See our new paper estimating the growth of consumer bandwidth – or our capacity to communicate – from 2000 to 2008. We found:
U.S. consumer bandwidth at the end of 2008 totaled more than 717 terabits per second, yielding, on a per capita basis, almost 2.4 megabits per second of communications power.
We’ve been talking about Netflix’s sure move to the Web for a long time now. In our presentations, we show how Netflix DVDs that today mostly arrive in the U.S. mail, if sent in high-def (HD) over the Net, would total almost eight exabytes per year. That’s almost half of all U.S. Internet traffic in 2008.
Well, here’s CEO Reed Hastings in Tuesday’s Wall Street Journal:
Netflix Inc. is a standout in the recession. The DVD-rental company added more subscribers than ever during the first three months of the year. Its stock has more than doubled since October.
But Netflix’s chief executive officer, Reed Hastings, thinks his core business is doomed. As soon as four years from now, he predicts, the business that generates most of Netflix’s revenue today will begin to decline, as DVDs delivered by mail steadily lose ground to movies sent straight over the Internet. So Mr. Hastings, who co-founded the company, is quickly trying to shift Netflix’s business — seeking to make more videos available online and cutting deals with electronics makers so consumers can play those movies on television sets.
His position offers a rare look at how a CEO manages a still-hot business as its time runs out. “Almost no companies succeed at what we’re doing,” he says.
In my first, lone, measly, pathetic tweet a month ago, I asked if the whole Twitter thing was a “Revolution? Time-waster? Both?”
Now we may know. The information evading the official government walls and making its way out of Iran on YouTube and Twitter may give the answer: “Revolution” — literally.
“In a few years we might actually find that we are hungry for more capitalism, not less. An economic crisis slows growth, and when countries need growth, they turn to markets. After the Mexican and East Asian currency crises — which were far more painful in those countries than the current downturn has been here — the pace of market-oriented reform speeded up. If, in the years ahead, the American consumer remains reluctant to spend, if federal and state governments groan under their debt loads, if government-owned companies remain expensive burdens, then private-sector activity will become the only path to creating jobs. With all its flaws, capitalism remains the most productive economic engine we have yet invented.”
— Fareed Zakaria, June 16, 2009
“Instead of more delectable disputations about the exact size of the state, we need to change the focus of the argument. Of course there are important choices to be made and it is vital, in my view, that we spend on infrastructure investment (notably in London) rather than on consumption. But we are not dedicating anything like enough political energy and interest to the real issue: who the hell is now speaking up for the wealth creators of this country?”
— London mayor Boris Johnson, June 15, 2009
(hat tip: Neil Pickett)
Last December, we celebrated the 30-year anniversary of Deng Xiaoping’s historic “Reform and Opening Up” campaign.
Today, we remember those who died at Tiananmen Square 20 years ago.
Fortunately, the legacy of Deng’s capitalist opening and decentralized economic program has far, far outweighed the tragedy of June 4, 1989.
Two years ago, Alan Reynolds’s book Income and Wealth poked a million holes in the argument that the gap between millionaires and everyone else was growing in an unprecedented and deeply distressing way. In his powerful critique of the pessimistic new arguments, Reynolds focused mostly on the misleading data and statistical analysis of quintiles and cohorts, the unexamined distinction between income and wealth, the changing nature of “households,” and the often ill-defined nature of income itself.
Now, in a new article, Reynolds’s colleague Brink Lindsey teases out many additional unappreciated factors in the apparent recent increase in wage inequality. Among the most important overlooked factors is the huge influx of immigrants over the relevant period:
Just two months after signing the Voting Rights Act, President Lyndon Johnson signed the Immigration and Nationality Act of 1965, ending the “un-American” system of national-origin quotas and its “twin barriers of prejudice and privilege.” The act inaugurated a new era of mass immigration: Foreign-born residents of the United States have surged from 5 percent of the population in 1970 to 12.5 percent as of 2006.
