Separated at Birth: Imports versus Home Prices

Posted by: Michael Mandel on April 09

My new favorite chart: Goods imports versus home prices, indexed to start with September 2001 in both cases. They both zoom up, and they both collapse to roughly the same level.


twobubbles.bmp

Added April 10:

By request, here is home prices versus nonoil imports. The same pattern holds. If you think that one is a bubble, the other one likely is a bubble too.

trade2.gif


TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/

Reader Comments

LAO

April 9, 2009 06:19 PM

Remember Greenspan's conundrum? Wasn't it right about the time of the peak in home prices on this chart? If I recall, long Treasuries were strongly signalling recession. Well, we finally got it, in spades.

It suggests to me that somebody, controlling lots of money, knew this had to end in disaster. It's amazing that the government did not know, or wouldn't tell, who was buying Treasuries.

It also appears that the public had no clue. There must be some peculiar factor, such as the allure of future home equity loans, combined with media persuasion that home prices don't fall, that would explain the extraordinary delay in the arrival of the pull-back. Even the upward pressure on import prices (exchange rate and energy effects) and Bernanke Fed rate increases failed to deter consumers. As someone else suggested, though, the fact that so many necessities are imported and thus inflating rapidly (along with health care) may explain the final surge that probably pushed many over the edge.

Rycoka

April 9, 2009 06:48 PM

Mike,
Are you suggesting that global trade is a "bad" thing? Could it not be argued that US consumers benefitted from buying inexpensive computers made off shore by people who benefitted by starting to work their way out of subsistence living.
I don't think the fundamental issues that are causing today's problems are about trade or even labour arbitrage. They are about risk, and the transfer of risk on to those unable to understand it. Excess corporate profits should have bee reinvested in productive enterprises (providing more wages and freeing people to make rational choices) instead of creating more and more debt. Debt burdens people and limits their choices.
The US has historically been all about freedom. I would argue that debt, like slavery, is a fundamental abrogation of freedom. All our focus now should be on the major financial institutions (and some governments) that have created the debt mountain and who are now in the process of expropriating even more from the hapless citizens of the US through taxpayer bailouts and guarantees.

Ajay

April 10, 2009 12:01 AM

With no rationale or numbers for how much housing might have affected trade growth, all you have is mild correlation, not causation. In fact, since trade continued to spike up for 2-3 years after housing peaked and only crashed with the recent financial problems, the implication is that credit was a separate phenomenon, uncoupled from housing. James Hamilton recently argued on econbrowser.com that the oil shock takes much of the blame for the current recession. The real trends will be figured out over the coming years, if idiot govts don't freeze trade with moronic protectionist measures. Considering that one of the commenters recently noted that the Baltic index has rebounded, I expect trade to rebound quickly but housing will have to wait till the tech boom.

Rycoka, debt is all about allowing you to consume today in proportion with income streams from the future. It's no burden unless you abuse it, it mostly allows you great freedom and affluence earlier in life rather than later. Undoubtedly in a bubble, irrationally large debts are built up based on bubble prices, but that's the price of stupidity. Saying that debt itself is bad is throwing the baby out with the bathwater.

Kartik

April 10, 2009 12:43 AM

This is not causation, merely corelation with the very broad metric of GDP/consumer spending.

Most of the fall in imports is due to the plunge in oil prices. But lower oil prices would actually prop up the housing market by making more people able to support their mortgage payments.

Exclude oil, and there is no story here.

Let's also remember that the housing boom/bust is concentrated in CA, AZ, NV, and FL. The 80% of the US population not in these 4 states did not experience that much of a boom/bust amplitude.

A chart of imports against breast augmentation surgeries would also show a corelation. What causation is there, other than ties to general GDP?

Mike Mandel

April 10, 2009 08:02 AM

Rycoka,

What I am suggesting is that across this period, 'good' trade got mixed in with excess 'bad' trade. I think we had excess globalization.

Ajay, Kartik...absolutely right, correlation is not causation. But it's not simply oil prices..I can produce a roughly similar chart using nonoil imports. In fact, maybe I will.

