Archive for April, 2013

We Have Always Been Rentiers

April 22nd, 2013  |  Published in anti-Star Trek, Political Economy, Statistics

In my periodic discussions of contemporary capitalism and its potential transition into a rentier-dominated economy, I have emphasized the point that an economy based on private property depends upon the state to define and enforce just what counts as property, and what rights come with owning that property. (The point is perhaps made most directly in this essay for The New Inquiry.) Just as capitalism required that the commons in land be enclosed and transformed into the property of individuals, so what I’ve called “rentism” requires the extension of intellectual property: the right to control the copying and modification of patterns, and not just of physical objects.

But the development of rentism entails not just a change in the laws, but in the way the economy itself is measured and defined. Since capitalism is rooted in the quantitative reduction of human action to the accumulation of money, the way in which it quantifies itself has great economic and political significance. To relate this back to my last post: much was made of the empirical and conceptual worthiness of Reinhart and Rogoff’s link between government debt and economic growth, but all such disputations presume agreement about the measurement of economic growth itself.

Which brings us to the United States Bureau of Economic Analysis, and its surprisingly fascinating “Preview of the 2013 Comprehensive Revision of the National Income and Product Accounts”. The paper describes a change in the way the government represents the size of various parts of the economy, and therefore economic growth. The most significant changes are these:

Recognize expenditures by business, government, and nonprofit institutions serving households (NPISH) on research and development as fixed investment.

Recognize expenditures by business and NPISH on entertainment, literary, and other artistic originals as fixed investment.

The essential issue is whether spending on Research and Development, and on the production of creative works, should be regarded merely as an input to other production processes, or instead as an investment in the creation of a distinct value-bearing asset. The BEA report observes that “expenditures for R&D have long been recognized as having the characteristics of fixed assets—defined ownership rights, long-lasting, and repeated use and benefit in the production process”, and that therefore the BEA “recogniz[es] that the asset boundary should be expanded to include innovative activities.” Likewise, “some entertainment, literary, and other artistic originals are designed to generate mass reproductions for sale to the general public and to have a useful lifespan of more than one year.” Thus the need for “a new asset category entitled ‘intellectual property products’,” which will encompass both types of property.

What the BEA calls “expanding the asset boundary” is precisely the redefinition of the property form that I’ve written about—only now it is a statistical rather than a legal redefinition. And that change in measurement will be written backwards into the past as well as forwards into the future: national accounts going back to 1929 will be revised to account for the newly expansive view of assets.

Here the statisticians are only following a long legal trend, in which the state treats immaterial patterns as a sort of physical asset. It may be a coincidence, but the BEA’s decision to start its revisionist statistical account in the 1920’s matches the point at which U.S. copyright law became fully disconnected from its original emphasis on limited and temporary protections subordinated to social benefits. Under the Copyright Term Extension Act, creative works made in 1923 and afterwards have remained out of the public domain, perpetually maintaining them as private assets rather than public goods.

A careful reading of the BEA report shows the way in which the very statistical definitions employed in the new accounts rely upon the prior efforts of the state to promote the profitability of the intellectual property form. In its discussion of creative works, the report notes that “entertainment originals are rarely sold in an open market, so it is difficult to observe market prices . . . a common problem with measuring the value of intangible assets.” As libertarian critics like to point out, an economy based on intellectual property must be organized around monopoly rather than direct competition.

In order to measure the value of intangible assets, therefore, the BEA takes a different approach. For R&D, “BEA analyzed the relationship between investment in R&D and future profits . . . in which each period’s R&D investment contributes to the profits in later periods.” Likewise for creative works, BEA will “estimate the value of these as­sets based on the NPV [Net Present Value] of expected future royalties or other revenue obtained from these assets”.

Here we see the reciprocal operation of state power and statistical measurement. Insofar as the state collaborates with copyright holders to stamp out unauthorized copying (“piracy”), and insofar as the courts uphold stringent patent rights, the potential revenue stream that can be derived from owning IP will grow. And now that the system of national accounts has validated such revenues as a part of the value of intangible assets, the copyright and patent cartels can justly claim to be important contributors to the growth of the Gross Domestic Product.