This wave of immigration exerted a mild downward pressure on the wages of native-born low-skilled workers, with most estimates showing a small effect. Immigration’s more dramatic impact on measurements of inequality has come by increasing the number of less-skilled workers, thereby increasing apparent inequality by depressing average wages at the low end of the income distribution. According to the American University economist Robert Lerman, excluding recent immigrants from the analysis would eliminate roughly 30 percent of the increase in adult male annual earnings inequality between 1979 and 1996.
Although the large influx of unskilled immigrants has made American inequality statistics look worse, it has actually reduced inequality for the people involved. After all, immigrants experience large wage gains as a result of relocating to the United States, thereby reducing the cumulative wage gap between them and top earners in this country. When Lerman recalculated trends in inequality to include, at the beginning of the period, recent immigrants and their native-country wages, he found equality had increased rather than decreased. Immigration has increased inequality at home but decreased it on a global scale.
In sum, immigration has been mostly good for overall U.S. economic growth and for the immigrants themselves, whose “low” U.S. wages are dramatically higher than were their home-country wages. But immigration has altered the statistics of aggregate “inequality” in a misleading way, rendering much of the debate moot.
Zachary Karabell does a nice job explaining the “superfusion” cooperative arrangement between the U.S. and China, showing why China doesn’t want and won’t trigger a crashed dollar. They want a strong and stable dollar, which, as we have been writing for a long time, is also in our best interest. We are of course constrained by global investors, who rationally want solid real returns. But the competitive and currency positions of the U.S. are a function of our own monetary, fiscal, and regulatory policy actions, not some malign intent on the part of weaker foreign economies who in fact depend on a healthy, thriving America.
David Malpass, as usual, explains it best in this video:
Richard Fisher was the first Federal Reserve official, back in November 2006, to publicly pinpoint the easy-money mistakes that would lead to the crash.
Now, in the aftermath, as the Fed confronts a whole new set of challenges, here’s a good, long interview of Fisher by Mary Anastasia O’Grady of The Wall Street Journal.
Mr. Fisher defends the Fed’s actions that were designed to “stabilize the financial system as it literally fell apart and prevent the economy from imploding.” Yet he admits that there is unfinished work. Policy makers have to be “always mindful that whatever you put in, you are going to have to take out at some point. And also be mindful that there are these perceptions [about the possibility of monetizing the debt], which is why I have been sensitive about the issue of purchasing Treasurys.”
He returns to events on his recent trip to Asia, which besides China included stops in Japan, Hong Kong, Singapore and Korea. “I wasn’t asked once about mortgage-backed securities. But I was asked at every single meeting about our purchase of Treasurys. That seemed to be the principal preoccupation of those that were invested with their surpluses mostly in the United States. That seems to be the issue people are most worried about.”
As I listen I am reminded that it’s not just the Asians who have expressed concern. In his Kennedy School speech, Mr. Fisher himself fretted about the U.S. fiscal picture. He acknowledges that he has raised the issue “ad nauseam” and doesn’t apologize. “Throughout history,” he says, “what the political class has done is they have turned to the central bank to print their way out of an unfunded liability. We can’t let that happen. That’s when you open the floodgates. So I hope and I pray that our political leaders will just have to take this bull by the horns at some point. You can’t run away from it.”
Amid the crash in GDP, or income, John Rutledge reminds us about the also falling but still massive balance sheet, or assets, of the U.S.
Why is it that people know so much about something so small (GDP) but so little about something so big (total assets)? I think it is because since the 1930’s macroeconomics has developed into a discipline concerned almost exclusively with who is spending how much money. Very little attention is paid to the capital base, or balance sheet, that makes it possible to produce the goods and services measured as GDP.
In the wake of EC antitrust chief Neelie Kroes’s charge that Intel’s microchips are too tiny, too fast, and too inexpensive, the company has quickly unveiled a new line of huge, power-hungry, slow, overpriced, out-dated products.
Intel unveils new huge, expensive, power-hungry, slow "EuroChip"
“The largest scientific and economic questions are being addressed by others, so I will confine myself to reporting about how all this looks from the receiving end of the taxes, restrictions and mandates Congress is now proposing.
