Baseline Scenario

The Baseline Scenario
The Future of Computing?
Speculators ‘R’ Us: The G8 And Energy Prices
People Who Think Taxes Will Have to Go Up
The Limits of Economics
The Future of Computing?
Posted: 10 Jul 2009 12:40 PM PDT
Google announced the Google Chrome “Operating System” a few days ago, and the world I used to live in is abuzz with people talking about the earthquake this represents for the computing industry. TechCrunch says, “Google Drops a Nuclear Bomb on Microsoft.” Leo Babauta of Zen Habits has a more thoughtful response, but also subscribes to the “future of computing” theme: “Google is moving everything online, and I really believe this is the future of computing. The desktop model of computing — the Microsoft era — is coming to an end. It’ll take a few years, but it will happen.”
The basic idea is that the future is all about connectivity. All your data and apps will be in the sky (on servers that you can access from anywhere). And, according to Babauta, the way we use computers is also changing:
While the business world has long used Microsoft Word to create rich documents full of formatting and charts, the increasingly mobile world doesn’t care about any of that. We send emails and text messages and tweets and messages on Facebook and forums and other social media — with no formatting at all. We do blog posts that have bold and italics and links and photos and videos and not much more in terms of formatting text.
We don’t need feature-bloated Microsoft Word anymore. Nor Excel, with its 2 million features, nor PowerPoint (who likes to watch slides?). Sure, there are still some great desktop apps that people use, for photo and video editing and much more … but the majority of us don’t need those. We need to communicate simply and quickly, without hassle.
I’m sympathetic to this picture, in part because I work on several different computers at different times. I already store a lot of my information on the Internet (including all my law school notes, which are accessible to all my classmates); I use web apps where feasible, including Gmail, Google Calendar, Google Docs (for lightweight work), Google Reader, Google Sites, Flickr, this blog, and so on. But I think there are a couple of holes in this story.
The small hole is that Google Chrome OS just doesn’t add up for me (even though Google Chrome is my favorite browser). In the old parlance, it isn’t even an operating system; it’s what used to be called an “operating environment.” The OS is Linux; Google Chrome OS is just the layer on top that you can see and touch.
More importantly, Google Chrome OS looks to me like a crippled version of Ubuntu (a popular desktop flavor of Linux), which is also free and open source. I recently installed Ubuntu on an old laptop, and I mainly just use the browser (Firefox). But if I need or want to use other applications on the laptop itself, I can; for example, if I’m doing some blogging and I want to download some data into a spreadsheet, I can. (Don’t try telling me that Google Docs has a spreadsheet program that’s usable for anything other than adding and subtracting, at least not yet.) Or I can play MP3s via the MP3 player, instead of having to stream them from some web site. With Google Chrome OS, all I’ve got is the browser. The only compensating advantage I can think of is that it should start up faster than Ubuntu, but since Ubuntu rarely needs to be rebooted, that doesn’t matter much.
The big and more interesting hole is that all this “future of computing” talk should come with an asterisk, with a note saying: “Applies only to personal computing by consumers with limited needs.” The technology media tend to think that the state of computing is reflected in the tools that they use: netbooks, built-in 3G wireless, Gmail, Facebook, Twitter, Amazon, eBay, etc. But I would submit that the computing that really matters is the kind that goes on inside companies.
Brad Delong recently cited Robert Allen on the central role of “productivity-raising machinery” in the transformation of the first industrial revolution into the second industrial revolution and a virtuous cycle of continuous improvement. Recently, people have talked about computer technology playing a similar role in boosting productivity across the economy, although on a smaller scale. But if computers are going to increase productivity and thereby our standards of living, it is not (or not primarily) because they make it easy to create and view pictures of cats with misspelled captions, entertaining though that is.
And there, where it really matters, at least from a macro-economic perspective, the future of computing is a long, long way off. If you hypothesize a uniform unit of “work” done by computers used in businesses – and I mean useful work accomplished, not calculations performed – all of my own observations indicate that the vast majority of this work is still being done by old-fashioned mainframe computers, and most of the rest is being done by those much-hated “client/server” systems.
I’m willing to allow the possibility that in some areas like manufacturing it’s possible that computers have made possible huge amounts of productivity-increasing automation. But in the mass services industries that I’m more familiar, like insurance, the efficiency gains provided by computers have been limited. Think about every time you have tried to do something simple at an airport – like change your frequent flyer number – and watched as the agent typed code after code after code. Or all the times your customer service representative couldn’t answer the simplest question on the phone. My company, which does something so boring no technology writer would ever dream of writing about it, has been pretty successful because we picked an industry that was vastly underutilizing or misusing technology, and we built systems that, while far better than anything our customers had before, are not at the bleeding edge of software.
The big problem in the way most large companies use computer technology is not the software per se; it’s the complexity of conceptualizing, designing, building, and testing huge applications involving millions of lines of code to manage business processes in new and better ways, when those new and better ways can only be dimly glimpsed from the perspective of the current situation. Planning and running these projects is something that most companies are admittedly bad at. The example closest to the usual themes of this blog would be the failure of the mortgage servicing companies to get their modification programs off the ground, in part because they can’t get the systems and processes in place quickly enough. But this happens over and over again in virtually all large companies.
And for me, this is actually a reason to be hopeful. The potential for information technology to improve productivity is still enormous, and we don’t need netbooks or cloud computing or new operating systems or quantum computers to get there. The hardware and software tools of today – or of five years ago – would work just fine, if companies could figure out how to apply and implement them successfully and repeatably. From the point of view of the economy, whether college students are using Windows, OS X, Linux, Android, or Google Chrome OS in five years really doesn’t matter.
I don’t think the people talking about Google Chrome OS would actually disagree with this; they’re just more interested in knowing what tools they will be using in the future. But given that our economy has to figure out some way to increase productivity growth for the long term, the important question is whether companies will figure out how to use existing technology more effectively. The information technology industry is very, very immature. It can improve a lot.
By James Kwak

