Where I am Blogging/Writing Now

Most of you have probably realized that I am no longer actively posting to this blog, which was started in late 2009 after I left BusinessWeek.   My writing/blogging is now mainly divided between two venues.  As chief economic strategist at the Progressive Policy Institute, a Washington think tank, I supervise PPI’s economic and tech policy work across a wide range of issues, including regulation, the data-driven economy, and innovation.  Our latest event was “Enabling the Internet: A Conversation with America’s Digital Policy Pioneers.”

As president of South Mountain Economics LLC, I run an economics analysis firm with a unique focus on emerging industries and emerging occupations.  Our latest report, “Building A Digital City,” documented in detail how the growing tech/information sector helped New York City outperform both the national economy and the surrounding suburbs.We are currently leading projects in California, Europe, and Asia.

I regularly speak around the country.  On February 13, 2014, I will be the keynote speaker at the annual meeting of the Mass Technology Leadership Council in Boston.  Please don’t hesitate to say hello if you are planning to be there.

Data: The Future of the U.S. Economy

In a great display of synchronicity, I had two reports released simultaneously today: “Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy” and “The Geography of the App Economy”.

The first paper came out of the Progressive Policy Institute, and will serve as the keynote paper for the conference we are running in Rome next week, The Rise of the Data-Driven Economy: Implications for Growth and Policy.

The second paper was done for CTIA and the App Developers Alliance by myself and Judy Scherer, under the auspices of the economic development consulting firm South Mountain Economics LLC.

Both papers send the same message–that data is the driving force for both job growth and GDP growth. “The Geography of the App Economy” examines app economy jobs in each state, starting from Washington and California at the top of the list to Wyoming and West Virginia at the bottom. We show that the number of app economy jobs nationally is rising quickly, from 466,000 at the end of 2011 to 519,000 in April 2012. And we have plenty of examples, including ways that states can attract more app economy jobs.

“Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy” look at the impact of data on economic growth. I argue that data should be a separate economic category, along with goods and services. The implication is that the growth rate of the economy is being underestimated, by about 0.6 percentage points.

There’s a political message here as well, but I think I’ll put that in a different post.

 

Some changes on accessing this blog

Up to now, it’s been possible to access this blog via both innovationandgrowth.wordpress.com and www.southmountaineconomics.com. That second url will now point to the site of South Mountain Economics LLC, the consulting firm that I run, which is putting out a new paper on the App Economy later today.

December 1 doubleheader…

…let’s play two.

In a miracle of scheduling, I’m going to be speaking at two different events on the morning of December 1 in DC. At 9AM I’ll be the lead-off speaker at a PPI event:

Is Tech Antitrust Off-Target? Debating the impact of high-tech acquisitions

Should be fun.

At noontime I’ll be speaking to the National Economists Club on

“The Cheshire Cat Economy: Why We are Underestimating the Impact of Trade”

‘All right,’ said the Cat; and this time it vanished quite slowly, beginning with the end of the tail, and ending with the grin, which remained some time after the rest of it had gone.

Alice’s Adventures in Wonderland, by Lewis Carroll

Revised textbook!

I just received printed copies of the second edition of my textbook Economics:The Basics–yeah! It’s designed for a one-semester “basics of economics” course–not much math needed, but covering all the economic principles the typical person might need.

I’ve started a new twitter feed at @MandeltheBasics specifically to accompany the textbook.

If you teach economics and want to see the table of  contents, look here.

Nobel Prize irrelevancy?

For years when I was chief economics writer at BusinessWeek, I would write our post-Nobel piece.  I was often one of the few people who would challenge the adulation of the prize winners, notably in this 2005 piece on the Nobel in game theory.

But today’s awards to Tom Sargent and Chris Sims simply leaves me stunned.  Let me give you a brief excerpt:

“It is not an exaggeration to say that both Sargent’s and Sims’ methods are used daily … in all central banks that I know of in the developed world and at several finance departments too,” Nobel committee member Torsten Persson told the AP.