“Quite simply, it looks like imperialism. This bill would impose enormous taxes and restrictions on free commerce by wealthy but faltering powers — California, Massachusetts and New York — seeking to exploit politically weaker colonies in order to prop up their own decaying economies. Because proceeds from their new taxes, levied mostly on us, will be spent on their social programs while negatively impacting our economy, we Hoosiers decline to submit meekly.”
— Gov. Mitch Daniels of Indiana, on the cap-and-trade tax, May 15, 2009
After the EC antitrust authority today leveled a €1.06 billion fine against Intel, the company’s general counsel Bruce Sewell gave an illuminating interview to CNBC:
We better come up with a better way to restrict the EC’s range of motion on these matters. Sewell called the action “arbitrary.” The CNBC reporters called it a “shakedown.” They’re both right.
Meanwhile, EC competition commissioner Neelie Kroes added insult to injury when she blithely noted that Intel is now supporting European taxpayers.
A huge array of experts in the legal and economic fields quickly denounced the EU “fine,” (Can you really call $1.45 billion a fine?), and raised very serious questions about arbitrary antitrust becoming the chief protectionist tool of the 21st century.
Scholar Ronald Cass said the EC Competition Directorate acted as
Grant Aldonas of the Center for Strategic and International Studies said,
Given the implications for R&D that drives Intel’s investment in both Europe and the United States, it makes little sense to divert these funds to the European Union’s coffers instead.
And as we attempt to emerge from a brutal economic crisis, where unemployment continues to rise, my former colleague Ken Ferree made the crucial macro point:
If you love jobs and economic growth, you have to love the companies that drive the economy and create employment demand.
The global economy cannot function if large nations or regions, like the EU, the U.S., or China, engage in over-the-top punitive actions against any company, let alone one of the most inventive firms of our time. Without engaging in the type of tit-for-tat protectionism that leads to destructive trade wars, we need to find a way to roll back what I called in a recent Wall Street Journal article “Europe’s anti-innovation ‘antitrust’ policy.” Moreover, we should resist letting the EC’s casual intrusiveness seep into our own antitrust jurisprudence, which has for the most part fortunately been more tightly focused on the question of consumer harm. As this excellent article notes, there is some reason to worry we might be sliding in the wrong direction.
Resisting these impulses will promote the global cooperation we need to rebound from the crisis. It will be better for innovative companies. Better for consumers of innovative, life changing products. And . . . better for the citizens, consumers, and entrepreneurs of that too-long underperforming land we call Europe.
Check out Cato Unbound’s symposium on Lawrence Lessig’s 1999 book Code and Other Laws of Cyberspace. Declan McCullagh leads off, with Harvard’s Jonathan Zittrain and my former colleague Adam Thierer next, and then a response from Lessig himself.
Here’s Thierer’s bottom line:
Luckily for us, Lessig’s lugubrious predictions proved largely unwarranted. Code has not become the great regulator of markets or enslaver of man; it has been a liberator of both. Indeed, the story of the past digital decade has been the exact opposite of the one Lessig envisioned in Code. Cyberspace has proven far more difficult to “control” or regulate than any of us ever imagined. More importantly, the volume and pace of technological innovation we have witnessed over the past decade has been nothing short of stunning.
Had there been anything to the Lessig’s “code-is-law” theory, AOL’s walled-garden model would still be the dominant web paradigm instead of search, social networking, blogs, and wikis. Instead, AOL — a company Lessig spent a great deal of time fretting over in Code — was forced to tear down those walls years ago in an effort to retain customers, and now Time Warner isspinning it off entirely. Not only are walled gardens dead, but just about every proprietary digital system is quickly cracked open and modified or challenged by open source and free-to-the-world Web 2.0 alternatives. How can this be the case if, as Lessig predicted, unregulated code creates a world of “perfect control”?
Last night on Charlie Rose, Treasury Secretary Tim Geithner made an extraordinary admission. Here’s the exchange:
Rose: “Looking back, what are the mistakes, and what should you have done more of? Where were your instincts right but you didn’t go far enough?”
