Economists Do It With Models

Warning: “graphic” content…

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Fun With The Economics Of Copyright, Kanye West Edition…

April 21st, 2015 · No Comments
Music Biz · Policy

Hey, remember this?

I post this not because I am dreaming of quitting my job (or, more accurately, one of my million or so jobs), but because guess who got a subscription to Nielsen SoundScan? That’s right- this nerd. Basically, what this means is that I can look up physical and digital sales by week for just about any audio track, single, or album. You know you’re jealous, and suggestions for how I can do research with this are most certainly welcome. (I do have a current project that I am using the data for, so I didn’t entirely just get it for shits and giggles.) At the time this video was posted on YouTube, there were a number of news reports that pointed out that the song used- “Gone” by Kanye West- hit the Billboard Hot 100 for the first time shortly after the release of the video, despite having been released all the way back in 2005. That’s interesting and all, but we can take it a step further and see what that means for the trajectory of (digital) sales:

Well then…that’s not exactly what I would call a subtle effect. It’s interesting to me that the effect is not only so immediate but also so ephemeral. (For context, the video was posted on September 28, 2013.) Looking at the graph at a different scale, however, gives a bit of a different interpretation:

Looking at this closer view, it does seem like there was a bit of a sustained impact, and, looking at the raw numbers (which I can’t show you), sales in 2013 had averaged about 75 per week prior to the release of the video, and sales for the last year (i.e. April 2014-April 2015) averaged a little over 100 per week. This makes intuitive sense, both because people continue to view the video even though it’s not as popular as it was in October 2013 and also because the initial spike in sales likely led to people playing the song in front of other people, setting off a bit of a chain reaction in terms of recognition and, as a follow on, sales. (Never underestimate the power of the mere-exposure effect!)

This analysis is important not only for the purposes of interesting cocktail party conversation (though such benefits shouldn’t be dismissed entirely) but also because it leads to a conversation about the economics of copyright law and raises some questions as to whether current legislation is actually maximizing value for the creators and consumers of recorded music. At present, copyright law is basically of the “use my stuff, get sued” form unless said use falls under what is known as fair use doctrine. The “correct” way to use a recording in a video is to get a sync license, which, if you follow that link you will see is not the least complicated or expensive of processes. (Fun fact: songs have two copyrights, one for the recording and one for the composition, so someone who wants to use the recording has two potentially distinct creators to deal with.) In all likelihood, therefore, it’s unlikely that the creator of the video would have gone through this channel and done things “right,”* so the video creator has the option of either acting illegally and risking punishment or not using the song. In a world where Kanye West (and his label) benefits from the use of the song, his incentives are not aligned with those of copyright law in this situation.

Copyright law, as written, applies well to situations where, let’s say, I make and sell photocopies of Greg Mankiw’s favorite textbook. In this case, my activity almost definitely takes away from Greg’s profit, and, more importantly from an efficiency perspective, decreases Greg’s incentive to come out with new editions of his book. In contrast, copyright law doesn’t work so well from an efficiency standpoint when the use of a copyrighted work benefits both the user and the creator. In these cases, it’s not clear in which direction, if any, payment should go, since, for example, it would both make sense for the video creator to pay Kanye West but also for Kanye West to pay the video creator in order to get his music placed and reap the sales benefits. If the goal is to create incentives to produce, the direction of payment should be towards the party who needs more of a kick in the pants to keep creating output (i.e. has higher elasticity of output), and more research would need to be done in order to figure out which party this is.

The problem gets even more complicated when you consider that it’s not clear when use of a copyrighted work is beneficial to the copyright holder and when it’s detrimental. Given the number of counterintuitive outcomes we see, it’s important to conduct the proper research in order to gain objective insight into the matter.

tl;dr: The music business is a lot harder than you’d think.

* If you look at the YouTube page for the video, you will notice that the YouTube system provides a place for the content creator to give credit for the music used. In addition, YouTube enables the music copyright holders to scan videos for their content and collect ad revenue from such content. This is a step in the right direction but is still suboptimal if it turns all revenue from the video over to the creator of the background music.

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Some Weekend Mocking Of Economist Stereotypes For Your Viewing Pleasure…

April 10th, 2015 · No Comments
Just For Fun

The release of the latest FOMC minutes reminds me that this needs to exist:

I suppose for now some text commentary will have to do. In case you haven’t noticed, Dilbert has been pretty on point as of late:

Pretty sure the Fed doesn’t have bitcoin on its balance sheet, but the statement is closer to reasonable than you might expect. Also, in one interpretation of the words, the dollar *does* float with LIBOR, since LIBOR moves with U.S. short-term interest rates and interest rates affect exchange rates. (Yep, I can ruin ANY joke, muahahahaha) In related news, I have got to use this principle more strategically.

Ok fine, I can’t make a sensical argument for that one, but what I *can* say is that if you decide that someone must be smart because you can’t understand them, you are at least part of the problem. Wally’s just responding to incentives.