I’m not sure why this is supposed to be a good thing.  None of the central banks foresaw the financial crisis, none of them foresaw the weakness of the recovery, and none of them had the right policy prescriptions.  This lack of ability to predict big shocks and their aftermath is a central flaw of the Sargent-Sims approach.  Sargent is well known for his work on rational expectations, which has a tough time with ‘irrational’ booms and busts. And Sims’s work on ‘vector autoregressions’ has a difficult time anticipating sudden shifts in regime, such as the shift from the Great Moderation to the today’s incredible volatility.

I would have much preferred to see the awards going to a growth economist, like Paul Romer; an expert in financial markets, like Reinhart and Rogoff; or an international economics expert.  While I’m sure Sargent and Sims deserve their award, the timing makes the economics profession feel out of touch and irrelevant.

Five Things to Remember

  1. The stock market is not the same as the economy. When the stock market was rising, it didn’t mean the economy was good. When the stock market is falling, it doesn’t mean the economy is bad (see here)
  2. Much of the growth of the federal deficit went to fund economic growth abroad, not in the U.S.  Yes, I know that the official data shows that real imports are smaller today than when the recession started. It’s not true.
  3. The official data are wrong. Real import growth is stronger than the numbers show, productivity and real GDP growth are much weaker. (see here).
  4. The last thing the U.S. needs is another stimulus to consumption. Consumption leaks right out the door as higher imports.
  5. The U.S. should be a production economy, not a consumption economy.  It’s time to stop chasing low consumer prices and focus on investment in physical, human, and knowledge capital. That’s the only path to sustained prosperity.

Misinterpreting Data: How the WSJ Got the Wireless Jobs Story Wrong

On July 17 the online edition of the WSJ published a widely-cited story entitled Wireless Jobs Evaporate Even As Industry Expands. The main point of the story  (my emphasis):

In May, on the heels of a record year for industry revenue, employment at U.S. wireless carriers hit a 12-year low of 166,600, according to U.S. Labor Department figures released earlier this month. That’s about 20,000 fewer jobs than when the recession ended in June 2009 and 2,000 fewer than a year ago. While the industry’s revenue has grown 28% since 2006, when wireless employment peaked at 207,000 workers, its mostly nonunion work force has shrunk about 20%.”

In addition, the Journal digs further into the official data and claims that:

The number of customer-service workers at wireless carriers dropped to 33,580 last year from 55,930 in 2007, according to the Labor Department

Seems like a pretty straightforward story, doesn’t it?  The Journal is quoting directly from authoritative BLS data to demonstrate that the  wireless industry has been losing jobs, despite the mobile boom. The big picture message: Innovation does not equal job growth.

Unfortunately, the reporters and editors at the WSJ  fell into the same trap that has ensnared many other journalists, policymakers, and even economists. They looked at the label on a piece of official economic data, and assumed that they understood it.  But as we saw during the financial crisis and subsequently,  government economic data can all too easily be misinterpreted.

In this case,  the article was based on the Journal’s analysis of jobs in the “wireless telecommunications carrier industry,”  as defined by the BLS. However,  despite the name of the data series, it turns out that:

  • The BLS definition of the “wireless” industry does not include company-owned  retail stores or stand-alone company-owned call-centers.
  • The customer service numbers cited do not include  company-owned retail stores or stand-alone company-owned call centers.
  • The 2007 occupational data in telecom cited in the story cannot be compared with later years, because the telecom industry classifications in the occupational data were substantially redone in 2008.

As a result:

  • The data cited in the WSJ article completely misses the growth of jobs at company-owned retail stores (see Metro PCS chart below)
  • The data cited in the WSJ article potentially misses call center job growth such as the expansion of Verizon’s Nashville call center (see example below)
  • The phrase “employment at U.S. wireless carriers hit a 12-year low”  simply cannot be supported by the available data.  Data from the industry trade association (CTIA), which shows wireless employment up 36% since 2000, is much more plausible (see chart below).
In my view,  the WSJ article is a classic case of misinterpreting official statistics.

Before getting into the details, why am I taking the time and trouble to disassemble this particular article?Historically innovation and job creation have been closely linked, as I have argued in multiple papers and articles. With Washington now fighting tooth and nail over the budget, it’s very important for policymakers to understand that successful innovation creates jobs, not the opposite.