Geithner: “There were three broad types of errors in policy. One was that monetary policy here and around the world was too loose for too long. And, that created just this huge boom in asset prices; money chasing risk; people trying to get a higher return; that was just overwhelmingly powerful.”
Rose: “Money was too easy.”
Geithner: “Money was too easy, yeah . . . . Real interest rates were very low for a long period of time . . . .”
There you have it. Pretty simple. And yet it is the first time I can recall that any U.S. executive branch official, spanning the Bush and Obama Administrations, has admitted monetary policy was even one factor, let alone the central factor, leading to the crash. This is very big stuff. (more…)
Good historical analysis from Mike Darda:
Here we should look to three historical examples where aggressive monetary expansion was wedded to an aggressive fiscal policy: the U.S. during the mid-1930s, Germany through the 1930s, and Japan in the early 2000s. In each case there was a recovery, although policy errors led to significant setbacks. These episodes can help assess U.S. growth prospects, and the risks to a sustainable recovery.
The Great Depression in the U.S. came in two stages, a downturn from 1929-33 in which real GDP collapsed by 26.5% and unemployment rose to 25% from 3%, and a relapse in 1937-1938, with a 3.4% decline in real GDP and a rise in unemployment to 19% from 14%.
The first stage of the depression was associated with a collapsing equity bubble (1929), protectionist tariff legislation (1930), contractionary monetary policy (1931) and a sharp rise in tax rates (1932). Between 1934 and 1937, however, there was a rapid recovery, in part due to the severity of the downturn that preceded it. Real GDP expanded by 9.5% per annum, while the unemployment rate fell 11 percentage points.
The recovery was spurred in no small part by monetary policy. In 1933-34, the dollar was devalued against gold to $35 per ounce from $20.67 per ounce, which allowed the Fed to push reserves into the banking system. This allowed the Fed to finance FDR’s deficits with the printing press. After falling at an average rate of 6.7% per year from 1930-33, the Consumer Price Index rose by an average 2.7% per year from 1934-37.
In testimony before Congress’s Joint Economic Committee today, Fed chairman Ben Bernanke noted that
In contrast to the somewhat better news in the household sector, the available indicators of business investment remain extremely weak.
But it is these key business sectors that are most important for a U.S. — and global — economic recovery. As important as stabilization of the housing sector is, we are not going to be led out of the recession by another housing boom. Nor should we desire that. We need real productivity-enhancing innovation, which is largely enabled by non-real estate investment and entrepreneurship.
Among the myriad policy actions being taken in Washington this year is a potential overhaul of our communications strategy, under the aegis of the FCC’s new Broadband “Notice of Inquiry.” The first goal of this plan should be to to encourage the continued investment in leading-edge information technologies. Broadband communications especially makes all our businesses in every sector more productive and also connects an ever larger number of citizens, especially those who may be struggling the most in this tough economy, to the wider world, improving their prospects for education, health, and new jobs in emerging industries.
Information and communications technology (ICT) accounts for an astounding 43% of non-structure U.S. capital investment, totaling $455 billion 2008. In this new FCC communications policy review, we should do everything possible to keep this huge source of American growth rolling. Any policy obstacles thrown into the path of our information industries would not only reduce this crucial component of absolute capital investment, which is already under strain, but also diminish and delay all the positive cascading follow-on effects of a more networked workforce and world.
I have a photo of my father from around 1982, standing on the tarmac of South Bend airport with Jack Kemp. The economy was in the tank, and America’s world standing was uncertain. My Dad had gone to pick up Kemp, who was to speak at an event for his fellow Republican, Jack Hiler, who was our friend and congressman from northern Indiana. I was maybe eight years old at the time. We were Reagan-Kemp-Hiler conservatives, interested in entrepreneurship, economic growth, and a muscular but prudent international stance.
Some 15 years later I would go to work for Kemp as an economic analyst. It was not preordained, but neither was it a complete coincidence, I suppose, that I spent several years working for the man who, more than any other public official, had articulated and even helped shape my, and my family’s, worldview. Kemp and I even shared the same birthday, July 13.