Speculators ‘R’ Us: The G8 And Energy Prices
Posted: 10 Jul 2009 03:30 AM PDT
The G8 summit was obviously disappointing, even for those with low expectations. Usually, the substance is lacking but the public relations are well managed. This year even the messaging was messed up - they said some new things on climate change but not what we were told they could say, the food aid/development package was lamer than advertized, etc. So the whole thing looks like an expensive flop.
But actually it was much worse.
I’ve written elsewhere this week about the G8’s broad decline in legitimacy and appeal relative to the G20 , and the specific pressing issue of cross-border resolution authority for failed banks – which is a matter of pressing urgency, yet not something taken up in or around this summit.
Think now about the macro/financial angle. Writing in the WSJ on Wednesday, Gordon Brown and Nicolas Sarkozy argued that speculation in financial markets lies behind the fluctuations in oil prices. The G8 went along with this message.
On any given Friday, I’m perfectly willing to believe that there are either specific manipulations or broader structural issues with regard to trading in oil futures. I welcome the CFTC’s moves to (finally) regulate markets more effectively.
But, more generally, the G8 – and its members this week – are disingenuous when they speak about energy prices, in three ways.
1) They are trying hard to talk up the market, with regard to global growth. At the same time, the hard data continue to disappoint. Naturally, this causes volatility in oil prices.
2) They claim to see no link between their failure to converge on climate change/environmental policies and what happens to energy prices. The extent to which industrialized countries’ effectively control carbon emissions will have a big impact on the longer-run demand for oil. Flip-flopping on this issue discourages investment in the energy sector (regular and alternative), and thus directly and indirectly contributes to oil price volatility.
3) The very cheap money policies of leading central banks, including the Fed, the Bank of England and arguably also the European Central Bank, lower the funding costs for big players who want to take large positions in commodities markets. Essentially, we are providing the credit that makes big speculative positions possible. Add to this mix a “too big to fail” attitude and a “yes we can, recapitalize through trading profits” deal with policymakers, and you see why major financial firms are likely to place huge commodity bets in the months ahead.
The G8, separately and jointly, destabilizes energy prices and refuses to even talk about this reality – taking the view that being more candid would just upset consumer, business, and investor confidence. They gamble, on energy and more broadly, that the road to recovery runs parallel with pretending there are no problems.
The true speculators here are your elected representatives.
By Simon Johnson

People Who Think Taxes Will Have to Go Up
Posted: 09 Jul 2009 09:41 PM PDT
David Leonhardt has started a new club, which has already attracted some additional members.
Count me in, in spirit at least (there must be dozens of more prominent people for the Times to bother with). Because, ultimately, I think we Americans are a decent people (or at least a squeamish people), and we will not be able to endure the sight of millions of seniors being thrown onto the streets or deprived of medical care. And so the looming combined shortfall of Medicare, public pensions, private pensions, and individual savings will at some point motivate us to raise taxes on ourselves.
By James Kwak

The Limits of Economics
Posted: 09 Jul 2009 08:40 PM PDT
In honor of Mark Sanford and that other guy from Nevada, the fun-loving crowd over at Planet Money has been talking about the economics of adultery, and even got Simon to comment for them. I’m all in favor of a cute model, but I think this is as much a sign of the over-expansion of economic reason as anything else.
Chana Joffe-Walt’s post asks this question of the typical cheating politician: “Didn’t he know he’ll get caught, put his family through hell, exhaust all of us with the details and jeopardize his career? The costs are so great, how could the affair possibly be worth it?”
Well, that assumes that he was going to get caught, and the odds of being caught in an affair are one of those things that are inherently very difficult to measure (and that cheaters are likely to underestimate, because of selection bias). We can see the numerator, but we can’t see the denominator. It also assumes that trading your political career for a steamy affair is a bad outcome. On some level, don’t you suspect that a lot of male politicians do it because they want to impress women, and that affairs are part of the payoff of politics? And what sane person would really want to be in electoral politics anyway?
More generally, the motivations that drive people to want to have sex with people they are not married to, or otherwise live secret lives other than the one they are supposed to live, seem to me not only too complex for a Chicago-school rational-actor model, but even perhaps too complex for a behavioral model. That is, I suspect that this type of behavior involves multiple actors inside the same person: one person who combines the ambitious, values-touting politician; the typical middle-aged man going through a midlife crisis and hoping for someone to validate his self-image; and, of course, the lout who thinks with something other than his brain. I think combining those sides of the psyche into a single utility model and maximizing it subject to a budget constraint (be it money or time) is basically a fantasy. But economists these days wil stop at nothing.
By James Kwak