Second,   journalists, policymakers, and economists need to understand how easily government statistics can be misinterpreted.  For example, the statisticians at the BLS have reported huge U.S. productivity gains over the past decade, including the years following the financial crisis–a fact that has been duly repeated by journalists and applauded by economists.  However, in a recent paper, Sue Houseman of the Upjohn Institute and I argued that these reported U.S. productivity gains could be interpreted, in part,  as  an increase in the efficiency of global supply chains.  It matters enormously for jobs and wages whether productivity increases are coming from more efficient domestic operations, or more efficient offshoring.

Or consider  consumer spending.  Journalists regularly report that  “consumer spending accounts for 70 percent of economic activity.”  (see, for example, this recent Associated Press story that ran on the New York Times website). However this number,  calculated by dividing consumer spending into GDP, is pernicious nonsense. Nonsense,  because consumer spending includes a big chunk of  imports, which does not correspond to economic activity in the U.S.  Pernicious,  because it perpetuates the fallacy that the U.S. cannot recover without gains in consumer spending (see my blog post on the subject here).

Details

Now let me turn to the details of the WSJ’s mistake, or if you’d like, misintepretation.  The WSJ analyzed BLS jobs data for the “wireless telecommunications carrier industry”, (with the NAICS  ID 5172). That data looks pretty bleak (if you want to download the data for yourself, instructions are at the end of this post).

However, the WSJ apparentlydid not realize  that the BLS collects industry employment by establishment, not by company. The BLS defines an establishment in this wa:y

An establishment is an economic unit, such as a farm, mine, factory, or store, that produces goods or provides services. It is typically at a single physical location and engaged in one, or predominantly one, type of economic activity for which a single industrial classification may be applied.

Whenever possible,  the BLS assigns each establishment to an industry, and counts all the employment at that establishment at part of that industry.

Viewed from this perspective, a single wireless carrier, such as Verizon Wireless or Metro PCS,  will typically include several different types of establishments, each of which will be assigned to a different industry.

  • Wireless operations are in NAICS 5172 (“Wireless telecommunications carriers”)
  • Company-owned call centers are in NAICS 56142 (“telephone call centers”)
  • Company-owned retail stores are in retail trade, probably NAICS 443112 (“Radio, TV and electronics stores”)
  • Mobile tower and base construction could be in NAICS 23713 (“Power and Communication Line and Related Structures Construction”)
There might even be more different types of establishments in the wireless industry…it’s hard to tell.

This has several implications. First, retail expansion by wireless providers is counted in the retail trade industry, not  the BLS “Wireless Industry” numbers that the WSJ used.  This is true even if the store is carrier-operated.

For example, the tremendous expansions of retail stores by Metro PCS  in recent years, with added jobs,  did not show up in the WSJ data (for a related example,  employees at Apple stores are counted in the retail industry, not the computer industry).

Second, to the degree that wireless carriers are expanding stand-alone call centers, those additional jobs are not being picked up by the WSJ data.  We don’t know exactly how many there are, but we do know that overall national employment at telephone call centers have been rising, surprisingly enough.  It’s likely that the expansion of the wireless industry is a factor in that rise in call center employment.

We also know that at least some wireless telecom companies have been hiring at their call centers. For example, it took the work of five minutes to find this example of Verizon hiring workers for a call center outside of Nashville. Here’s an excerpt from the July 1, 2011 story in the Nashville Post:

Verizon Wireless has announced via Facebook and Twitter that it will expand its Sanctuary Park Center of Excellence Loyalty Retention Center by opening an office in Franklin. The company plans to add some 300 jobs in the Franklin area over the next 18 months.

“We’re excited about this expansion for several reasons. It allows us to continue to provide customers with the high quality of service they expect from Verizon Wireless,” said James Nelson, associate director of customer service. “It’s also great to be a source for new job opportunities – especially in this economy.”

Further, the company said, “Many of the thousands of calls handled by LRC representatives each month are from customers requesting to discontinue service. It is their responsibility to convert as many of those disconnect requests into satisfied customers.”

The company ran its first training sessions in May and plans to begin taking calls at the center starting July 5.

