How Many Manufacturing Jobs Does the App Economy Need?

How many manufacturing jobs does the App Economy need? What would a ‘balanced’ U.S. economy look like? (Clue: It has more manufacturing jobs than we have now).

Join PPI in DC on May 2 for what we expect will be a terrific event discussing these key questions. The event will feature myself presenting PPI’s new study, joined by Jared Bernstein of the Center on Budget and Policy Priorities, Leo Hindery of Intermedia Partners, and Louis Uchitelle of the New York Times. For details and RSVP for the event, see here.

Why Instagram Purchase Is Good News for App Economy Jobs

The $1 billion purchase by Facebook of Instagram, a startup with a hot mobile photo app, was played up by the New York Times as a way for Facebook to stave off competition–”eat the new start-up before it eats you, or before a competitor grabs it.”

However, there’s another way to think about the Instagram purchase. Facebook just sent a strong signal to potential entrepreneurs and venture capitalists: If you have a good idea for an app, or can find someone with a good idea for an, you can get very rich very quickly by being acquired by a Facebook, or a Google, or a Microsoft. All of a sudden starting or financing a new company, with plenty of new employees, looks a lot more appealing.

In effect, an acquisition such as this one will likely stimulate competition, investment and job growth in the App Economy. Nothing spurs business creation and job growth like the prospect of making money fast. And the existence of deep-pocketed acquirers who are willing to spend heavily accelerates entrepreneurship. One startup today (Instagram) may be replaced by five tomorrow. (This argument was made at length in a paper I wrote last fall with Diana Carew “Innovation by Acquisition: The New Dynamics of High-Tech Competition.” )

What about the argument that purchases like this one are just fueling a new bubble? My answer: Having lived through the boom and bust of the 2000s, I’d be very happy to get a repeat of the boom and bubble of the 1990s. At least the dot.com boom one left us with the Internet and a full cabinet of new capabilities, rather than a bunch of empty houses and bankrupt countries. A technology bubble beats a financial bubble, any day of the week.

Speaking at App Economy Event in NJ

I’ll be speaking on the App Economy in New Jersey on Wednesday with Frank R. Lautenberg and FCC Chairman Julius Genachowski.

http://www.fcc.gov/events/genachowski-and-lautenberg-announce-mobile-app-economy-initiatives

http://www.stevens.edu/news/content/new-jersey-and-apps-economy

Live streaming here

App Economy Continues to Grow

This morning’s employment report confirms that the App Economy continues to grow, while much of the rest of the economy stays weak. The number of people working in computer and mathematical occupations is up by 7.5% over the past year, compared to a 1.1% gain for all other management and professional occupations. Take a look at this chart, which shows the change in employment in all management and professional occupations over the last year.  Two things are striking here. First, computer and mathematical occupations are far outpacing all other management and professional occupations. Second, job growth in many management and professional occupations is actually negative over the past year. 

The worst performance is found among life, physical and social scientists, a group which alas includes economists.  But there is an awful lot of ‘red’ in this chart.

1.3 million jobs lost to rising imports since 2007

Here’s a quick question. The U.S. has lost 4 million private nonconstruction jobs between 2007 and 2011. The major causes of this job loss include:

A) Weak demand;
B) Strong productivity growth;
C) Rising imports.

Most economists would answer A or B. Imports have not been treated seriously as a cause of job loss during the Great Recession. The reason is simple: According to the official date, real nonpetroleum imports are barely back to their pre-recession levels. You can’t have job loss from imports if imports aren’t rising.

But two new studies from PPI show that the official data is wrong about the behavior of imports. We properly adjust for the economic impact of low-cost imports from countries such as China, and find that real nonpetroleum imports did rise from 2007 to 2011 by some $131 billion (in 2011$), instead of being basically flat.

As a result, we estimate that 1.3 million jobs have been lost to rising imports since 2007. That accounts for almost one-third of the private nonconstruction job loss between 2007 and 2011.

The two studies:

Hidden Toll: Imports and Job Loss Since 2007

 Measuring the real Impact of Imports on Jobs 

 

Washington Post on productivity

Yesterday the Washington Post had a great piece in the business section entitled  ”Economists offer more pessimistic view on manufacturing in upcoming report.”

