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Archive for June, 2012

Prices Aren’t Everything, Especially when Markets Fail: A Critique of the Mainstream’s Take on the Fed’s Bulletin on Family Finances ’07-’10


The Encyclopedia Britannica, under its definition of the price system states that “Prices are an expression of the consensus on the values of different things.” Unfortunately, mainstream neoclassical economic analysis buys into this notion. The underlying belief is that prices tell us everything we need to know. As a result, the neoclassical economics myopic focus on price, blinds them to what is happening in the real economy and as such, leads policy makers to miss key things going on in the economy.

A case in point; most economist and policy makers were not able realize that the rapid run-up stock market values in the late 1990s (the so-called dot-com bubble) was in fact a bubble that they did not reflect underlying value. Likewise during the early and mid-2000s the run up in housing prices was seen by most economists as an underlying reflection of value, based upon supply and demand (which can never be wrong). This holds true on the downside as well.  A prime example is the recent Federal Reserve’s bulletin: Changes in U.S. Family Finances from 2007 to 2010. If supposed real value went

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Big Business Cartoon

In Praise of Big Business: Part 2 (Why Government Policy Should be “Size Agnostic”)

In my blog last week, I drew from our forthcoming  book Innovation Economics: the Race for Global Advantage (Yale University Press) to show how the current “small business is better” obsession is misguided and that in fact big business is the key driver of U.S. economic prosperity and competitiveness: it pays higher wages, is more productive, produces proportionally more patents, does more R&D, exports more and is a critical driver of job growth.

Despite these clear benefits, the narrative in Washington is that Main Street mom-and-pop businesses are the backbone of the American economy and deserve special privileges. And of course many organizations, most prominently the National Federation of Independent Business (NFIB) which claims that it is “The Voice of Small Business,” play this for all its worth to extract “small business welfare” from the government. The NFIB portrays itself as the defender of the companies that create jobs and wealth and woe to any politician who dares to threaten these American-as-apple-pie economic engines. But while the NFIB’s membership may include a smattering of high-growth, innovation-based firms, the lion’s share are small Main Street firms that are almost completely

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Comcast DVR Display

The Present of Video

On Wednesday, the House Subcommittee on Communications and Technology is holding a hearing on the video business that will address the retransmission consent/program carriage issue. There is a legal requirement for cable and satellite companies to carry most local programming, and they pay a fee to the programming conduit for the privilege of compliance. These negotiations often become very ugly, as the local network affiliate typically values its programming much too dearly, but the cable/satellite company has no choice but to pay the asking price. The FCC is supposed to limit the price to “just and reasonable,” but in practice they never get involved at all.

People who get mad at the cable company for raising the price of service year after year invariably fail to realize that programming costs to the cable companies escalate year after year as well, so putting all the blame on the cable company is essentially shooting the messenger. One of the witnesses at the hearing is Gigi Sohn, founder of Public Knowledge, so I suppose the panel will get an earful of that sort of thing. Dish Networks has a clever little DVR that

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Gross Domestic Product Calculation Example

Changing Models when the Current Model is “Broken”

If there is one thing we can agree upon, it’s that there is little agreement about the nature of the current global economic crisis.  Everyone has their own view it seems.  Case in point is yesterday’s op ed in the Washington Post by columnist Robert Samuelson.  When looking to spur recovery, Samuelson points out, “we live in a world of broken models;” a statement perhaps everyone can agree with.

Based upon this statement, it would seem that a logical response would be to actually change the model when proposing solutions to our current economic problems.  Unfortunately, the rest of Samuelson’s piece is centered upon a model of the economy from the 1960s that has proven quite inadequate in explaining sustainable growth as well as job creation (along with numerous other flaws).

Samuelson goes on to summarizes that since consumption is down, government can’t increase spending, the private sector won’t invest and we can’t export, we are doomed to stagnation.  His “three possible solutions” are derived from the “broken model” itself.  It’s no wonder that he is left without a viable solution and claims that “there is no longer a

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Thanks for Today Alan Turing

You are reading this on a tablet, a handheld device or perhaps simply a desktop on which you may later stream a movie, download a book, email photos to a friend on the other side of the world, or book a flight to see that friend. If asked who you would thank for these technological marvels, who’s name would pop into your head? Steve Jobs? Maybe Robert Noyce, inventor of the integrated circuit. How about the scientists at the Defense Advanced Research Products Agency (DARPA) who laid the foundation for what became the Internet? Or perhaps, if you saw Google’s doodle today, you’d know to give credit to Alan Turing.

