban Chicago until he resigned from the party and his position after the 2016 Republican Convention. He can be reached at gopliferchicago at gmail dot com.
GOPLifer 
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This topic is all well and good, but I think we should spend a bit more time and energy talking more about abortion, gay marriage, and race.
If I knew how to make a smiley face, I would!
Much love everybody. Have a good Friday, and y’all have a fun weekend.
Yes, I agree. Time to RACE to be with the new baby and have a GAY old time. ABORT any plans you might have had to waste any more time with us.
I have enjoyed reading the exchange on this topic, and have learned a thing or two, thank you all.
Grilled tuna steaks last night brushed with olive oil, Itailian seasoning and garlic salt ( out of lemon pepper) . Tonight will be sword fish steaks with fresh sautéed veggies and a salad from out of the garden .
Did you eat her fish again? Texan, you and I are going to have to have words. 🙂
Texan, this is for you:
http://nyti.ms/1mEQ0rU
Smiley face many times over, thank you Tutt. Darn it now I need to hit the store for some fruit.
Bart, actually the items you mentioned are included in our inflation statistics. The components of the consumer price index are listed here: http://www.bls.gov/dolfaq/bls_ques3.htm.
Volatility in food and fuel, for example, tend to be averaged out. They are removed entirely from the measure of “core inflation” because over time they tend to be fairly static, though they vary wildly on almost a day by day basis.
There’s an interesting nugget in your comment though. The only place where we are seeing consistent price increases (apart from human resources – teachers, doctors, other skilled professionals) is in capital markets. Basically, anything which can be commoditized into a tradable financial asset has been climbing in value since the ’90’s.
I’ve been meaning to write about this, but it’s complex and I’m not yet confident I can get a handle on it. Seems like our efforts at monetary stimulus over the past 20 years, while it has failed to deliver “inflation” in the ways we traditionally measure it, is priming financial markets into increasingly damaging cycles of boom and bust.
It’s a little strange from an economics perspective and I think that this “capital inflation” accounts for the phenomenon that Thomas Piketty recently wrote about. What he failed to appreciate, by assuming that he was just looking at expanding inequality, is that all such cycles have a bust cycle to accompany their booms. It’s not that the rich are getting so much richer, but that the rich are the only real participants (apart from homeowners) in this cycle of capital inflation.
By golly, Chris, you’re right!
I just got a bonus check for producing leads for the sales department.
Only physical object involved was the computer.
Everything else involved was twitteresque, conceptual, blog-ish, hyper-mediated, rhetorical and ideated.
Am I the only writer in the world who gets quarterly feedback on the effectiveness of my words?
Yahoo! — it’s Friday!
I don’t know…most folks here get plenty of daily feedback for their writing here.
You are so right. I like that mine comes with $, tho.
I’m pretty sure that Soros sends Buzz and Stern and me a check every month.
(Much love guys!)
Homer, it’s late this month.
Bobo, isn’t what you do akin to PR and advertising, involving brainstorming and reading outside sources, studying trends, and discussions with colleagues, expending mental energy? I don’t see how much has changed except for the tools used. Or do you work from home?
You can still be mental and virtual with pen and paper.
Writing is still writing.
Or maybe I have misunderstood you.
Hi, Tutt.
It’s marketing, a little understood sport.
And yes, it’s writing, for a variety of different intents and uses.
Like you, I feel it’s the tools and terminology that change, meaningful communication is still the game.
Bobo – I know that posting comments on blogs and such has expanded my horizons and put me in contact with people I would not have otherwise interacted with, and I have learned a lot, not just about politics, but about things that in general have made me a better-educated, well-rounded employee and individual overall.
Davidow is entirely correct; we are far, far better off than our parents, let alone our more distant ancestors. My truck is ten years old, has hundreds of thousands of mile on it, and is still running strong. It gets twice the gas mileage of the first truck I owned, generates far less pollution, and far outclasses that old truck in terms of power, comfort, safety, ease of maintenance, and reliability, as well. The materials science, manufacturing technology and engineering skill that are embodied in my current truck are so far advanced beyond my 1968 C-10 Chevy as to make it almost another species. And this is true of basically *every* manufactured article I own. It’s amazing.
