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The Stupidest Thing I Have Watched Today, iPad Edition…

April 20th, 2011 · 18 Comments

From Gawker:

If you ever doubted that our politicians really know nothing about economics, you must watch this video from Rep. Jesse Jackson Jr (D-IL) who blasts Apple and Steve Jobs for killing American jobs with the iPad.

It’s simple: Because everyone can download books and newspapers, everyone who works at bookstores (he notes Borders going out of business) or the publishing industry, or for textbooks, will lose their jobs to the people making iPads in China.

Or if you prefer to hear it firsthand:

Sigh. The thing that frustrates me the most here is that arguments like this aren’t even examples of not knowing economics, they are examples of a lack of general reasoning ability. Let’s walk through the logic:

  • The manufacturing of the iPad in China creates jobs for people in China rather than in the U.S. This is true, as far as I know. (+1 for Jackson)
  • The existence of the iPad takes away jobs from people in bookstores and in publishing. Since the iPad is a substitute for hard-copy books to some degree, the existence of the iPad reduces the demand for books, which reduces the production books and therefore employment of those making and selling books. (+1 for Jackson)
  • That said, what jobs actually go away? I mean, books still exist, they are just migrating to a different format. Therefore, it’s not like authors or publishers actually get laid off, and it stands to reason that the loss in employment is mainly limited to those physically producing the books and working in the bookstores. On that note, are books even manufactured in the U.S.? Inquiring minds want to know. (-0.5 for Jackson)
  • When making any sort of normative argument, it is necessary to consider both the benefits and costs of an event. Jackson seems to have only focused on one of these sides and therefore comes to what is likely an incorrect conclusion. On the benefit side:
  • U.S. employment goes up for those who are involved in selling the iPad. This includes all U.S. research and development people, designers, marketers, PR people, Apple store employees, etc. If the iPad causes all of the defunct Borders to become Apple stores, for example, it should be pretty clear that the iPad isn’t causing U.S. employment to go to hell in a handbasket (or a leather iPad case, for that matter). (-1 for Jackson)
  • U.S. employment goes up for those citizens involved in making products that are complements to the iPad. (My personal favorite in this category is this keyboard case.) This is because the existence of the iPad increases demand for complementary products, and an increase in demand leads to an increase in production, sales support, etc. (-1 for Jackson)
  • U.S. employment goes up in jobs where the existence of the iPad makes employees more productive. This happens for two reasons. First, increased productivity makes labor more cost-effective relative to capital, which encourages firms to grow by hiring labor rather than buying capital. Second, increased productivity lowers the cost of production, which encourages firms to produce and sell more. (-0.5 for Jackson, mainly because I don’t know how many people are actually using iPads to be more productive in their jobs)
  • People get value from consuming the iPad- otherwise, why would people buy them? (I am not taking points away here since Jackson’s argument was specifically about employment and not value creation.)

Total score: -1. I find it hard to believe that the first point and a half outweigh all of the others, so I am reasonably certain that the iPad is not going to lead to mass U.S. unemployment…and I barely even had to use economics to come to that conclusion! The economics would have come in if I had had to show that even though the iPad reduces U.S. employment, benefits to consumers from having the iPad more than outweigh this loss.

I do think I understand where Jackson was trying to go with this argument, and it raises a relevant philosophical question: To what degree are people entitled to their current sources of employment? It’s pretty clear that technological progress and shifts in consumer tastes reduce employment in some industries and increase employment in others. It’s also pretty clear that it sucks when workers’ human capital (read, skills) becomes irrelevant, since people need to eat and have shelter and all of those fun things, and these things generally require employment. Personally, I do think that society should help these displaced workers to some degree, but I also think that this aid should be in the form of training and job placement rather than the retardation of technological progress.

Tags: Policy

18 responses so far ↓

  • 1 Viktor // Apr 20, 2011 at 5:54 pm

    Don’t forget that Apple is (I assume) mostly US-owned, and their profits are up 95% this quarter. I live outside the US, with my iphone, my mac mini and my mac book pro – sending my cash to the US in exchange for toys.

  • 2 Dave M. // Apr 20, 2011 at 5:56 pm

    It’s demagogic pandering, plain and simple.