Rycoka

April 10, 2009 07:03 PM

Ajay,
I agree debt is all about being able to consume today against your future income. My basic premise is that this is essentially reducing your future freedom of action. If freedom is fundamentally defined as the freedom to consume then I think my argument fails (mind you this narrow definition has some implications for income inequality). If freedom is more widely defined as the freedom to act in your own best interests at a given point of time then I think my argument has more substance. A good example is government debt. I think it can be argued that the US, as a debtor nation, now has compromised its ability to act in its "national interest".

Kartik

April 10, 2009 08:05 PM

Actually, with non-oil imports, the severity is much less. I notice you had to re-calibrate the y-axis in the second chart.

Also, I question the closeness of the corelation. The chart shows that housing began to plateau and fall in 2006, but imports fell only in late 2008, by which time 75% of the home-price-fall had already happened.

There is no corelation other than falling home prices crimped consumer spending, which crimped imports (and everything else, from cars to high-end restaurant revenue to breast augmentation procedures).

I challenge Michael to put both the with and without-oil imports on the same chart vs. housing prices, AND add imports of electronics-only to the chart (for a total of 4 lines). Much of the thesis of corelation falls apart (except, again for the tie back to general GDP/consumer spending).

Lastly, I stress again that the housing bust is due to only 4 states, comprising 20% of the US population.

Just like the 1998-2002 stock market boom-bust was mostly tech stocks, leading the rest of the market outside of tech to have FAR less of a boom-bust amplitude.

1998-2002 : Tech vs. non-tech stocks
2004-2009 : CA/FV/NV/AZ vs. rest-of-US housing.

There is more value in pinpointing the exact culprits than drawing the broadest of macro-corelations which are not even that close.

Kartik

April 10, 2009 08:14 PM

Actually, instead of housing, if you just plot employment vs. imports, you will find a much tighter corelation.

That would be a better article for Michael to write for the print magazine, how US employment is tied to imports much more than ever before.

Rycoka

April 10, 2009 09:05 PM

Kartik,
Employment vs debt contribution to growth also makes an interesting chart
http://www.debtdeflation.com/blogs/.

I suspect if you graphed the collapse in debt growth to the collapse in imports you would get a much neater correlation.

Ajay

April 10, 2009 10:41 PM

I think we can all agree that there was a credit bubble that drove the other bubbles, in housing and finance, and that contributed to trade growth. Housing was a conduit for this credit to get to consumers as idiot investors were sold a story that they were only investing in low-risk housing, because housing never falls, when that money was actually pulled out by consumers to spur consumption through HELOCs and other financings. The question is what happens to trade as a result of the overall credit bubble receding? Luxury goods will no doubt take a hit but we get a lot of our tech and lower-margin goods assembled abroad, I don't see that slowing down much. A better comparison would be between the trendlines of non-oil imports and US-produced goods. If both took the same dive or if US-produced goods dove worse, that implies that the credit bust affected everybody, causing the consumer spending spigot to turn off for both imports and local goods. The question is are people overreacting to the credit crunch and accumulated debt levels and will go back to spending and trading soon, likely trading more, or was trade driven solely by credit? I think it's the former and the next year or so will tell, if there are no distorting factors like another tech boom starting in the meantime. However, I believe another tech boom starts this year so we won't get that chance. :)

Kartik

April 10, 2009 11:55 PM

"However, I believe another tech boom starts this year so we won't get that chance. :)"

I'll raise you one.

The next tech boom (whether starting in 2009 or 2010) will center around 5 areas :

1) Solar
2) More Wireless (700 MHz, 4G, etc.)
3) Surface computing
4) Carbon Nanotubes and Graphene
5) Cheap Genome sequencing

I am not sold that micropayments will actually happen.

Ajay

April 11, 2009 01:23 AM

Well, my prediction is based on micropayments as I believe they are a necessary and sufficient condition for another tech boom. I understand your skepticism given how easy they are to implement and the fact that they haven't been used much yet, but if you actually examined the shitty approaches that past mp startups took, I think you'd agree with me. I'm building a mp frontend right now myself so obviously I believe. As for your five possibilities,

Solar- fat chance, costs and efficiency have not fallen enough. They might someday but certainly not this year or next.

Wireless - It's certainly proliferating but your listed technologies will not be rolled out widely enough this year or the next and more importantly, wireless is not capable of starting another boom.

Surface computing - You're joking right? I had to look this up to make sure you were talking about UI technology. I was impressed by the Bumptop demo a couple years ago, but this is a relatively minor technology.