It’s also worth noting that even things as mundane as tax law affect our ability to measure GDP, as pointed out by Alan Reynolds: http://online.wsj.com/articles/alan-reynolds-why-pikettys-wealth-data-are-worthless-1404945590
Tracy, I don’t subscribe to the *Wall Street Journal*, and that article is behind a paywall. Perhaps you could summarize?
Sorry about that, Owl. Here’s the gist:
“…federal tax laws in 1981, 1986, 1997 and 2003 momentously changed (1) the rules about which sorts of capital income have to be reported, (2) the tax incentives to report business income on individual rather than corporate tax forms, and (3) the tax incentives for high-income taxpayers to respond to lower tax rates on capital gains and dividends by realizing more capital gains and holding more dividend-paying stocks.”
Basically, much capital income in the 1% crowd previously went unreported, and now gets reported (muni bond interest, for example). Conversely, much middle class capital income is now directed to tax deferred and/or tax exempt accounts, and is essentially invisible until gradually withdrawn at retirement. (Accumulated wealth in such accounts now totals $12+ trillion). So, “Using reported capital income to estimate changing wealth patterns is hopeless.”
Similarly, many small business owners have moved from C-corps to S-corps, LLCs and LLPs; all that income is now reported on individual returns rather than corporate returns. “Moving capital income from one tax form to another did not mean the wealth of the top 1% increased. It simply moved.” (This is kinda interesting to me; my company is still organized as a C-corp due to ownership structure considerations. Some of our competitors organized as S-corps are probably ruing recent rate increases for the top income brackets.)
Finally, “There were huge, sustained increases in reported capital gains among the top 1% after the capital-gains tax was reduced to 20% from 28% in 1997, and when it was further reduced to 15% in 2003. Although more frequent asset sales showed up as an increase in capital income, realized gains are no more valuable than unrealized gains so realization of gains tells us almost nothing about wealth. Similarly, a portfolio shift from municipal bonds, coins or cash into dividend-paying stocks after the tax on dividends fell to 15% in 2003 might look like more capital income when it was merely swapping an untaxed asset for a taxable one.”
Reynolds was debunking Piketty (which at this stage amounts to gratuitous piling on; even Piketty is discounting his own published numbers), but the article indirectly points out that the middle class is indeed perhaps richer than the demagoguery would lead one to believe.
BTW, I thought all civilized persons subscribe to the NYT, the WSJ, the Atlantic, the National Review, and listen to NPR. WTH?
Thanks. I have to chew on that for a bit.
To be in the ‘Top 1 Percent” means you have a net worth of 8 million dollars. No telling what that number is to be in the ‘Top .01 Percent’, but it dwarves the remainder of the 10 percent. You do note that these ‘assets’ we have of cars, televisions and other fancy electronic items are only subject to depreciation, other than homes and collectibles, they don’t acquire more value than when they were purchased.
Crogged, in indirect answer to your question, wealth distribution follows a power (Pareto) law rule, i.e. the old 80/20 rule. Note that power laws are fractal in nature, viz. self similar at any scale. This means that the 80/20 law holds for any given sample of the wealth distribution curve. Put in blunt terms, the top 20% controls 80% of total wealth. But if you look at the top 20%, the top quintile of that group (the top 4% overall) controls 80% of that group’s wealth. Similarly with the top quintile (the top 0.8% overall) of that group. And so on, and so on. In other words, the top 0.1% is astronomically wealthy.
Note that the power law wealth distribution curve manifests no matter how brutally you apply redstributive policy; it applies in the USSR and China just as much as it applies here. Given that, it strikes me that maintaining economic mobility is far more important that trying to enforce egalitarianism (which history shows amounts to tilting at windmills). Although we have some problems with economic mobility, we are actually still in very good shape in that respect. Just ask Mark Zuckerberg. In the same vein, the Fords and many other inheritors of the last century’s wealth, while still wealthy by any measure, simply do not compare to today’s wealth titans. Churn of position in the wealth distribution curve is what we should shoot for.