Maybe Wally would actually be a good economist, since he seems to understand that there is value in scarcity. (Then again, so does the Kardashian family.) Pointy-haired boss is definitely part of the problem, but it’s worth pointing out that you can’t conclude that something doesn’t make sense just because you don’t understand it.

I wish my students were like this. =P

I’m convinced that this actually happens, though not for this reason.

I’m pretty sure that there are a decent number of people who think this is why Nouriel Roubini is a thing.

Good thing the Nobel Prize comes with cash. =P Overall, I am torn in my opinion as to whether economists care more or less about money than non-economists.


Or, in case you prefer your mocking of stereotypes in video form, there’s this:

Suggestions welcome for how to do better than this. :)

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The Dystopian Nightmare Stories Continue, Robert Reich Edition…

March 20th, 2015 · 5 Comments
Income Distribution

Here, fixed that for you…

I’ve written about this supposed dystopian nightmare before- the real problem isn’t that we can create a lot of stuff without taking up a lot of people’s time (that in itself sounds lovely, right?), the problem is that we as a society don’t know how to efficiently allocate resources without the price system, and, more importantly, we can’t seem to conceive of a mechanism for getting the inputs to that price system (i.e. dollars) to people that doesn’t involve trading said dollars for worker effort (i.e. labor). I’m not entirely convinced that we’re getting to the dire point of labor obsolescence any time soon (see here for some evidence of what ATMs have done to bank tellers, for instance), but I do think that we need to start getting potential solutions out into the public consciousness well ahead of time, since social norms and attitudes don’t change overnight (looking at you, gay marriage).

It’s worth noting that my statements aren’t a criticism of Reich himself except in that he appears to have taken up the journalistic hobby of burying the lede by putting this part at the end:

Our underlying problem won’t be the number of jobs. It will be – it already is — the allocation of income and wealth.

What to do?

“Redistribution” has become a bad word.

But the economy toward which we’re hurtling — in which more and more is generated by fewer and fewer people who reap almost all the rewards, leaving the rest of us without enough purchasing power – can’t function.

It may be that a redistribution of income and wealth from the rich owners of breakthrough technologies to the rest of us becomes the only means of making the future economy work.

I get the sense that people like Reich believe that the public will pay more attention if they are presented with the dystopian nightmare view of the situation- they may be right, but I’m curious as to how a “the world will be so awesome except for this distribution problem that we need to figure out” marketing angle would play instead. In any case, we do need to start thinking about a mindset change, since otherwise we run the risk of being that society that has people do busy work so that we have an excuse to give them money. We all know how much we “love” that at our jobs nowadays, so how about we start considering some alternatives, hm?

P.S. I definitely feel that some Player Piano fan fiction is in order here. Let’s get on that, shall we?

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On Room For Creativity In Monetary Policy?

March 16th, 2015 · 2 Comments
Macroeconomics · Policy

I can’t decide whether this is more or less ridiculous than negative interest rates for dealing with a liquidity trap…

(One nitpick: Technically, savings is what funds investment, so it doesn’t generally make sense to think that they move in opposite directions as suggested above. That said, if you define “saving” as putting money in banks or government securities and “investment” as private-sector investment, then the statement is pretty reasonable.) On a practical level, however, this can only work if people don’t recognize Janet Yellen, since they need to get scared and run away rather than be all “OMG it’s Janet Yellen, you’re so cool, can I take a selfie with you?” Fortunately (in this context and probably no other), Yellen’s celebrity doesn’t appear to be a limiting factor:

The survey showed 70% of those polled don’t know or aren’t sure who Ms. Yellen is. In contrast, just 1% had never heard of former president George W. Bush.

When it comes to the Federal Reserve as an institution, 42% said they had a neutral view, while 30% had a somewhat or very positive view and 20% had a somewhat or very negative view. Just 8% didn’t know the name or weren’t sure what it was.

Yellen shouldn’t take it entirely personally, though, since, as of last year, one in six Americans thinks that Alan Greenspan is still in charge of the Fed. Yellen and Bernanke need to go commiserate over some cocktails- and Yellen should pick up the tab since Yellen’s a millionaire and Bernanke couldn’t refinance his mortgage. =P

→ 2 CommentsTags: Macroeconomics · Policy

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Adventures In Bad Journalism, Seasonal Adjustment Edition…

March 13th, 2015 · 1 Comment
Fun With Data · Macroeconomics

I didn’t entirely believe that Justin was serious the first time I read this:

Because really, what? You’re probably not shocked that I went down the rabbit hole of looking for the original article…and yup, there it is, plain as day:

It is useful for policy-making purposes to adjust monthly data to an expected annual rate. But the current method needs to be updated and based on something other than the weather.