During the 2000s, as U.S. manufacturing was transformed by devastating job losses, prominent economists and presidential advisers offered comforting words.

The paring of the manufacturing workforce, which shrank by a third over the decade, actually represented good news, they said. It meant that U.S. workers and factories had become more efficient and that, as a result, manufacturing companies needed fewer people….

….But a handful of economists are challenging that explanation, chipping away at the long-offered assurances that the state of U.S. manufacturing is not as bad as employment numbers make it look.

Instead, they say, it’s significantly worse.

What caused the job losses, in their view, is less the efficiency of U.S. factories than the failure of those factories to hold their own amid global competition and rising imports. The apparent productivity gains reflected in the official U.S. statistics have been miscalculated and misrepresented, they say, a position that has been at least partially validated by recent research.

Of course, readers of this blog will have guessed that the WaPo article draws heavily on research that I’ve been doing with Sue Houseman. This research was also  cited extensively by Rob Atkinson in his new manufacturing report.

The WaPo article was critiqued by Karl Smith on the Modeled Behavior blog, who asked:

…an important point is that while import price bias can produce granular statistics that do not measure what they claim to measure, they must do that at the expense of something else happening.

So, for example, if proper accounting shows that the real value of an IPad is 70% foreign rather than 50% foreign, then something has got to go the other way to explain how 50% of the revenue shows up in Apple’s bank account after supply chain costs.

Karl raises a good point, but the answer is simple. Remember that the BEA divides corporate profits into domestic profits and ‘rest-of-the-world’ profits.  Domestic profits are counted as part of domestic income, but ‘rest of the world’ profits are not.

Import price bias causes “too much” of corporate profits to be allocated to domestic income.  Suppose that Wal-mart switches from a Japanese supplier to a cheaper Chinese supplier. That drop in import costs  shows up as a gain in domestic profits, even though nothing has changed in the domestic economy.  Moreover, we get a real gain in domestic profits even after adjusting for price changes, because of the import price bias.

This is a fundamental problem with the economic statistics as they are currently constructed. We are trying to measure a cross-border global supply chain economy with nation-based economic statistics, and it just isn’t working. There is no easy fix.

 

Walter Russell Mead on Production vs Consumption

A terrific piece by Walter Russell Mead on the production economy vs the consumption economy,  accompanied by an equally terrific blog post.  The piece, in the American Interest Magazine, is titled “Liberalism on Life Support” on the cover, but the version in the magazine and on the web is called  ”The Once and Future Liberalism.” I like the second title better.

Here is an excerpt from the printed piece:

Many Americans became (and remain) stuff-rich and meaning-poor. Many people classified as “poor” in American society have an historically unprecedented abundance of consumer goods—anything, essentially, that a Fordist factory here or abroad can turn out. But far too many Americans still have lives that are poor in meaning, in part because the blue social model separates production and consumption in ways that are ultimately dehumanizing and demeaning. A rich and rewarding human life neither comes from nor depends on consumption, even lots of consumption; it comes from producing goods and services of value through the integration of technique with a vision of social and personal meaning. Being fully human is about doing good work that means something. Is a blue society with our level of drug and alcohol abuse, and in which the average American watches 151 hours of television a month, really the happiest conceivable human living arrangement?

And from the blog post:

But the real problem with the debt-based, consumption-focused blue social model, the one that bothered many social critics even in the days when the blue model was working and looked sustainable, is one of values. A consumption-centered society is ultimately a hollow society. It makes people rich in stuff but poor in soul. In its worst aspects, consumer society is a society of bored couch potatoes seeking artificial stimulus and excitement. They watch programs on television about adventures they will never have. They try to change their consciousness through the consumption of products (entertainment, consumer goods, drugs) rather than by changing the world and accomplishing things. The massive use of recreational and mood altering drugs reflects and embodies the distortions that a passive, consumption-based society produces in human populations over time.

There is a kind of double consciousness that a consumer society gives people. On the one hand, in the realm of consumption, you are king. Companies bid for your attention and favor. You are a critic and a connoisseur: politicians bid for your votes, networks and film companies for your attention. As long as you are spending your money (earned or borrowed) society feeds your sense of power and worth.

But outside of that realm of consumption, most Americans had very little power under the blue model.