As for “assets,” neither Reynolds, nor Piketty, nor I are discussing depreciable assets. In the comments about my truck I was merely pointing out how much more bang for the buck we get today than 40 years ago. Although, come to think of it, if I can drive my truck for 10 or 15 years instead of 5, that frees up money for more useful purposes that would otherwise have been spent on transportation. So there you go.
We may be getting more for our money, but there must be a way to measure the decrease in value of goods resulting from the sheer volume of goods produced, and cheaply, to the point that they become immediately disposable and devalued in society’s eyes once the new greatest gadget comes along. How do you measure exponential devaluation and disposibility on a grand scale?
Very good point Tutt. With all the innovation coming at us at hyperspeed it leaves behind tons of waste all because we can receive a message 1 second faster or a picture with more pixels. The sad part is there seems to be no end in sight.
Maybe some great inventor will work out a plan to use the tons of digital junk we throw out every year.
As for technology opening up for the creative arts, I am all for. There was a time not long ago that a select few editors will pick a book to publish or a producer will decide what band or singer will have studio time and produce a CD. Fortunately that does give consumers a greater choice.
Unlike Captain, I am a Kindle fan. I not only read alot of books but I feel good knowing trees aren’t being cut down for my books.
Another advent is banking. I can’t remember the last time my wife and I entered a bank. We do it all online. Fast. That does effect banks employees though. My bank closed their drive thru.
I think as a country, where we will lag something will come along to pull us through.
Buzz…I go back and forth on books versus something electronic. With air travel, having an electronic version is much easier, but there is nothing like holding a real hard-cover book.
I rarely travel down “oh no, big brother” paths, but there is something just a tiny bit disconcerting about electronic books. While not so much an issue now, as more and more books are electronic and fewer and fewer people have hard copies, the ability to make books/information simply disappear gets more pronounced.
Amazon can delete all of your books from your kindle. You don’t “own” the book. You paid for access to the book.
After Obama ignores the constitution and is into his fourth term, is it really hard to believe that he would have control of electronic print media and start deleting books contrary to his vision of the country?
I’m being a little factitious here, but in the back of my head, there is a little nagging feeling that I don’t like that someone could delete my access to electronic books.
Homer, the biggest obstacle I faced when going Kindle was I too like the feel and smell of books. But I quickly adjusted and in fact lying in bed reading only takes one hand which is cool.
As far a keeping the books, it depends. Reference books and the like I still get in book form. But novels, biographies and history books I do Kindle. Saves me the trip to Katy’s Used Books every quarter.
Is *three* Kindles too many? Perhaps I need Kindle-aholics anonymous…
My beloved, on the other hand, reads her poetry the old fashioned way. Sometimes stick my nose into her books just for that good ol’ book smell. 😉
Kabuzz, I prefer the feel, fragrance, and dignity of used, vintage, hardcover books, but I’m of a certain age, my eyes are shot, and I’ve been unable to get a decent pair of glasses. After much experimentation with several e-readers, I’ve settled on my Nook HD 7″ with a background of just the perfect shade of grey and clear, crisp white letters for my eyes. I am enthralled with my Nook, which is beautiful and pleasing to the eye, but with the luxury of so many options, I can move easily from the Nook to print books to audiobooks, which I also love.
Traacy, I am on my third Kindle myself. The Fire. I use my two older ones for books and the Fire for music, movies and such.
Tutt, my Kindle will actually read the book to me by just setting the right buttons. You can also adjust the text size and font.
“How do you measure exponential devaluation and disposibility on a grand scale?”
By acknowledging and incorporating “externalities” into your economic policies. You can require companies to take back and dispose of old computers, for example, or pass regulations to address how much toxic material goes into potential electronic waste. Bottle deposits, curb-side recycling programs, and the like all can help.
Of course, that requires acknowledging that the bugaboo of “regulation” has some use, even if it occasionally impedes business in favor of society, and that’s heresy to most modern Republican ears, to the detriment of all of us.
Some interesting points there, but I think it is overlooking an important one, free TV. We had free TV or genertions, it was paid for by the networks selling advertising. It is much the same with free news sites, like Google News or even Chron.com. They are loaded with advertising, so in a way even that is following traditional methods. A person in the past could avoid paying for a subscription and get the news from free TV, including world news, national news and local news.
