Wednesday, June 27, 2012

Survey Respondents: Mercenaries of Slaves?

Copyright, The New York Times Company

Economic data is valuable, which is why survey respondents should be paid for their efforts.

Several members of Congress have proposed to eliminate the American Community Survey (a survey of households with special attention to geography and housing), or at least change how the survey is conducted, because it is too intrusive. In particular, the American Community Survey mandates that, with little or no compensation, randomly selected individuals assist the Census Bureau in their data collection by answering a number of questions about how they live.

Economists and business people have recently spoken out on the significant value of the American Community Survey data for their research. The economists Emi Nakamura, Jon Steinsson and Nicolas Vincent explained how the Census Bureau data “provide researchers and the public with a trove of information on everything from the size of families’ mortgage payments in Boise, Idaho, to the nation’s median annual income.”

I agree that economic survey data are valuable, and have used them many times in my own research. But in documenting the value of those data, economists have so far failed to address legislator concerns about survey burdens.

The survey for households consists of 30 pages of forms and instructions. The Census Bureau estimates that the survey takes an average of 38 minutes for each household to complete (including time for reading instructions), which is a total of 1.31 million hours per year for the 2.06 million survey participants in 2010.

But a few economists insist that the survey burdens are absolutely necessary: “Making census-type surveys voluntary … can actually increase costs because the sample size would need to be increased to offset biased response rates.” Processing data from a voluntary collection scheme, they believe, would be too difficult and would take away from some of the value provided by those surveys.

This episode reminds me of debates about military manpower during the Vietnam War. Before 1973, our government would require randomly selected individuals – draftees with low draft lottery numbers – to assist the Department of Defense by acquiring military skills and joining troops in the battlefield. President Nixon appointed the Gates Commission in 1969 to consider whether military manpower could instead be acquired in a normal labor market – that is, on an all-volunteer basis.

At first, military leaders were opposed to an all-volunteer system, referring to volunteers as “mercenaries” and insisting that an all-volunteer system would be less effective. (Gary S. Becker also tells the story that his paper “The Case Against the Draft” was rejected by the Air Force-supported Rand Corporation because Air Force leaders were convinced that the draft was beneficial.)

It was also believed that a draft is cheaper because it allows the military to recruit manpower without paying market wages. But as Milton Friedman persuasively explained to fellow members of the Gates Commission, the cost of the military is not limited to the Department of Defense payroll but also includes the burdens imposed on those drafted and their families. By paying market wages, the all-volunteer system helps shifts some of that burden from the families with unlucky draft numbers to taxpayers generally.

For the same reason, I don’t believe that the randomly chosen American Community Survey respondents should be asked to bear the burden of the survey collection. Rather, taxpayers should bear it by compensating survey respondents for their voluntary participation.

Although the official survey budget does not include an “expenditure” for the time of survey participants, survey participants’ time amounts to a social cost of about $54 million per year (valuing hours answering survey questions at the national average labor compensation per hour of about $41.50).

As the University of Chicago economist Tomas Philipson’s research suggests, using incentive-based compensation for survey participants — similar to that used in many other labor markets — could make government data not only more plentiful but also of better quality, compared to compelling people and businesses to take part at no pay.

Economic data would be of better quality if supplied, as Milton Friedman put it, by mercenaries rather than by slaves.

Wednesday, June 20, 2012

What Happened to Microsoft's Monopoly?

Copyright, The New York Times Company

As Apple introduces a range of new products, it is worth remembering that there is no such thing as a monopoly in the computer industry.

Fourteen years ago, the Justice Department accused Microsoft of maintaining a monopoly in personal-computer operating systems and expressed concern that Microsoft would extend that monopoly.

At the time, 90 to 95 percent of personal computers powered by Intel processors were running a Microsoft operating system. Some analysts said that this left PC owners little choice, and that Microsoft was preventing the marketplace from functioning well. Others suggested that the market was functioning quite well and that so many PCs ran a Microsoft operating system because of the combination of low price, desirable features and networking advantages.

Two years later, a federal district judge agreed with Department of Justice and ordered Microsoft to be broken into several technology companies – a ruling later vacated by a higher court.

Watching Apple introduce some amazing products last week, including laptops (which have been running Intel processors for several years now) and operating systems for mobile and desktop devices, it is difficult to imagine that the Justice Department once thought that, without government intervention, consumer choices would be significantly limited by Microsoft.

Interestingly, on Tuesday, Microsoft announced that it was introducing a tablet, the Surface, that will compete in the strong and growing market dominated by Apple’s iPad. Market forces are clearly working to give consumers choices in the market.

The first chart below shows Apple’s share price as a ratio of Microsoft’s, both on a monthly basis and adjusted for dividends and splits. The ratio is normalized to one in June 1998, when Justice filed its antitrust suit. I have indicated some of the interesting market events that began a significant movement of customers away from Microsoft and toward Apple: the introduction of a Windows-compatible iPod, the opening of the iTunes store and the introduction of the iPhone (both a phone and a pocket-sized personal computer, running an operating system written by Apple).

Now, relative to Microsoft’s share value, Apple share values have increased almost 60 times, largely because of Apple’s new products and the market’s anticipation of its future products. This next chart from shows some of that history by quantifying the number of number of personal computers shipped in each year since 1975.