    Hey, while we are on this whole anti-iPad kick, let’s destroy all the computers and go back to secretaries and typewriters! Imagine all the jobs that alone would create! [/sarcasm]

  • 3 Galen // Apr 20, 2011 at 6:16 pm

    Best moment of the entire video is @ 0:22 – “I purchased an iPad” Even if we accepted Mr. Jackson’s entire argument about the iPad as correct, who is to blame for this job killer? Certainly not the consumers of the device! Mr. Jackson must be a helpless serf of the Apple lords, forced to make his anti-American purchase…

  • 4 Russ Nelson // Apr 20, 2011 at 6:21 pm

    Dave, no, it’s folk economics. When you send jobs overseas (by importing things), you lose jobs at home. Very simple, and very wrong. Just like folk etymologies: Springs, as they are worked, heat up, so a warm spring is said to have “Spring fever”. All it takes is basic logic to figure this stuff out.

  • 5 David Welker // Apr 20, 2011 at 8:31 pm

    As a technology-loving person and an anti-luddite, I have to agree with Jodie on this one. Sort of.

    Except for one thing. And that is the thing that economists tend to ignore in their models and subsequently their thinking, and that is politics. As Dani Rodrik has convincing argued, the sort of “first best” solutions that economists focus on are not always possible, so you something have to think about “second best” alternatives. Is it even politically possible to use the political system to devote resources to help people displaced by technological change? I think, especially given the increasing prevalence of anti-government ideology nowadays, it might not be as easy as you think.

    This is also related to the questions regarding free trade. Sure, the gains from trade are more than enough to compensate the losers. I believe that is generally correct. But, what makes you think it is even politically possible to compensate the losers? Does free trade have anything to do with increasing inequality in our society? And does increasing inequality harm economic growth, as some have suggested? If free trade did increase inequality and increased inequality harms economic growth, how do we know that the gains from trade which we surely experience from free trade are not outweighed by decreased economic growth somehow associated with increased inequality?

    I am not against free trade, but I do think that the narratives involving Ricardo’s comparative advantage that economists focus on may not travel far along the chain of cause and effect. Basically, the chain of cause and effect in the model of comparative advantage ends when the trade ends and we confidently assert that “both sides” have benefited from the increased trade. But the issue just might be more complicated in a world where the losers are not compensated and therefore greater inequality results. Especially if there is any truth to the argument that inequality is somehow associated with decreased economic growth.

    The thing is, there is no institutional mechanism in place for those who are displaced by new technologies to demand that they be compensated for the harm that the technology causes for them. So, while the technology might be a major net social plus, it is likely to be an uncompensated harm to some group of people.

    Ultimately, to say that the uncompensated harm to those displaced by technology is worth it because the gains to everyone else is at the very least as much a matter for philosophy as economics. Typically, economics gravitates to a utilitarian framework, but one that does not necessarily take the declining marginal utility of money into account.

    I will say this. In the long run, I am pretty confident that most who are net losers due to the introduction of a particular technology are on net winners because we do nothing to stifle technology. That is, someone who works at a bookstore but is fired due to the introduction of new technology certainly is likely to enjoy their iPod and their GPS system and the Internet and all of the other great things that come from technological progress (assuming they can eventually afford such things again after they find another job somewhere after being unemployed for a while). So on net, even most of those who lose because of the introduction of a particular technology probably benefit overall from an environment that encourages innovation. Though, I am sure that there are also some uncompensated losers who never recover from being fired and whose life subsequently takes a permanent turn for the worse in a way that is not necessarily compensated for by the increased available of technology in general.

    I will say that as an anti-luddite technophile that although I agree with Jodie’s conclusion, I think the question is quite a bit harder than Jodie makes it out. She blithely assumes it will in fact be politically possible to compensate displaced workers when this may not at all be the case.

    Still, no one is going to touch my iPad! Grrrrr.

  • 6 Maple Wonk // Apr 20, 2011 at 9:37 pm

    I find it passing strange that Congress thinks there are “deserving” and “undeserving” unemployed.