Nanotubes - I've been hearing about these and the associated fabrication difficulties for years. Despite the recent advances you talk about on your futurist blog, I doubt it will come anywhere near commercialization for another decade or more.

Genome sequencing - No chance, this is early-stage stuff that will not have consequences for awhile.

So, of the 5 you list, only the last two are really capable of being foundational technologies of another boom, and those two will not be done for awhile. The first two are secondary technologies that can augment a boom and make us more efficient but cannot be causes for a boom, while surface computing is a minor technology. Micropayments is the only possible catalyst for another tech boom, because monetization is the key. Imagine if you had to fill out a credit card form at every street-side newspaper stand or barbershop that you went to and how much that would restrict commerce. Well, that's what's happened on the internet because we haven't deployed micropayments. It will happen someday, if not by me by someone, and it will start a growth surge that will surpass the second industrial revolution, not caused by micropayments alone but because mp will unleash the so-far crippled potential of the PC and the internet.

Rycoka

April 11, 2009 02:38 AM

Ajay,
I suspect internet micropayments are a good thing (though isn't this what PayPal does now?) and may be a good growth area in future (though perhaps not a bubble).
The only bubble I see happening in the near future is the government debt bubble as the undergunned government's try to balance out deleveraging (debt growth added $250b to the Australian economy in 2007 and our government is never going to be able to come close to that - thus unemployment here starting to take off. The trillions the US government is putting in are yet to stop the growth in unemployment).
The issue with debt is not a lack of willing borrowers, it's a lack of lenders willing to hand money out to individuals and companies that already owe more than they are worth. Unless there is a sudden change in the value of assets then this is not going away in a hurry.
That said, micropayments sound like a great recession friendly industry (getting more for your dollar by bargain shopping online makes sense)

Ajay

April 11, 2009 03:27 AM

Rycoka, micropayments are the ability to pay between 1-50 cents per online transaction seamlessly. Paypal certainly does not enable this, though they would have been the perfect candidate to do it and have just been too stupid to do it. As I said, mp will cause another tech boom because all online tech can then be monetized, nobody used the word bubble as that implies irrational investment that then bursts. Deleveraging is not really the issue, it's the fact that risk aversion has spiked, as you note. Of the trillions the US govt is putting in, much of it is to shore up balance sheets or will not be spent for years, so it not only doesn't help unemployment, it causes it by spooking investors as the govt keeps mucking around in different markets. Why would you invest in a great new market when the govt might come in and give failed competitors bridge loans? Micropayments are not about bargain shopping but about monetizing journalism, webapps, wifi, everything online. Further, they will have a huge impact on every industry because they will monetize information collection about every industry, causing them to become much more competitive and efficient. For example, the car market will become much more efficient once websites spring up with objective data and reviewers to spread info about the best cars to buy, all monetized by micropayments. This will be the case for EVERY market, driving a growth surge across the world economy.

As for your earlier statements about debt, I don't see how it's not in your best interest to take on a loan, as long as you're not one of the idiots who took out HELOCs to buy plasma TVs and SUVs. As for the US not being able to act in its best interest because it's a debtor nation, not sure what you mean. Unless you're talking about repudiating our debt and threatening everybody else with the nuclear sword if they try to come after it, in which case it's great that global trade and debt stamp out such idiotic notions before they catch fire.

Kartik

April 12, 2009 06:15 AM

Ajay,

Solar - The panel glut has made prices fall. While parity with coal will only arrive in 2013, Solar is still growing at 45% a year even before then.

Wireless - The freeing up of the 700 MHz Band + 3G and 4G in developing markets causes tremendous productivity increases. The technology is advancing very fast.

Surfaces - Many new products are being launched. Microsoft Surface will be $2000 by 2012. Check this out :

http://www.technologyreview.com/computing/22393/?a=f

Nanotubes and Graphene - New cost points have been hit, after 5 years of no progress. Large sheets are now being manufactured.

Genomics - Don't be so sure. The cost of sequencing has fallen about 100-fold in just the last 24 months. While it will take years to accumulate the genomes of a large population, this is already creating a swarm of downstream innovation.

These are the technologies of the next boom. Without them, there are no other candidates for a boom.

Micropayments - Why haven't Paypal and/or Google expanded their current businesses to account for this?