The BEA also has interesting things to say about how their new definitions will impact different components of the overall national accounts aggregate. They note that the categories of “corporate profits” and “proprietors’ income” will increase—an accounting convention perhaps, but one that accurately reflects the constituencies that stand to benefit from the control of intellectual property. Thus the new economic order being mapped by the BEA fits in neatly with Steve Waldman’s excellent recent post about late capitalism’s “technologically-driven resource curse, coalescing into groups of insiders and outsiders and people fighting at the margins not to be left behind.”

The changes related to R&D and artistic works may be the most significant, but the other three revisions in the report are worth noting as well. One has to do with the costs associated with transferring residential fixed assets (e.g., the closing costs related to buying a house), while another has to do with the accounting applied to pension plans. Only the final one, a technical harmonization, has to do directly with wages and salaries. This is perhaps an accurate reflection of an economic elite more preoccupied with asset values than with the direct returns to wage labor.

Finally, the reception of the BEA report provides another “peril of wonkery”, related to the one I described in my last post. The Wonkblog post about the report makes some effort to acknowledge the socially constructed nature of economic statistics: “the assumptions you make in creating your benchmark economic statistics can create big swings in the reality you see.” And yet the post then moves directly on to claim that in light of the statistical revisions, “the U.S. economy is even more heavily driven by the iPad designers and George Lucases of the world—and proportionally less by the guys who assemble washing machines—than we thought.” This is no doubt how the matter will be described going forward. But the new measurement strategies are only manifestations of a choice to attribute a greater share of our material wealth to designers and directors, and that choice has more to do with class struggle than with statistics.

The Perils of Wonkery

April 16th, 2013  |  Published in Politics

The economics blogosphere is buzzing about the errors that were recently exposed in an influential paper by Carmen Reinhart, Vincent Reinhart, and Kenneth Rogoff, which claimed that countries with high levels of debt tend to have slower economic growth. See Mike Konczal for the summary or here for the full paper by Thomas Herndon, Michael Ash, and Robert Pollin. In short, the original Reinhart-Rogoff paper had three significant problems, ranging from cherry-picking data, to dubious weighting schemes, to—most embarrassing of all—an Excel spreadsheet error that accidentally left out several crucial data points.

The reaction of the left-wing peanut gallery (at least to judge by my Twitter feed) has been to ridicule liberals for caring about this at all. Obsessing over the analytical missteps in this paper reeks of the preoccupation with having correct and empirically supported arguments, while ignoring the importance of power and ideology. For while this new critique of Reinhart-Rogoff just now became possible because they finally made their original data available, plenty of people pointed out earlier that the whole analysis rested on shaky conceptual foundations. It used a correlation to assert that high debt to GDP ratios lead to slower growth, ignoring the much more plausible theory that the causal order was the opposite, with slow growth leading to increasing debt loads. If the political elite in Washington failed to heed these criticisms, it wasn’t because they were unaware of them, but because the claim that debt leads to slow growth fit a deficit hysteria that was already entrenched. In other words, Reinhart-Rogoff was being used as rhetorical cover for a pre-existing position, not as an actual empirical aid to decision-making.

But rather than dismiss Excel-gate as much ado about nothing, maybe we can use it as a cudgel against the pernicious rise of the “policy wonk” as a model for journalism. As Bhaskar Sunkara noted in a recent article for In These Times, the wonk is a new iteration of American journalism’s obsession with “objectivity”, in this case filtered through the predilections of the “technocrat, obsessed with policy details, bereft of politics, earnestly searching for solutions to the world’s problems through the dialectic of an Excel spreadsheet.” The Reinhart-Rogoff revelations do more than just reveal the folly of relying on the wrong spreadsheets—they expose the shallowness and dishonesty that pervades much of the wonk-journalist milieu.

To return to a familiar whipping boy, let’s review the initial reaction to Reinhart-Rogoff’s paper last summer, over at Ezra Klein’s Wonkblog at the Washington Post website. A post by Suzy Khimm was entitled “Study: Long-term deficits are linked to 24 percent lower growth”, and it simply repeated the study’s claims without critique. For added truthiness, the post is embellished with a graph reproduced from the paper, demonstrating the difference in GDP growth between a group of low-debt and high-debt countries.