Turing was born on this date exactly 100 years ago. An eccentric genius, Turing, perhaps more than anyone in this century, can be credited for conceiving and creating the basis for the modern computing ecosystem; the algorithm, artificial intelligence, artificial language, the machine itself which bore his name. If no Turing, then no Microsoft, no Google, no Facebook.  “This was not just the first man to walk over the landscape, but this was the man who put the landscape

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FTC's Model Privacy Form

Bank Privacy Notices Cost Consumers Over $700M Annually

The Gramm-Leach-Bliley Financial Modernization Act of 1999 requires that financial institutions provide privacy notices to consumers at least once a year (or sooner if the privacy policy changes). Since this provision went into effect in July 2001 people tend to receive these notices in the summer. Yet when was the last time you read the privacy policy of your bank?  For most people, the answer is probably “never.” Consumers generally don’t like reading fine print and often find it confusing. (Although to address the complexity issue, the Federal Trade Commission (FTC) created a Model Privacy Form for banks to use to communicate privacy information more effectively to their customers.) Yet regardless of the apparent apathy of most customers towards the privacy policies of their financial institution, banks dutifully send out these notices every year as required by law.

The Gramm-Leach-Bliley privacy notices illustrate how misguided privacy regulations tend to be in the United States. Rather than provide any actual benefit to consumer privacy, they just serve to raise costs. And the costs of all of these privacy notices add up. According to a 2009 report from the FDIC, approximately

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Rio+20 Needs An Ideas Overhaul To Address Global Challenges

Originally posted on The Energy Collective.

For advocates of all things “green”, the Rio+20 Summit is supposed to charter a new path forward for the world to address its biggest challenges: reduce greenhouse gas emissions, eradicate poverty, end hunger, limit environmental destruction and increase access to clean water. But like recent climate change negotiations, the conference will result in little more than vague frameworks for future discussions and promises that will surely get broken. Instead, if the world wants to truly spur sustainable development, innovation must become the centerpiece of negotiations.

But before that can happen, international negotiators need a wakeup call: It’s time to stop pretending that ill-equipped and divisive policy tools will solve our global challenges. We’re a planet of seven billion people growing to 9 billion by midcentury. We’re a 60 trillion dollar global economy that must continue to grow to move billions from poverty. The threat of dangerous global climate change looms larger with each passing year. And over a billion people still don’t have access to energy, clean or dirty, say nothing about a lack of abundant food and clean water. In other words,

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In Praise of Big Business: Part 1

It’s become almost a truism that small business is good, big business is bad. After all, small businesses are run by red blooded mom and pop Americans rooted in their local communities, while big faceless corporations are run by profit hungry CEO’s only out to maximize shareholder value. In this narrative, it’s Main Street that deserves help while big corporations deserve ridicule, or at least suspicion. But it’s worth looking at the facts:

The companies that export and successfully compete against foreign companies in global markets are much more likely to be large companies. Firms with fewer than five hundred employees employ 49 percent of U.S. workers but account for just 25 percent of U.S. exports. The companies that are more productive and pay higher wages are large companies. Small firms are significantly less productive than large ones, meaning that their workers earn less. Workers in large firms earn 57 percent more than workers in companies with fewer than one hundred workers.

The companies that provide their workers with better working conditions and benefits are large companies.  Workers in large companies get 3.5 times more retirement benefits than

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Solar Panels

FY2013 Budget Process Shapes Future of Solar R&D

At this point in the budget process, several diverse scenarios have been proposed for the next fiscal year, indicating many possible progressions for the future of federal energy innovation investment.  As an example of the variety of possible outcomes for the next fiscal year and those that follow, the figure below examines three possible scenarios for the future of solar research and development investment.  As captured in the Energy Innovation Tracker, the Department of Energy (DOE) is not alone in supporting solar R&D – it is accompanied by the Department of Defense, the Department of Commerce, and the National Science Foundation.

Solar R&D investment saw a 30 percent average growth rate between FY2009 and FY2012. Scenario 1 assumes that the average rate of growth experienced for solar R&D investment during the last four years will persist into FY2013 and beyond.  Considering this scenario, solar R&D investments could reach over one billion dollars within a few years. In the figure, the first line indicates the actual spending investments from all federal agencies on solar R&D from FY2009 to FY2012, as well as the investments funded through the American Recovery and

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Lamonica at the ARPAE Summitt

PolyPlus Battery Commercialization Boosts American Manufacturing

Last week, the U.S. Department of Energy (DOE) announced that it was awarding PolyPlus a grant for nearly $9 million to develop advanced manufacturing capabilities for its next-generation lithium batteries. Specifically, the grant is supporting a pilot project in collaboration with Johnson Controls and Corning Inc. to manufacture PolyPlus’s innovative electrode, which is used in its lithium-air, lithium-water, and lithium-sulfur batteries. The development is significant for two reasons.  First, if successful, PolyPlus is taking a big step forward in producing – at scale – its advanced lithium batteries, which could be one of the first to market. Second, the project is another example of the important role manufacturing plays in the development of innovative, new technologies and the important role government policy can play to support it.

As ITIF has noted, PolyPlus previously received funding from the Advanced Research Projects Agency-Energy (ARPA-E) and has validated that investment by making particularly impressive progress in its development of its advanced lithium batteries. This includes a lithium-water battery that’s non-rechargeable, but has a record setting energy density and lifetime, making it perfect for underwater robotics and marine sensing.  More important to

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