Kartik

April 12, 2009 06:30 PM

Ajay,

I am sure you have been asked this many times before, so let's hear your strategy :

Why would someone want to spend an hour a day tabulating their payments and receivables? Does a professional really want to account for the $645.27 that he made that day, and chase after the $34.17 that was still not paid in full?

Sure, this service can be outsourced and automated, but it is still an additional layer of complexity. People still prefer to earn a salary paid in predictable, bi-weekly sums.

"Micropayments is the only possible catalyst for another tech boom, .."

Surely you don't think that is the ONLY way a tech boom can happen.

Ajay

April 12, 2009 06:48 PM

First, I wouldn't be so sure that the next boom will come from one of your candidates, you never know what field will take off all of a sudden because of some innovation. However, as I noted previously, your tech candidates have problems. My understanding is that the energy balance of solar panels is still negative, ie the amount of energy put into fabricating them is more than the expected output over the entire lifetime of the panel. Further, efficiency comparable to coal will probably take longer than the rosy 4-year deadline you suggest. I agree that wireless could be very beneficial but I view it as just an extension of the internet, the internet made mobile. Mobility is a very nice additional ability but it's crippled like the internet itself until content and services can be monetized. Surface computing may be here soon but it's a minor technology. The real interface breakthrough will be usable voice recognition, which unfortunately appears to be nowhere close. I'd like to work on voice recognition someday, as I feel the only reason it probably hasn't been implemented yet is stupidity. I'm hopeful that nanotubes are around the bend, because of their almost miraculous material properties, but I'm skeptical because of the manufacturing difficulties that are always associated with any fundamentally new materials technology. I remember reading about OLEDs a decade ago but to this day, they're only used in watches or very expensive smartphones, because of the manufacturing roadblocks that have sprung up along the way to large-screen OLEDs. Genomics will have consequences someday, but just not anytime soon.

Micropayments are all about making the last tech boom real this time. I can't tell you for sure why Paypal or Google haven't done mp other than they're stupid. If your standard is those two, you've set a very low bar: Paypal has yet to get anywhere outside of eBay and Google couldn't even get Checkout to go anywhere. If you look at what's actually being done on the internet generally, it's just taking existing forms and putting them online. Regular stores go online as ecommerce; newspapers, radio, and TV go online as web pages, podcasts, and flash video; and finally ads go online as banner ads. Nobody's really using the new technology of the internet to fundamentally rethink these services, they just transition the old pre-existing services online. For example, we could do great things with text alone, with customized news text for different users or allowing shared in-place annotation across multiple platforms. I have a lot of ideas on what those new services might look like, for one example, check out my blog on how we can replace the shitty web stack with something better: http://thinclient.jaggeri.com Similarly, seamless micropayments are a completely new way of monetizing that wasn't possible with older technology, with the cruder exceptions of electricity and phone billing, so people just don't think of it. All this innovation isn't being done only because of ignorance, apathy, and most importantly monetization, the money isn't there. Micropayments changes all that. It is the lubricant that will let the decades-old technologies of the PC and the internet finally take off. So while you're talking about possible breakthroughs down the line, I'm talking about the one missing piece so that the last illusory tech boom, that was based on the two proven technologies of the PC and the internet, can be made real this time around.

Ajay

April 12, 2009 07:27 PM

Kartik, I don't really understand your questions: does any online business spend any time tabulating their payments and receivables or chasing after lost payments in this day and age? It's all automated for Amazon or Newegg and the payments are made up front. Micropayments will be even more safe because you will have to bank your money with a micropayment provider before paying out to sellers. I think you greatly overestimate the complexity involved, given the high levels of automation possible today. You do raise an interesting point about predictable salaries but I don't think it'll be a deal-breaker. If people are really that sensitive to changes in salary, some company will combine their various streams and guarantee some baseline salary in return for a fee, think of it as salary insurance. My understanding is that prostitutes have such informal salary insurance schemes. As for micropayments being the only possible catalyst of another tech boom, I meant of the ones we discussed. However, of all the possibilities out there, mp is certainly the no. 1 most likely catalyst for another boom, by far.

Rycoka

April 12, 2009 08:23 PM

Kartik,
Your five potential boom technologies are interesting though I suspect at least two of them (nanotubes and genome sequencing) contain major population health implications.
Surface computing sounds like a good candidate for big growth (and in combination with wireless has got to be a key technology for replacing paper) and Solar is a no-brainer.