I think the most important point of expanding technology is in allowing for people to have access to more information and for regular people to participate, information is no longer controlled by the few and fed to the masses, or hiddden from the masses.
The ebook example is a perfect fit for that, as are blogs like yours. What would it have taken to get a book published 20 or 30 years ago vs now where a person can write and publish a book and it can be sold one at a tme instead of being printed in quantity and shipped out? Granted, I still go with physical books myself, but with something like Kindle a person can carry an entire library around in their pocket.
Anyway, are we richer than we tink? Yes, absolutely and most especially here in the U.S..
TV was never “free”: from the beginning it had the “entrance price” of a receiver and the electricity to run it, plus probably a home secure enough in which to keep it. And that’s still true: broadcast TV has not gone away, despite your puzzling use of the past tense (“had”). Of course, receivers are cheaper than they’ve ever been, but that still doesn’t mean everyone has one, either.
A computer also represents an “entrance price”, and requires more skill to use and maintain than a TV — a skill picked up quickly by children, but not so easily by the elderly, for example.
The glut of information is useful, but can result in paralysis from “the paradox of choice”, or in self-imposed blinders as someone confines herself to a carefully curated collection of convenient and unchallenging information, as we see with many of the appeals to CNS or other right-wing sites from haplessly closed-off conservative posters here. That kind of epistemological closure was much harder to pull off in the days of scarcity-based broadcasting rather than choice-based “narrow-casting”.
And I’m all for the power of digital self-publishing — a cousin has done fairly well for herself at writing fairly smutty steampunk romance novels, hardly a huge market niche for traditional publishers — but it just widens, and vastly so, the arena on which Sturgeon’s Law operates, and makes it all he more vital to find guides and gatekeepers to act as filters.
Well, yeah, free was probably the wrong word to use. And we do see the left refusing to accept any news or views that go against their preconcieved ideas and agenda, so having access to more information doesn’t mean the left will ever make use of it.
Then again, since it does cost money, the left wants our speech restricted. That’s why they oppose the Citizens United ruling.
“Well, yeah, free was probably the wrong word to use.”
Yes, it rather was, and shows the sort of blind, unacknowledged privilege in which you usually swim, Sternn.
Meanwhile, in a world where studies show FOX News viewers are actually *less* well-informed than those who consume *no* broadcast media, I find your mewling about widespread left-wing closure to be amusing, and one of your usual Rovian reversals.
Money is not speech, and speech is not money. This is obvious to most honest, thoughtful adults, which is probably why you have trouble with the concept.
I wouldn’t know since I don’t watch FoxNews.
Money buys the bullhorn to amplify the speech, more money buys a bigger bullhorn. I do not believe the government has or even should have the authority to restrict our free speech just because we spend the money on a computer, electricity and an internet connection.
So, Sternn, you don’t believe the government has the right to regulate, say, commercial telephone telemarketing (a la “Bridget from Card Services”), or email spam, or billboard advertising, or weight-loss formulations with exorbitant (and false) claims? After all, those all represent “freedom of speech” as well.
OF COURSE the government can restrict some aspects of free speech. It does so all the time, except in the fool’s paradise that you apparently inhabit.
I agree with Owl about the dangers of information overload. I get to the point where I just prefer to shut it all off.
Different levels of government, Owl. Houston can regulate billboards, though it doesn’t seem to be doing much of that. Other cities have height restrictions, and harmful speech, such as slander, libel or yelling fire in a crowded theater just to cause harm can be legislated against. But that isn’t what the Citizens United ruling covers, that is all about political speech. Back around 2004 many politicians wanted to shut down things like Lifer’s blog.
I would actually prefer to be in an information vacuum.
Money is used to support a cause or to boycot a business you disagree with. So money definitely has a voice.
Now the dunderhead democrats in the Senate are trying to modify the 1st amendment. They won’t be successful but just the thought should scare everyone.
I haven’t watched Fox News in two years. It seems only the Silly Bird and other liberals do.