It is difficult to overestimate Kemp’s impact on history. For those who don’t grasp the importance of economics in politics and geostrategy, that will seem a wild overstatement. But I do think Kemp changed the arc of human events by helping to launch the U.S. on a much higher growth trajectory. By freeing American workers and businesses and attracting the world’s human and financial capital, the Reagan-Kemp economic strategy of tax cuts, sound money, and deregulation unleashed two and a half decades of amazing feats in technology and entrepreneurship. Within just a few years, the American boom of the 1980s shook the Communist world and allowed Reagan to peacefully conclude the Cold War. These events not only bolstered the wealth and ideological foundations of the West but freed hundreds of millions of people in the East and set the stage for the next great wave: the low-tax-free-trade phenomenon we call globalization, which has brought at least a billion more people out of poverty.
Kemp was not immune to the ego-pumping of life on the Potomac. But football and his middle-class upbringing had given him a healthy concept of “the team.” More than almost any politician I have encountered he was deeply interested in ideas. (What other politician would spend so much time — or any time at all — on the intricacies of monetary policy?) And in getting at the truth. And in building a positive sum politics through energy and persuasion, not cleverness or negativity. He was a builder, not a destroyer.
Having been a central player in creating the long boom, Kemp was also a long-time critic of the wildly gyrating monetary and dollar policies that led to the crash and ended this particularly prosperous period in American history. Not coincidentally, it is Kemp’s enthusiastic, expansive, inclusive brand of politics that might help his party regain its footing so it can help launch the next great American wave. Kemp would have no doubt whatsoever America’s biggest, best, brightest days are ahead.
I join many friends and former colleagues in offering Mrs. Kemp, Jeff, Jimmy, and the whole Kemp family my condolences, and deep gratitude for sharing Jack with the world.
Associated Press
MORE REMEMBRANCES:
“Capitalist for the Common Man” – The Wall Street Journal
“The Jack Kemp I Knew” – Richard Rahn
“Jack Kemp: The Happy Warrior” – Bruce Bartlett
“Jack Kemp, Our JFK” – Mona Charen
“Will the GOP Forget Reagan and Kemp?” – Dan Henninger
“He Had the Power of the Happy Man” – Peggy Noonan
“The Life of His Party” – David Broder
“Jack Kemp: Conservative Hero” – The Economist
“Quarterback of GOP Ideas” – Ed Rollins
Lots of commentators continue to misinterpret the research I and others have done on Internet traffic and its interplay with network infrastructure investment and communications policy.
I think that new video applications require lots more bandwidth — and, equally or even more important, that more bandwidth drives creative new applications. Two sides of the innovation coin. And I think investment friendly policies are necessary both to encourage deployment of new wireline and wireless broadband and also boost innovative new applications and services for consumers and businesses.
But this article, as one of many examples, mis-summarizes my view. It uses scary words like “apocalypse,” “catastrophe,” and, well, “scare mongering,” to describe my optimistic anticipation of an exaflood of Internet innovations coming our way. I don’t think that
the world will simply run out of bandwidth and we’ll all be weeping over our clogged tubes.
Not unless we block the expansion of new network capacity and capability. (more…)
Bloomberg columnist Caroline Baum exposes the crucial paradox between the title of Judge Richard Posner’s new book — A Failure of Capitalism — and the contents of the book, which mostly blames the Federal Reserve for the financial crash.
I asked Posner why the Fed’s errors constitute a failure of capitalism. He said the central bank was part of the “capitalist structure,” along with property rights and a judicial system to enforce them. To the extent that the Fed mismanaged the money supply (or interest rates) and failed to assure “a reasonable degree of economic stability,” it has to be regarded as a failure of capitalism. . . .
“[Milton Friedman] wouldn’t agree” it was a failure of capitalism, said Anna Schwartz, a research associate at the National Bureau of Economic Research and Friedman’s co-author on “A Monetary History of the United States, 1867-1960.” “It was a failure of government.”
The Fed conducted “very easy monetary policy, which permitted the asset-price boom,” she said yesterday in a telephone interview. “It had nothing to do with capitalism failing. It had to do with the policies and institutions that conducted them.”
Maximum Entropy