Rycoka

April 12, 2009 08:41 PM

Ajay,
Thanks for defining micropayments for me. I think your big issue with those is working out the value propositions for the various market participants.
On the issue of debt, my main point is that the real beauty of capitalism is the freedom it gives people to act in their own self interest at any point in time. This allows rapid adjustment to changing circumstances and is arguably the main cause of the lift in living standards over the last couple of centuries. Debt reduces that freedom. In the case of the US, the large foreign holdings of US mortgage debt constrain the actions of the US government to clear that debt. It would be very difficult to tell the Chinese government to "take a haircut". A potenital outcome is that the US taxpayer ends up on the hook. Bad investment propped up, tax bills up, public programs cut.

Kartik

April 13, 2009 12:30 AM

The main question is, would an individual want to use a micropayment model in generating their income?

I would think that the hassle would be unattractive for most people.

Some people already live under a micropayment model (waitresses and taxi drivers on tips). But these are not a majority of professions, or any of the desirable ones.

Ajay

April 13, 2009 03:42 AM

Kartik, let me first note that you're not really raising any issues with micropayments, but with my associated prediction that it will lead to a bunch of lone professionals or small teams, causing the death of the large corporation. There is no reason corporations can't or won't use mp also, not just individuals. You keep raising the issue of hassles but don't make explicit what they are. In fact, the majority of professions are using a micropayment model, it's just implicit. When Mike Mandel writes a piece for Businessweek, he's paid a six-figure salary but it comes from taking a cent or two out of every magazine that's sold with his article. This is true of practically every modern profession, micropayments are implicit almost everywhere. All I'm suggesting is that we now have the technology to make micropayments explicit and have creative destruction replace existing organizations with new forms. There are already many people doing this online: do you suppose the thousands of eBay sellers gripe about the hassles involved? With digital content and internet applications, there are even less hassles than with physical goods, as you don't have to deliver anything physical. There are still issues like health or other job benefits that might need to be appropriately spun off for the transition that I envision to fully happen, to individual information worker as corporation, but those remaining details won't take long to scale up.

Rycoka, the value proposition of micropayments is well-known, that's not the issue at all. The issue is building a system that works technically, that is seamless and secure. It's not hard but technologists are not known for their ability to build usable systems. As for your negative view of debt, debt allows people to invest in their future by borrowing for an education or a car. Some idiots make mistakes and borrow at inflated rates to splurge on plasma TVs or marble countertops, they must then pay the price. Yes, the benefits of debt come at a price, the loss of future income streams, but you would have to be a child to say you didn't understand that price and then shirk your contract. I don't see why you think the US govt needs to get involved at all. There are bankruptcy and foreclosure processes to handle these failures, let the market do its work. If there are situations where the US govt guaranteed mortgage debt, like with Freddie and Fannie, then they must then honor those contracts and the taxpayers must pay, for letting the idiot politicians make such promises that also benefited us for a time with lower interest rates. As for public programs getting cut, that would at least be a potential benefit of this mess, :) if Obama weren't busy seizing the moment to grow it further. :(

Rycoka

April 13, 2009 07:28 AM

Ajay,
Sounds a bit like you are an anarcho-capitalist revolutionary and see micro-payments as an enabling technology. Maybe the discussion we should be having is around collectivism v individualism (and are people who make mistakes idiots?) A subject for a different forum :)?

CompEng

April 13, 2009 10:59 AM

Rycoka,
do you really want to open that can of worms? :)

My problem is that I can see both sides of that argument too well.

Kartik

April 13, 2009 04:28 PM

Ajay,

It is true that almost every business is a micropayment model to some degree (except for those that deal in large contracts of huge products, like Boeing or Lockheed Martin).

But Micropayments might add a lot of unwanted hassle/stress to the average worker. Again, the example I give is that if a professional of any sort earns $645.23 in a day, but sees that one payment of $34.22 is delinquent, how does he chase after it? What about the next day, and the next?

In the salary model, stress is lower. If Mike Mandel wants to goof off for half a day, he can, rather than have to calculate that he lost $522.04 or whatever.