Somewhere in this process I managed to get into a Twitter spat with Phil Izzo, who defended his employer (the WSJ) by pointing out that the article was written by a Harvard Business School professor and not one of the journal’s journalists. (For the record, I generally think that Phil is a good dude.) What started this was a comment that I made about how journalists should have subject matter expertise, so I responded by pointing out that editors are journalists too. I don’t care if something is in the “opinion” section or not, it’s gotta be vetted for the crazy sauce. In this case, even the author’s job title wasn’t vetted, since he’s been retired for a while as far as I can tell. (Emeritus, people, come on.) Otherwise, people get mislead by the parts of the “opinion” pieces that aren’t actually opinions, and five thirty eight has to spend its time trying to combat the absurdity:

This is so wrong that it’s hard to know where to begin. First, seasonal adjustment isn’t entirely, or even primarily, about the weather. It’s about accounting for recurring patterns, whatever they may be. Tax preparation firms hire lots of people every spring and then lay them off after April 15. Landscaping firms employ far more people in the summer than in the winter. Automakers shut down their factories each summer to change over to the new model year.

But Mills doesn’t make that argument. Instead, he writes: “The [Bureau of Labor Statistics] should report both seasonally adjusted and actual figures each month.” But of course, the BLS already does this — which Mills knows, because that’s where he gets his “2.7 million jobs” figure from the first paragraph of his story.

I figured I should do my part too, so I answered in the form of a video about the jobs report and a very simple seasonal adjustment example, and some fun new visual tricks:

I think I kind of like looking like I’m trapped in numbers jail.

Update: I’m not the only one on the case…

→ 1 CommentTags: Fun With Data · Macroeconomics

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It’s Funny Because It’s True, Infrastructure Edition…

March 10th, 2015 · No Comments

Pop quiz: What do Larry Summers and John Oliver have in common? Are they both British? No…Are they both funny? Not intentionally…Do they both make awkward statements about women? Actually, I’m not sure, but I hope not…Are they both actively advocating for infrastructure spending? Ding ding ding!

First, Summers:

Larry Summers recently said something startling: “At this moment . . . the share of public investment in GDP, adjusting for depreciation, so that’s net share, is zero. Zero. We’re not net investing at all, nor is Western Europe,” he told a Princeton University audience.

In other words, total federal, state, and local government investment is enough to cover only the amount of wear and tear on bridges, roads, airports, rails, and pipes. “Can that possibly make sense?” asked the former Treasury secretary, who has been campaigning for more government spending on infrastructure.

Well, technically it could make sense- if spending were such that everything was being maintained properly but new infrastructure wasn’t being built, then at least it would be true that things aren’t getting worse. What we see instead, however, is that there are structures that are actively in disrepair and without the funding to return them to their former (lack of) glory. Summers’ argument is that increased debt burdens are bad for future generations, but so is crappy infrastructure, and he asserts that low-interest-rate environments (like we currently have) are a relatively good time to borrow to undertake such projects.

Overall, I agree- as long as we’re not talking about “that weird old bridge that no one uses anyway” or something like that, then infrastructure at the very least needs to be maintained properly. In terms of leaving burdens for future generations, maintaining now is particularly important in cases where letting structures depreciate makes them disproportionately more expensive to fix later. (You know, in the same way that paying for healthy food now is cheaper than paying for diabetes later.) That said, I’m a little frustrated that people just now seem to be getting on the infrastructure bandwagon, since you know when’s an even better time to undertake infrastructure projects? When you have a bunch of unemployed people sitting on the couch- it’s more efficient to pull people off the couch to repair bridges than it is to pull them from other productive work. (This isn’t even a Keynesian stimulus argument, just an opportunity cost one.)

I get it, infrastructure is easy to take for granted- it’s just always there and passive, like that old boyfr…er, pair of slippers. We don’t pay for it directly or use it exclusively, so thinking about its upkeep is far more abstract than contemplating condo renovations or whatnot. It’s important to keep in mind, however, that we have the luxury of taking infrastructure for granted only because past generations made it a priority to put it there, so it’snot really feasible to take it for granted forever. And believe me, you notice when it’s not there, whether it be potholes in roads, construction projects that get in the way and take way too much time, poorly functioning public transport (can you tell I live in Boston?)…or, you know, this:

If that didn’t get your attention, I don’t know what will…except perhaps this, featuring Ed Norton:

I would like to think that we’re not children and therefore don’t need things to be sexy in order to pay attention, but one glance at my site’s name would suggest that I’m more cynical than that.

In related news, I got a care package from John Oliver’s show that included a magic 8-ball that knows more about me than I think I am comfortable with:

There was also a USB drive include in the package, and of course the drive had a video on it…in the video, Oliver puts Meryl Streep and Thomas Piketty in the outer “neither” space of the “has an active social media presence” and “watches Last Week Tonight”- while the empirical evidence regarding Piketty is in Oliver’s favor on the social media front, I really want to think that Piketty sits on the couch with his…well, French Cheetos (Les Cheez Doodles?) and Ben & Jerry’s (Francois & Pierre’s?) and watches all of the parody news shows to see how often they mention him. (for the record, that is not a judgment on you, Tommy boy, but I will judge your book’s social media team for giving up after four tweets…FOUR. I think my cat has tweeted more than that by walking on the keyboard.)

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