I didn’t research this example any further. But it looks like these new call center jobs are not counted in the BLS data that the WSJ was using.

Finally, those customer service figures that the Journal made such a big deal about. Let me repeat the quote from the Journal story.

The number of customer-service workers at wireless carriers dropped to 33,580 last year from 55,930 in 2007, according to the Labor Department

Actually, that sentence is not correct as it stands.  The WSJ is citing occupational data pertaining to the “wireless” industry as defined by the BLS (NAICS 5172).   By definition, the WSJ’s figure for customer-service workers excludes  company-owned stand-alone call centers (like the previous example for Verizon Wireless). As a result, the figures cited by the Journal are absolutely useless for determining whether  wireless carriers are hiring or firing customer-service workers.

Just to add insult to injury, there’s a subtle twist that no reporter could be expected to know.  Buried deep in the documentation, the BLS explains that:

In 2008, the OES survey switched to the 2007 NAICS classification system from the 2002 NAICS. The most significant revisions were in the Information Sector, particularly within the Telecommunications area.

The implication is that telecom occupational data from 2007 simply cannot be compared to later years (I believe that the BLS would agree with that, if asked).

What’s the bottom line here? Let me show you again the chart of the jobs in the  BLS “wireless industry” (the data the WSJ used), and compare it to the survey of wireless industry employment done by CTIA, the wireless industry association.

The industry association figures-rose by 46% from 2000 until 2008, before dipping by 7% from 2008 to 2010.  By contrast, the BLS “wireless” data, which does not include call centers, retail stores, and tower construction, rose by only 8% from 2000 to 2008. Now, honestly, in the middle of a wireless boom of historic proportions, which figure do you think is more likely to reflect “employment at wireless carriers”, the phrase used in the WSJ story?

Now, that brings me to my final ethical question: Does the Journal have an obligation to run a retraction or a corrective story?  The article did not slander or libel anyone, and the reporter used the government statistics in good faith.  However, because the statistics did not mean what the Journal thought they meant, the story is filled with statements which leave readers with the wrong impression.  The typical reader  would read the story and naturally conclude that the phrase ” employment at U.S. wireless carriers hit a 12-year low”  referred to the number of workers who receive paychecks from Verizon Wireless, Metro PCS, the wireless part of AT&T, and the like.  But as we have seen, that phrase is based on government figures that only reflect a portion of wireless carrier employment.

More importantly, the story’s big picture conclusion–that innovation does not equal job growth–is not supported by the statistics. In this era of distrust of the press, should publications make an effort to clarify the record if their original story is faulty?

 

 

Coda: How to Get the Government Data that the WSJ used

 

Go to  http://www.bls.gov/data/#employment

Click on “Employment, Hours, and Earnings – National, Multiscreen data search”

Check ‘Not seasonally adjusted’, and click on ‘next form’

Scroll to ‘information’, and  click on ‘next form’

Click on ‘all employees, and  click on ‘next form’

Scroll to “wireless telecommunications carriers (except satellite)”, and  click on ‘next form’

Click on ‘retrieve data’

The data for customer service representatives in the wireless industry in 2007 can be found at

http://www.bls.gov/oes/2007/may/naics4_517200.htm#b41-0000

The New Centrism

I don’t do much politics on this blog, but I feel like I have to say something about the demise of the Democratic Leadership Council, which helped bring Bill Clinton to the Presidency in the early 1990s. A lot of writers have interpreted the end of the DLC as the end of centrism, and a sign that Washington has become completely polarized.

My take is different. To me, we’re moving into a new era of centrist ideas, based around the importance of innovation and investment, creative thinking about regulation and jobs, and a greater appreciation of a global economy built around cross-border collaboration rather than “you-me” economic nationalism.

Rather than the center disappearing, I think we’re going to start seeing both left and right start drawing on ‘new centrist’ ideas. Let me just give a few of them:

*The importance of innovation for driving economic and job growth. When businesses try and innovate, we should reward rather than punish them, especially given the innovation shortfall of the past decade.

*The need to  think about investment in broad terms, including human capital and knowledge capital. Our conventional economic statistics, which measure only physical investment, are giving us a misleading view of the economy.