The accounting hassle/stress pressure is a downside. I agree that the upside is a more exact implementation of meritocracy at all levels, and blunting/smoothing of the recessionary peak/trough paradigm.

Anyway, if you make it happen against these odds, I will be the first to congratulate you.

Kartik

April 13, 2009 04:43 PM

Rycoka,

Graphene will mainly be used to replace silicon in many types of high-end chips (making them much smaller and faster), so it is not any more of a health hazard than silicon already is.

Nanotubes will make cars and airplanes much lighter. Bulletproof vests will be as thin as normal clothes.

Genome Sequencing - It will take a decade to gather and decode the data from millions of people, but this will greatly improve life expectancies, by determining who is vulnerable to which condition, and who isn't. The main thing is that the cost of genome sequencing has fallen 100-fold in just 24 months. That is a disruption for sure, which will translate into real benefits for the average person over several years.

Ajay

April 14, 2009 03:42 PM

Rycoka, I don't see how predicting that the future is going to be hostile to large corporations makes me an anarcho-capitalist revolutionary. I came to believe in micropayments because it's obvious that they're the way to monetize the internet. Your logical leap to then impute some political goal and start talking about collectivism vs individualism is confusing. If you're an adult and you make the mistake of living beyond your means, you're an idiot. What other definition of idiot do you prefer?

Kartik, let me again note that you're not raising any issues against micropayments per se, only against my prediction that they will lead to more fragmentation. There would be nothing stopping a large company like google from using micropayments to monetize search, in fact I believe that will prove to be the best way to monetize search. As for individual workers chasing missed payments, you provide no explanation for how that will happen in the first place. Maybe a normal business today accepts payments after delivery or credit card payments that sometimes get rejected afterwards but micropayments will be payment up front. You bank $10 with a micropayment provider who then disperses it to sellers BEFORE content or apps are delivered to the buyer. Even if it's credit at some point, I'd expect the mp provider to handle such billing hassles, not the seller. Your argument that Mike can goof off for half a day is idiotic, because it's based on the assumption that Businessweek doesn't care what Mike's production is, they just pay him no matter what. I'm sure if he produces one less article because of goofing off, there will be lesser pay. Maybe they don't go down to the granularity of a single article, but less output equals less pay. But you're right that to the extent such an explicit mp system measures output more precisely, it will lead to more and better products, with some associated stress for some which is easily remedied by the aforementioned salary-smoothing schemes. Your argument that it will smooth booms/busts is interesting. I think that these phenomena are fundamentally about information problems that will be solved by the PC/internet monetized by mp, because they allow varied solutions to those problems so I think you're right about that. I'm still not sure what odds you see against mp. For me, it's a simple solution to a simple problem, the only reason it hasn't been done is the sheer stupidity of those who could have done it. Perhaps you think I'm exaggerating about this but once mp becomes dominant and widespread, I think you'll finally realize that I was right all along.

Mike Mandel

April 14, 2009 04:37 PM

>If Mike Mandel wants to goof off for half a day

I wish!!!

Kartik

April 14, 2009 06:59 PM

Everyone who is a salaried employee has had periods when they goofed off for half a day. This is match by times when they took work home to work in the evenings, or on weekends.

My participation in this blog itself constitutes me goofing off. In a micro-payment world, I could measure the loss of income from each minute spent here.

I don't think individuals want that type of life. Why are there so many people going into public-sector careers, rather than starting small businesses?

"because it's based on the assumption that Businessweek doesn't care what Mike's production is,"

Not at all. But he is not an hourly worker on an assembly line. Aside from editorial deadlines, he does not have maintain the exact same productivity each hour of each weekday. None of us do. There are peaks and troughs of productivity that salaried workers always exhibit, and employers tacitly understand.

"I'm sure if he produces one less article because of goofing off, there will be lesser pay."

These are subjective decisions. It cannot be worked within a micropayment model.

I bet you Michael would rather have his current setup, rather than the stress, granularity, and accounting hassle of a micro-payment model that pays him a formula based on number of readers and the rating on a 1-5 scale of each article he produces.

Do people want to tell their wives that they can't go on vacations anymore, because the opportunity costs of lost micropayments would amount to $6563.82, on top of the vacation costs? Do people want the stress of seeing that their kid's soccer game will cost them $184.73 in lost micropayments?