The Rise and Fall of Personal Computing

Growth of computing platforms, in thousands of units shipped per year. Scale at left is logarithmic.Asymco.comGrowth of computing platforms, in thousands of units shipped per year. Scale at left is logarithmic.

The chart shows PCs (which here means I.B.M.-compatible lineage, primarily running a Microsoft operating system) overtaking other personal-computing machines in the mid-1980s. However, in the mid-2000s Macintosh and iPhone shipments took off, soon followed by iPads and Androids. By 2011, PCs were less than half of all shipments.

In the computer industry at least, current market shares are no guarantee of future success. What might appear to be monopolies are frequently and decisively broken by innovative competitors rather than antitrust regulators.

Wednesday, June 13, 2012

Leaks and Press Freedoms

Copyright, The New York Times Company

Government leaks and a free press are not always compatible.

Democracy is said to depend on freedom of the press and other news media, especially the freedom to publish information and opinions without approval or censure from government officials. Empirically, there is a strong correlation between press freedoms and the fairness of elections, absence of autocratic leaders and other hallmarks of democracy.

Full and complete freedoms of the press and other news media are not an automatic consequence of economic development, education and other factors thought to foster democracies. For example, a 2001 World Bank study of 97 countries found that governments commonly owned their nation’s television stations.

Even in Western Europe, countries otherwise known for their political freedoms, government television stations made up more than half of the television market.

In the United States, most newspapers, television stations and cable television channels are owned and operated by private or publicly owned companies, and the government has little to say about what is published in or broadcast over them, with the exception of obscene, indecent or profane programming transmitted by conventional broadcasting systems, which are subject to regulation by the Federal Communications Commission.

One suspects that Americans and news organizations would loudly object if the government offered cash subsidies to newspapers or television stations as a reward for printing or broadcasting favorable coverage of elected officials or levied special taxes on news organizations as a punishment for unfavorable coverage.

Such practices would not explicitly prohibit unfavorable coverage but would make it more difficult for outlets that displeased the government to survive in a competitive marketplace for readers and viewers.

But candidates and officials can and do reward specific news organizations with personal appearances and interviews that the news organizations and their owners find valuable — or withhold interviews from those they find hostile, as Barack Obama did with Fox News for much of his first presidential campaign.

The private sector does not have the moral high ground, and there are times that private media outlets are unfair to government officials. Nevertheless, the American approach has been to prohibit the government from levying cash penalties on or offering cash rewards to media outlets on the basis of the fairness of their coverage.

Sometimes, however, government officials possess information that would be of interest to the public, and thereby valuable for news organizations. In principle, officials could reward favorable coverage by distributing or “leaking” more information to sympathetic outlets than to unfriendly ones.

We don’t yet have a data set or systematic study of the transactional characteristics of leaks — such as which outlets receive the most leaks and whether those outlets are more favorable in their coverage to the agencies doing the leaking. But government leaks can potentially be a noncash currency that can be traded between the government and news organizations.

Democracy is not jeopardized by a few leaks, and news media deal in a whole array of sports, business and other information to which government officials have no special access. But punishing government leakers is not inconsistent with democratic values. By preventing leaks from being used by the government as a currency for rewarding or penalizing media outlets, it could help keep the press truly independent.

Wednesday, June 6, 2012

Active Government Means More Lobbying

Copyright, The New York Times Company

As our government enters into new policy areas and revamps old ones, expect lobbyists and others to be more politically active than ever.

Government has undertaken a whole new range of activities in the last several years, from running a major automobile manufacturer to buying stock in banks to providing health insurance for able-bodied middle-aged adults. Other areas of government involvement, like education, military spending, Medicare and Medicaid have become increasingly costly over the last decade.

Some people think government activities in these areas are long overdue. Others say government expansion was unnecessary. Either way, both sides can agree that businesses, institutions and families have more at stake in their government.

It’s only natural, then, that businesses, institutions and families would spend more resources trying to influence public-sector decisions. Just as in many other types of behavior, political behavior is affected by costs and benefits. And the costs and benefits of influencing the government have continued to grow.

State and local governments have been cutting back some employees and reducing some activities. But in the short run, businesses and people have a lot at stake in state and local government activities, too. If nothing else, they can try to influence the composition of state and local government cuts.

Their interest in public policy is an important reason that businesses, organizations and individuals make campaign donations, and why these various parties protest against government actions in a variety of ways.

Some people have expressed dismay at the unprecedented amounts spent on 2012 political campaigns. But heightened political spending and other forms of political participation are an expected consequence of our more active government.

As explained by a pioneer in political economy research, Gordon Tullock, the real surprise about spending on campaigns and lobbying is how little it is compared with the amount of resources controlled by governments.

The federal government spends about $4 trillion every year, and state and local governments another $2 trillion, not to mention the resources these governments control through regulatory activities.

At the same time, estimates of aggregate campaign and lobbying spending are well below than 1 percent of total government spending. For example, analysis of filings under the Lobbying Disclosure Act finds that $3.5 billion was spent on lobbying in the year 2010.

Although economists have trouble explaining why observed lobbying spending is so little in total, economic analysis has been successful at explaining why there is more lobbying in California than, say, Vermont and why lobbying expenditure often peaks at the height of legislative activity. More is at stake.

For better or for worse, an active government begets lobbying activity.