    If the United States contemplates a “free trade agreement” with another country, there won’t be support for fast-track authority or ratification absent special “Trade Adjustment Assistance.”

    Far more jobs have been “lost” around the world to technological change than negotiated agreements, but if you’re a U.S. worker, you have very little income support or active labor market measures to count on.

    To boot, you were probably under-productive in your previous job, sticking it out because it offered health insurance.

    Politicians won’t compete on the quality of their economic arguments until the voters start choosing who to vote for on that basis.

    Economics is like the weather. Hardly anybody is a meteorologist, but everybody thinks they’re an expert because they live in it every day.

  • 7 Chuck Dolci // Apr 21, 2011 at 1:32 am

    I think everyone is missing the point. Congressman Jackson may be smart, he may be stupid, he may know nothing about economics, he may be an economic genius.
    None of that is relevant. He is a politician and he has to say what his constituents expect him to say. He has to say what appeals to his base.
    I strongly suspect that Congressman Jackson is economically ignorant, but his speech isn’t proof of that; his speech just shows that he knows what his constituents want to hear.

    Why do jobs migrate overseas? A couple of weeks ago the EEOC (Equal Employment Opportunity Commission) issued new regulations under the Americans with Disabilities Act (ADA). One self-identified expert claimed that, under the new regulations, half of all Americans will be considered “disabled” and will be covered under the ADA. If you were a business owner would you want to start or expand a business in a country where half of your potential employee pool is disabled and entitled to possibly expensive accommodation?

  • 8 Matt // Apr 21, 2011 at 3:44 am

    I do believe in free trade and the long run benefits. I don’t agree with Mr. Jackson…that said, there is an interesting article by Autor et al. that says the transition costs (in the medium run) from trade with China is as large as the consumption benefits.
    So, without him knowing it, Mr. Jackson’s points may be back up to 0, as this seems to at least mitigate your argument about the effects of other U.S. employment.

  • 9 Hasdrubal // Apr 21, 2011 at 8:16 am

    Is he even blaming the right people for Borders’? The iPad only came out in April of 2010 but Amazon and the Kindle have been pushing ebooks since November of 2007, and I remember talking about the Amazon effect on brick and mortar retailers since 2000 or so.

    In fact, if you look at Borders’ financials, they were losing money since at least 2007, before the iPad was even a gleam in Steve Jobs’ eye. Sure they lost more money in 2010, but when you’re losing on the order of 150 million dollars a year in 2007 and 2008, then up to a 190 million dollar loss in 2009, can you really blame something that came out in 2010 for your bankruptcy?

    If you’re going to be a mercantilist, at least get your villain right.

  • 10 Punditus Maximus // Apr 21, 2011 at 9:29 am

    I think the religious phrasing of “believe in” is best used when discussing Free Trade.

    Anyways, the problem isn’t technology, it’s that it’s changing so fast that people can’t reliably guess right on which skills to train with. And that is a big deal, because people don’t live infinite lives, and they can’t learn an infinite amount.

  • 11 Punditus Maximus // Apr 21, 2011 at 9:31 am

    Let me give you a f’rinstance:

    The vast majority of neoclassical economists could be replaced by a robot which says “we should follow the policy which reinforces current power structures.” That robot represents technological change. Now imagine, for a moment, that you’ve invested all these years of education, all this time, all this energy into learning to be an economist, and those skills are no longer directly meaningful.

    Sure, you can retrain, but you know that’s at least a couple years, and there’s always the possibility of a second robot.

    Have some empathy, is what I’m saying.

  • 12 econgirl // Apr 21, 2011 at 1:42 pm

    @ David and Chuck: You bring up very relevant points regarding political feasibility and constituent positions…and you’ve also inadvertently illustrated why I do what I do for a living. There seem to be two reasons why socially beneficial policies are politically infeasible: 1. Special interest groups whine until the proposals are shelved, and 2. People don’t fully understand the effects that the proposed policies would have, so they take the statements of the aforementioned special-interest groups as fact. I can’t do much about the former, but I have no problem being as loud as possible on the latter.