So, Sternn, you’ve addressed *one* of my points, perhaps because that’s the only one that fits into your childishly simplistic hierarchy of government functions.
What about commercial telephone telemarketing (a la “Bridget from Card Services”), or email spam, or weight-loss formulations with exorbitant (and false) claims? None of those are “harmful”, at least not in the fatuously roundabout way in which you usually attempt to reason.
Meanwhile, many people believe that the current state of campaign-finance regulation allows or even encourages speech harmful to our elections, our democracy, and, thus, our nation.
False advertising over the internet, over the television or over the telephone is almost certainly under the purview of the federal government. These are all interstate forms of communication and speech.
Owl, basically what 75 said, interste and international commerce. Or the state would have the power to regulate intrastate commerce.
So, in other words, you don’t actually have anything to say on the topic, and are attempting, as usual, to skate out from yet another explosion of your ridiculous beliefs.
Gotcha. I accept your surrender.
By the way, kabuzz, two “t”s in “boycott”. I suspect you and he would have got along quite well; you and Sternn seem determined to drive us back toward that kind of world.
Looks like it is over your head, Owl. That’s alright, we understand.
Keep hiding your inadequacy from yourself, child.
So you concede that the federal government has the right to regulate free speech in these areas (and other areas where interstate commerce or instate communication is involved).
Yes, 75, the federal government has the constitutional authority or power to regulate commerce between to nations, among the several states and with the Indian Tribes. As advertising and marketing are part of said commerce the federal government can and should regulate it. Intrastate commerce, or things that are not commerce, are different matters.
Cap, no FoxNews? Two words, my friend: Megyn Kelley. They don’t call it “Fox” News for nothing. As Jonah Goldberg recently put it, “Yes, Megyn Kelley is terribly distracted by my stunning good looks. Oh wait, it’s the other way around.”
Here’s the secret to watching “news” of any sort: Turn the sound off, do your own soundtrack, and/or turn it into a drinking game based on visual cues. 😉
I couldn’t watch Fox News even if I wanted to. I don’t have cable TV.
Anyway, I get my news from the good-looking guy in the Superman Suit (with a capital S).
If money is really speech, then isn’t just about any form of commerce really a constitutionally protected conversation?
Of course, we don’t actually believe it to be so. Unless you’re Sternn, who’s blissfully untroubled by any actual thought about such things.
Captain, the Silly Bird is obsessed with you. Don’t feed the birds man.
Thank you my dear and beautiful lady.
Owl, congress has the power to regulate commerce between the nations, among the several states and with Indian Tribes. Marketing and advertising that crosses state lines, international borders and with Indian tribes is a form of commerce. The constityution does not say that congress has the power to regulate free speech at any level.
I understand, this is over your head. Your surrender is not required, you have simply been defeated. No go forth and have a nice day anyway.
I thought globally countries were wealthier than ever from your May 12th thread? It is interesting that the danger of inflation is apparently being countered by deflationary virtual economic factors. It is just a matter of time that the real inflation occurring in unmeasured items like housing, healthcare, gas, and food costs (you know the things which make up the majority of average Americans spend their incomes on) make the exploding income disparity gap unmanageable. Well, at least those heavily invested in the market will be fine (or maybe not according to Dallas Fed Chairman Fisher). Maybe OWS was on to something after all. http://www.reuters.com/article/2014/03/06/us-usa-fed-fisher-idUSBREA2500N20140306
From Bart’s article: “As for the United States, he repeated criticisms that the government has failed to take advantage of the five years of easy Fed money, missing its opportunity to restructure debt and to reform entitlements….”
Unfortunately, that would require actual, thoughtful action from Congress, most particularly the House… which is currently dominated by a modern-day Know-Nothing Party addicted to lurid conspiracy theories, a rejection of the very idea of federal government, and a prioritization on point-scoring over actual policy-making. The small-state, rural voters who allow the Republicans a national stage are hardly interested or equipped (particularly when drowning in a seething right-wing media stew) to deal capably with national issues.
Owl, you do realize your partisan rant completely overlooks that the Republicans haven’t had control for all 5 years don’t you? Where is the finger pointing to the years that the Dems had complete control of BOTH houses and the Executive branch