*The need to understand the true nature of the long-term fiscal and entitlement problem: The long-term rise in medical spending is a total reflection of falling or flat productivity in the healthcare sector. If we can fix that–through a combination of techological advances and institutional change–we can in effect grow our way out of the entitlement problem.

*The importance of rising real wages for young educated workers as a sign of the health of the economy. Real wages for young college grads have been falling since 2000–we cannot operate a modern economy this way, because our young people can no longer afford to pay for the education they need.

*The need to find some way to lessen the burden of regulation without losing touch with our social values. We need a systematic process for examining the thousands of regulations and carefully adjusting or removing the ones that slow down growth, while protecting public health, safety, and the environment.

*The need to think about the global economy in terms of supply chains which cross national borders. The U.S. needs to make sure that we are part of global supply chains and that we are getting our fair share of the benefits.  And we need new measures of competitiveness that take account of the new world.

I’m working on these ideas in affiliation with the Progressive Policy Institute (PPI), where I am Senior Fellow.  Will Marshall, who helped found the DLC so many years ago, is head of PPI, which is vibrant and growing. Please keep an eye on the PPI website here as we aim towards the future.

The Great Stagnation and Evidence-Based Medicine

For me, the Great Stagnation (Tyler’s term) or the Innovation Shortfall (my term) is concentrated in the biosciences. Here we’ve thrown  enormous scientific, corporate and public resources into biosciences, and made tremendous scientific advances.  Yet the prize of cutting-edge treatments seems further and further away.  Take this new study, which started with a simple hypothesis about sepsis, and ended up with a much more complicated picture:

Researchers from Rhode Island Hospital have identified a protein that plays a dual role in the liver during sepsis. The protein, known as RIP1, acts both as a “death switch” and as a pro-survival mechanism. …Ayala says, “We initially hypothesized that RIP1 was involved in the alteration of the apoptotic death pathway to result in a kind of ‘programmed necrosis’ in the liver. What we actually found was an alternative role for RIP1 in the pathobiology of sepsis in the liver — one that also promotes cellular survival.”…..McNeal says, “The function of RIP1 is much more nuanced than we originally thought.”

These are questions that could not be even asked before. And at every step, the answer turns out to be more complicated than  we thought.

But then it occurred to me. If new research is continually suggesting that  things are really much more complicated than  we thought, how much of the medicine we are actually practicing now is correct? A new report suggests that we should be worried:

Even when following medical guidelines to the letter, doctors often use treatments that have little or no scientific support, U.S. researchers said Monday.

They found only one in seven treatment recommendations from the Infectious Diseases Society of America (IDSA) — a society representing healthcare providers and researchers across the country — were based on high-quality data from clinical trials.

By contrast, more than half the recommendations relied solely on expert opinion or anecdotal evidence.

“Despite tremendous research efforts, there is still a lot of uncertainty as to what is the best patient care,” said Dr. Ole Vielemeyer, an expert in infectious diseases at Drexel University College of Medicine in Philadelphia and one of the study’s authors.

Oh, okay. Let me bring the Great Stagnation, the biosciences revolution, and evidence-based medicine into a single framework.

The conventional wisdom was that breakthroughs in understanding the human genome  would provide better treatments within the existing structure of medicine–like  putting better windows or a new floor or more comfortable furniture into an existing house.  The implicit belief is that we could build on existing medical knowledge, add in the new knowledge of the genome, and quickly get to new products.

But what if the main lesson of the  past ten years is that the house itself has rotten foundations and needs to be rebuilt completely?  What if  the biosciences sector can’t afford to take anything for granted from existing medicine because too much of it is not evidence-based?

This is both bad news and good news.  Starting from scratch and rebuilding foundations is obviously a daunting and expensive task. and helps explain why the biosciences sector has struggled to produce breakthrough treatments.  On the other hand, when you are rebuilding foundations, a lot of progress can be made without anything visible from the outside.

I just know I’m going to get a lot of pushback on this hypothesis.  Take your best shot…I’m just thinking it through now, and I’m quite open to new thoughts.

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