    @ Punditus: How am I not having empathy? In my last two paragraphs, I think I went above and beyond in terms of “being a f**king person,” as Jon Stewart would put it, compared to the typical economist. A lot of economists seem to take the position of “tough cookies, let the people who get screwed figure things out themselves,” and I’m certainly not trying to do that. In addition, I will acknowledge that if there is not some sort of job protection offered that people might not be willing to go into careers that require significant up-front investments. (Good thing doctors will always be needed and can’t be offshored, right?) That said, there has to be a better option than keeping the abacus around so that the abacus makers aren’t out of work. And, for the record, I say this as someone with as many degrees in computer science as in economics, so it’s not like job disappearance is a foreign concept to me.

  • 13 Punditus Maximus // Apr 21, 2011 at 2:57 pm

    Well, that’s my point — how many times is the person of ordinary intelligence supposed to retrain? It feels like “give them retraining” is the modern equivalent of “let them eat cake.” It’s just privilege restated. Sure, they can retrain, if they aren’t already boxed out by age-related bias, don’t have children to pay for, aren’t unhireable due to previous health conditions, guessed correctly enough the first time to pay off debt, etc. etc.

    Nobody’s saying that we should be retaining abacus users indefinitely. But one wonders how much energy we should be spending on making sure every transition happens as swiftly off a cliff and with as much unemployment as possible, which is the current model.

  • 14 Andrew // Apr 21, 2011 at 4:16 pm

    I think what we are missing here is the real people who are going to lose out because all the bookstores will close (apparently) – people with degrees in the humanities.

  • 15 Punditus Maximus // Apr 22, 2011 at 9:34 am

    If technological change causes unemployment, then we can’t assume full employment. If production is constrained by the biosphere, we can’t assume full employment.

    If we can’t assume full employment, a lot of things that used to be fallacies start to not be. For example, if there is unemployment, then it it perfectly possible to export it through currency manipulation and environmental degradation. And if unemployment has a negative externality (something I think we can agree on, past a certain point), then the import and export of unemployment isn’t a linear process.

    A lot of the dogma of free-trade economics depends on assumptions that don’t hold up in the real world. That’s part of why economics is no longer quite a science; it doesn’t take its own models seriously. Neoclassical economics is clear that if you have transition costs and externalities, you have things like “exporting misery.” Neoclassical economists are adamant that their own models are irrelevant when they contradict the dogma.

  • 16 Rider I // Apr 29, 2011 at 1:09 am

    So did the computer and type writer, and machines that happens. This is pretty interesting too. The Communist Killed the Free markets and crashed the economy on purpose like the Soviets used to do.

    The Communist Chinese are following exactly in the Soviets foot steps. From everything from creating a Bloc which is now called the Bric, to trying to implement a single world currency, to literally going on a resource domination campaign.

    n Nomeni Patri Et Fili Spiritus

    Rider I

  • 17 LintonBlouth // Apr 29, 2011 at 10:23 am

    Whether or not bookstores should be protected, arguing that the number of Apple stores will pick up that slack is absurd. More likely people will just flee from long-form reading at an even greater clip. So that demerit is silly.

    And how would it not affect publishers? That doesn’t even make sense.

    The argument for iPad components filling the gap goes the same as the argument for more Apple stores.

    The claim about iPad-enabled productivity gains is completely speculative. You acknowledge this, yet still consider it an argument in your favor? Economist, heal thyself.

    There’s a response to be made to Jackson’s screed, but you sure haven’t found it.

  • 18 Timothy Cullen // May 7, 2011 at 11:08 am

    Government policy also suffers from the discrepancy between theory and what is actually possible.

    Sure government could theoretically assist those displaced by technological change, but how does government distinguish those folks from those just seeking a handout from the system? Further, presuming government can make that distinction what incentive does it have to do so when the social costs of such a policy a widely dispersed across the populace and the benefits concentrated amongst the few.

    This is the core flaw with interventionist economics, they slam theoretical free markets while exalting theoretical rational government policies.

    The question is whether or not the social value of the actual outcomes of the policies aimed at helping such people outweighs the social costs involved with the process of attempting to do so; but instead of a rational debate all to often we just get John Stewart saying “be a _______ person” based solely on the misguided notion that anyone critical of government interventions just hates poor people or something.

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