As we now know, that graph was based on erroneous data marshaled in support of a logically flimsy premise. But while the data errors wouldn’t be revealed for months, not everyone was fooled. Matt Yglesias—a writer often lumped in with wonks like Klein— dismissed the Reinhart-Rogoff paper as “confused correlation-mongering”, on the grounds that the reverse causal story about debt ratios and growth was far more plausible. (Incidentally, the way Yglesias approached Reinhart and Rogoff’s claims demonstrates how poorly he fits the mode of the Ezra Klein-style wonk-journalist. In contrast to the wonky preoccupation with empirical studies and pretty graphs, Yglesias has argued that “evidence is overrated”, and he often offers positions based on his own ideological predilections and reasoning from first principles.)

This is an approach that can get you into trouble in other ways, but it does sidestep one of the big problems confronting the wonk. The function of the wonk is to translate the empirical findings of experts for the general public. And he is supposed to be distinguished by an immersion in the details of studies and policy papers. But if the wonk wants to cover a wide range of subjects, they will necessarily have far less expertise than the people whose findings are being conveyed. Hence it becomes necessary to make a concealed argument from authority. When Wonkblog presents the findings of Reinhart and Rogoff without comment, they are implicitly telling us, “trust these people—they’re famous academic economists”. This is because they don’t have the ability to do what people like Paul Krugman did, and actually assess the correctness of the famous economists’ claims.

Performing this con on the public is dangerous enough. But insofar as the wonk gets high on his own supply, and starts to trust the findings of congenial academics without verifying, the temptation to take shortcuts can be overpowering. It’s easy to read the abstract and the conclusion of a paper and trumpet its findings, without looking too closely at whatever equations or models lie in between. This isn’t actually any more hardheaded than relying on one’s feelings, but it’s an appealing way to give one’s prejudices a fact-like veneer. That’s what seems to have happened to Ezra Klein’s understudy Dylan Matthews, who uncritically accepted some claims about the effect of teachers’ strikes on student achievement, which Doug Henwood was able to easily pick apart by actually reading the studies he was referring to.

This wouldn’t be so aggravating if the wonks were more open about their ideological orientation. If Yglesias promoted a study finding a relationship between strict occupational licensing and slow economic growth, I’d know to look carefully into the details, since his pre-existing views on that subject are well-known. With the wonks, though, close reading and an understanding of ruling class ideology are required to extract the political orientations that are guiding their judgment.

As the policy wonk has risen in prestige, we seem to have reached the point where this entire class of commentators is highly susceptible to what I’ll call “Charlie Rose disease”. It’s a malady named for the host of the eponymous TV show, who has always impressed me with his ability to convey an impression of knowledge and gravitas to his viewer. If you watch his show and actually listen to him talk, you’ll quickly notice that Rose is a shallow thinker even by television standards, and generally quite ignorant about the things he interviews people about. But everything about him—from his face to his cadence to his posture to his austere black-background set to having his show on public television—works together to produce the image of intellectual seriousness, even more than for most TV news hosts.

And so it is with the wonk—he needs to appear to be deeply knowledgeable about a wide range of obscure and technical subjects. But this entails concealing both one’s ideological biases and one’s substantive lack of knowledge, and relying on the borrowed prestige of academics and experts. In doing so, the wonk becomes the conduit for the experts, or more exactly a crucial means by which their authority is reproduced. The wonk takes the expert’s pronouncements at face value because they are serious, mainstream figures, and the fact that journalists do this reinforces their seriousness and mainstream-ness. One could hardly devise a better way of policing ideological boundaries and maintaining the illusion that the ruling ideology is merely bi-partisan common sense.

The unraveling of the Reinhart-Rogoff “fact” about debt and growth was only unusual because the supporting research was unusually sloppy. In that sense, critics are correct that there’s nothing particularly special about this one case. But the very absurdity of the episode makes it useful as a means of unmasking the entire corrupt enterprise of policy wonk journalism and its “just the facts, ma’am” pretensions.