18 August 2013

A Fish Out of Water

Robert Shiller is, at least by topography, a saltwater economist, being at Yale and all. And from most of his writings, as well. Today he seems to have gone all Social Darwinist! He recounts how he and his colleagues "innovated" some real estate indexes, and thus continued the march of capitalist innovation.

I beg to differ. In a piece from last year is a reference to some analysis of invention/innovation in the West over the last century or so. On the whole, as outlined in that piece, the pace of real invention has slowed dramatically due to the simple fact that we, as a species (at least as expressed in our scientists and engineers), have figured out 99.9% of what there is to know about the planet and universe. The Great Inventions were driven by new discoveries of the physical world, prime among them: the periodic table. Once you know what the elements are (by about 1937 the natural elements were cataloged), and the Bohr model (1913), putting them together in required ways is a series of engineering exercises.

Thus we see the rise of Intellectual Property, as a way to segregate wealth based on algorithms since we're no longer capable of finding new physical entities. As the founders knew, a society can't survive as a democracy if individuals (human or corporate) can sequester bits of math and charge a fee to implement them. Shiller did that, and got away with it. Shiller quotes a study, which itself quotes a McKinsey (about as right wing a consultancy as exists) study:
... in free-market capitalism, "from 10,000 business ideas, 1,000 firms are founded, 100 receive venture capital, 20 go on to raise capital in an initial public offering, and two become market leaders."

First, there's no meaningful free-market in the USofA. Second, the purpose of innovation isn't to make two folks really rich at the expense of the rest of the economy; it's to foster further development and provide better living for the society. Patents, now the bane of capitalism of the sort propounded by Dr. Shiller, were explicitly time limited by the founders. Owners manipulated Congress to increase the length of "protection" afforded by patents and copyrights over the years. Mickey Mouse is owned by Disney essentially in perpetuity. Apple, at least, may not be able to enforce its patent on rounded cornered rectangle. Phew!

Is this merely descriptive, or prescriptive? Is Shiller making a case for a winner-take-all economy? For an economy where 1 in 5,000 wins, and 4,999 lose? Ayn Rand would be proud, I suppose. But it's hardly an economic structure which is sustainable. Does he realize that Edison, the exemplar of the lone inventor had, for some period of time, 5,000 employees? And that, just as corporations do today, took for his name all inventions? And that Edison attempted to monopolize electrical transmission? And so on.

To start at the beginning of his piece:
CAPITALISM is culture. To sustain it, laws and institutions are important, but the more fundamental role is played by the basic human spirit of independence and initiative.

Ah, the myth of the lone inventor toiling away in his (not likely a her) garret. Not. While it is possible for a lone coder to dream up some index on a PC, real innovation these days is coming out of those behemoth corporations by salarymen. The notion that Facebook, or some real estate index which led to the Great Recession, is the sort of activity we should emulate is folly. Having friends, or data telling you that houses are wealth rockets, isn't quite the same as building a better mousetrap. Moreover, Shiller recounts his travails in 1991. Bollocks. In today's world, hardware and software needed to implement something along those lines can be had for less than $10,000. Getting the raw data is a different matter; I don't know how that part works. But the raw data isn't, and can't be, the crux of the innovation.

I do wonder, though, whether Shiller sees the irony of claiming innovation for what he did with real estate price indexing, and what others did with real estate price indexing? I mean, isn't he just as responsible for The Great Recession? He planted the seed of the flow of "innovation" (and the finance types crowed loudly that what they were doing was "innovative", no lie) which propelled us to the crash. I wonder? Has Shiller been a true Job Creator? Depends. His various companies may have been staffed, but did such staff, if any, simply move from similar positions with similar analytics' firms? How many analysts/clerks/etc. in financial firms were made redundant when they were replaced with his company's reports and data? IOW, do his companies (and all similar) actually grow the macro-economy on net, or just re-arrange the deck chairs?