"the only reason it hasn't been done is the sheer stupidity of those who could have done it. "

This is a pretty large group of people, who have suceeded in multiple ventures before. Elon Musk for one. The Google collective for another. Bill Gates talked of this business model way back in 1996. As did Sandy Weill, around 1999.

So go make it happen. I will congratulate you if you do. But not until then.

Kartik

April 14, 2009 07:01 PM

Also, how should managerial workers be compensated in a micropayment economy?

Kartik

April 14, 2009 07:07 PM

"Maybe they don't go down to the granularity of a single article, but less output equals less pay. "

I certainly want more meritocracy. I also agree that micropayments would be a powerful antidote to leftism that is burdening the US economy and encouraging more people to become lefty parasites.

So go make micropayments happen. The social good that will come from a destruction of leftism in education and healthcare will make you a great humanitarian.

Kartik

April 14, 2009 07:12 PM

"Your argument that Mike can goof off for half a day is idiotic, because it's based on the assumption that Businessweek doesn't care what Mike's production is "

Of course they care about what his production is. But I doubt they care about measuring it so precisely. Do they really want to judge that his output in March was 6% higher than in February? Does he want to live under such a regime? No.

There are subjective elements of performance that cannot be captured under micropayments, nor should they.

Ajay

April 14, 2009 10:33 PM

Wait a second, how precisely do you imagine that micropayments would allow you to "measure the loss of income from each minute spent" goofing off? It's not some magical genie, only paid output is measured. You may be right in a weaker sense that by knowing exactly how much money they made each day of the last week, some people may look at opportunity costs more concretely and not take vacations. But that's a minor drawback of a minority group of idiots, that is greatly outweighed by all the people who will be so much more enthused by seeing direct payment from their daily work, in exact proportion to the worth of what they put in. Many people will thrive in this more meritocratic environment, some malcontents or people who can't handle the stress won't do as well. I do think you raise an important point that by forcing people to be more self-reliant, some will get stressed out, particularly the babied leftist employees who today have no notion of the real world that their company navigates for them. But as I said before, you can always use salary-smoothing schemes and other outsourcing mechanisms to placate even them. How is less output equaling less pay a subjective decision? Accounting hassle? Do you really think the accounting won't be fully automated? There is no artificial formula based on readers and ratings, you get paid for what you produce. If you sell 3 million blog pageviews at an average price of 3 cents, you pocket $90k and pay out your editors, proofreaders, and webhost their cuts from that money, whatever rates they've been negotiated at. Everything will be completely automated, with perhaps a bit of negotiation over the rates. As for vacations or soccer games, there are opportunity costs to every decision. I'm sure if Mike didn't take any time off and spent all his time at Businessweek, he'd produce more and make proportionately more money. At some point, he makes the decision he has enough money, that doesn't change just because his pay becomes more precisely tuned to his output. What has Elon Musk done since Paypal that has been as successful? What has google done other than search? Bill Gates tried to get Digicash on Windows in the '90s; unfortunately for us all, he failed. You presume that these successful people are smart enough to figure out that mp is the answer, a common presumption but a stupid one. I've found that people usually have almost no capability to reason outside their particular field, if they're even able to do that. Stupidity is the rule, the successful are just not as stupid at the one thing they're successful at. You yourself are a very smart guy but you make shoddy assertions about mp magically measuring opportunity costs or that that is somehow an important flaw. I do not need to make mp happen or your congratulations, mp will happen someday because it is the obvious solution. I'm trying to do it myself only because it is so obviously necessary, but the startup I'm working with is still looking for series A funding so who knows when that will happen.

As for management, obviously there will be none if everybody's on their own. However, there will always be a need for outside expertise, so Mike could always hire outside consultants to help him out with whatever aspects of his business that he needs. I mentioned previously that he can have his pieces automatically checked by proofreaders and editors anywhere in the world, in return for flat fees or a cut of his revenues. As for measurement becoming more precise, that's the future, whether with mp or not, because our IT now renders it possible. You're familiar with companies that measure programmer lines of code or other metrics; there was a popular Michael Lewis article recently about how more precise statistical measurement is changing the NBA. What mp does in addition is tie output to pay very tightly and remove all the inefficiencies of a large, modern corporation, like giant office buildings and idiot HR staffs. I agree in principle that there are subjective elements of performance that are tough to isolate, but since you provide no examples or how they might be better measured without mp, there's nothing more to say about that. As for elements that shouldn't be captured, I have no idea what you mean. I have to note that in making such reactionary statements in favor of the status quo, a futurist such as yourself comes across as more of a leftist or luddite.

