Edward Hadas

Growth in a rich and crowded world

Edward Hadas
Jul 23, 2014 14:23 UTC

Perky, productive robots, or nothing more than a few new smartphone apps? Cascading innovation, or just a few tweaks? Economists and technologists are debating what the future holds.

Pessimists like Robert Gordon of Northwestern University see decades of slow growth ahead, with little scope for big leaps forward. The optimists, among them Erik Brynjolfsson and Andrew McAfee of the Massachusetts Institute of Technology, expect new technological glories. Both sides are more wrong than right.

Everyone is wrong when the wrangling is numerical. Arguments based on GDP and productivity growth are too circular to resolve anything. A main cause of any slowdown in reported productivity numbers is a judgment that innovations are becoming less valuable. So a reported slowdown cannot logically be used to support the argument that technology is advancing more sluggishly.

The problem is that productivity measures depend upon what economists call hedonic adjustments. Consider a new model car that costs 2 percent more than the vehicle it replaces in a price index. The price change is clear, but the two cars aren’t identical. The new model will, at a minimum, have fancier electronics.

The statisticians have to put a value on the differences. They could decide the additional technology is just a gimmick with no effect on the real value of the car. In that case, car price inflation is 2 percent. If the same number of cars is sold this year as last, then car-related real GDP growth will be zero. And if the same number of hours went into building each car, then labour productivity would be unchanged.

Google, privacy and the common good

Edward Hadas
Jul 9, 2014 14:41 UTC

The public has a right to know. Individuals have a right to privacy. The common good is served by both these contradictory statements, so someone has to decide how to balance them when they come into conflict. When it comes to internet search, the European Union’s Court of Justice has given the job to search engine providers such as Google. In a way, that’s a good call.

The court decided in May that some internet links deserve to be “forgotten” because certain data can over time become “inadequate, irrelevant or no longer relevant”. The search operators were held responsible, in the first instance, for judging whether to grant requests to remove links.

The court’s decision creates a mess, because it provides no practical guidance. Still, it made a clear step forward in the endless debate between “the legitimate interest of internet users” and “the right to protection of personal data” by recognising that search engines have changed the meaning of privacy.

The problem with the Piketty problem

Edward Hadas
May 28, 2014 14:06 UTC

If a man is suspected of murder, arson and speeding, any prosecutor who focuses only on the last charge risks ridicule. That imagined situation has some bearing on recent criticism of Thomas Piketty, the best-selling French anti-inequality economist. The accusations are largely restricted to ways in which he has exceeded the limits of his data.

The Financial Times, the most prominent critic, has identified possible compilation mistakes and biased adjustments in Piketty’s statistics on the history of wealth distribution. This is potentially a bit sloppy, but beyond that it’s hard to get too excited. Revising the questionable numbers would not change the basic conclusion that wealth has become more concentrated in most countries over the last three decades.

More importantly, though, all Piketty’s wealth data suffers from a much more fundamental error: It cannot be telling us what he says it does. In his widely praised book, “Capital in the Twenty-First Century”, he concludes that elites are becoming wealthier and more powerful at the expense of the rest of the population. However, wealth information alone, based on the market value of financial holdings and other real assets, can’t validate that claim. Incomes and, importantly, social factors also need to be considered.