Shiller, apparently without knowing it, makes Huebner's case: real world innovation has slowed to a crawl because there are few, if any, mysteries left in the real world. We turn to monetizing pictures of dancing cats and real estate indexes because we simply have nothing better to do with our time. Yikes, if I may say so. The world my grandfather was born into in 1887, in Saratoga Springs, morphed by orders of magnitude by the time he died in 1967. The same won't be true of those born in 1937. What of today's life? Radio, check. Telephone, check. Automobile, check. TV, check (yes, look it up). Airplanes, check. Rockets, check (yes again, people in them came later, of course). Nuclear age, check (implementation was an engineering exercise). Semiconductors, check (really, it wasn't Shockley).

Lasers, new (but just barely, the science predates 1937). And a few more, I suppose. But all based on science that was established. What new science has there been since 1937? And I mean NEW, not just ever more honing of existing. So, folks turn to maths, and try to sequester algorithms. Very naughty. Pythagoras' many progeny would each live very well today with the rules coders are attempting to enforce. Just imagine: a penny for each time the Theorem is implemented each day, world wide. Dat's alotta moolah.

Which brings us to the other side of the coin, Big Data. Once again, the mainstream pundits have finally caught up with me. They don't send a check, though. Here we see Shiller's notion of innovation being revealed as that man behind the curtain; a blowhard fraud. Not that I haven't been singing that tune for some time, of course.

Data is good, "Have SQL/R, Will Travel" is my motto. But, as the mainstream is now figuring out, digging in Big Data means that the needles found must be really precious needles for the exercise to be worthwhile. Not so much. Reality bites.
Christened by the World Economic Forum as "the new oil" and "a new asset class," these vast loads of data have been likened to transformative innovations like the steam locomotive, electricity grids, steel, air-conditioning and the radio.

Riiiiiiiight!! A pile of dung, with an undigested diamond somewhere encased. This is stuff NSA is mucking through. Your tax dollars at work.
The rate of productivity growth, whose steady rise from the 1970s well into the 2000s has been credited to earlier phases in the computer and Internet revolutions, has actually fallen. The overall economic trends are complex, but an argument could be made that the slowdown began around 2005 -- just when Big Data began to make its appearance.

Where's my pet rock? It's around here someplace.

As mentioned before, studies done years ago determined that "office productivity" suites led to lower productivity in offices. This is particularly true of Word style GUI applications, since so much time and energy is easily siphoned off into "pretty printing" rather than analytic thought. Why work when you can play?

One theory holds that the Big Data industry is thriving more by cannibalizing existing businesses in the competition for customers than by creating fundamentally new opportunities.
Et tu, Shiller? Just as Google siphoned off adverts from newspapers, killing same, so some other vehicle will siphon off adverts from casual search. Basing one's business on advert payments is really risky; your product is ephemeral and not even, so to say, yours.

Robert J. Gordon puts the wooden stake through the heart (you've read this before, here):
Robert J. Gordon, a professor of economics at Northwestern University, said comparing Big Data to oil was promotional nonsense. "Gasoline made from oil made possible a transportation revolution as cars replaced horses and as commercial air transportation replaced railroads," he said. "If anybody thinks that personal data are comparable to real oil and real vehicles, they don't appreciate the realities of the last century."

Die Dracula, die!!

The commercial use of Big Data appears to be mostly in service to marketing and advertising, which are, by definition, non-productive activities. Non- is not the same as un-, but isn't easily defended as an increase in an economy's output. To the extent that such use creates *new* monetary demand for related goods and services, then yes. But it's a slippery slope to count these activities equivalent to motor car production, for instance. (Aside: the same nexus occurs with gambling casinos; put one in your state, and the only way to have a net gain is to entice over-the-border gamblers, *new* monetary demand, otherwise it's just your citizens shifting $$$ from movies to craps.)
Cat videos and television programs on Hulu, for example, produce pleasure for Web surfers -- so shouldn't economists find a way to value such intangible activity, whether or not it moves the needle of the gross domestic product?

Not only NO, but HELL NO (expurgated that for those with tender mercies). BLS did so, to some extent alas, with the revision to the National Income accounts. They ain't both apples.

Staying on this path will turn the USofA into a Bermuda from sea to shining sea.

According to the BEA as a percent of GDP:
Manufacturing, 1950: 27%
Manufacturing, 2012: 12%

Again, one can play ostrich and stick one's head in the sand and assert that all is well, and things are going as planned. May be not.

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