Kartik

April 15, 2009 12:55 AM

"that is greatly outweighed by all the people who will be so much more enthused by seeing direct payment from their daily work, in exact proportion to the worth of what they put in."

Don't assume that most people find this attractive. If they did, we would not have leftists.

"Many people will thrive in this more meritocratic environment, "

Again, if that were the case, so many people wouldn't find leftism so intoxicating.

Only the upper half of the skill ladder actually supports meritocracy. Remember that.

But if micropayments damaged leftism by even 10%, it would already have done a huge humanitarian service.

" If you sell 3 million blog pageviews at an average price of 3 cents,"

Again, isn't this what Google Ads already is. Sure, Google's 90% cut is a lot, but still, the model exists.

"has Elon Musk done since Paypal that has been as successful? "

SpaceX and Tesla seem to be progressing. Plus, the man now has 5 kids between the ages of 1 and 6 (I am an acquaintance of his), while he was single in the Paypal days. Let's be fair here.

"I have to note that in making such reactionary statements in favor of the status quo"

How can someone who is more optimistic about 5 previously mentioned technologies than you are be a luddite? How can someone who WANTS leftism to be toppled be in favor of the present leftist status quo?

There is always a role for good management. Always. It has been the case in all of human history. Managment science is subjective, and cannot be compensated within micropayments.

Ajay, you have to be able to convince people about your idea. So far, none of the commenters here (even if it is a small, imperfect sample size) appear to be sold on your paradigm, and only I have taken serious time to converse with you about it.

Sharpen your pitch. You have to.

Ajay

April 15, 2009 02:23 AM

Most people would love to be directly compensated in proportion to how much work they put in, particularly if they can then put in as much or as little as they'd like. You've been living in the bureaucratic past where pay wasn't as strongly tied to performance for too long to see this. The leftists are a minority that will be easily ignored. Actually, it's the lower half of the skill ladder that supports meritocracy. It's the idiots in the upper half, the latte or limousine liberals who're shielded from and ignorant of market realities because of the corporations where they work, who favor leftism, to benefit the to-them "stupid" lower classes who do not vote themselves more income transfers from the govt. Google ads offers nowhere close to 3 cents/pageview, as I've noted previously. That's why advertising will be killed off by micropayments. Also, google's cut is not 90% of AdSense. I don't know Elon's work too well but I certainly don't consider him a great success, for anything he's done. As for why you're a reactionary, one can favor certain technologies or be against leftism and then make arguments that contradict both of those when presented with a new idea. That's what you've done with micropayments and I'm just calling a spade a spade. I'm not sure precisely what you feel is done well by management but I've certainly afforded a role for outside consultants. Writers will consult editors on what topics they should write about, just as they do today. Some will just follow the editors' suggestions, others will not ask for anything more than editorial help in composing a piece on a topic of their choice. This outside consulting model will replace whatever of "management" is still necessary, most of which isn't. As for selling my ideas to you guys, I don't much care what you guys think because it's obvious to me that this is the future. It is a bit dispiriting to see you make such dumb arguments but that only proves my aforementioned rule. I don't need to sharpen my pitch as the only people I need to pitch are content creators on a new, easy way to sell their content! They're all clamoring for a way to do that, so I expect it to be an easy sell. The real issue is whether I can spot enough up and coming talent so that I can seed the early stages of this business with enough good content, avoiding the two extremes of established talent that may not talk to me and all the nobodies producing crap. I believe spotting talent is where I will excel though, so I'm not worried about it. :)

LAO

April 15, 2009 02:13 PM

Ajay, Maybe the real money will come from charging users for the privilege of commenting. Just my 2 cents' worth.

Ajay

April 15, 2009 02:45 PM

LAO, why is commenting a privilege? I expect commenters to get paid for what they contribute. I was going to add commenters to the list of editors and proofreaders above, who take their cut from the blogger, but I then recognized that they'll just get paid directly by the reader so I left them out. A more interesting line of thought is getting rid of comment spam through a micropayment bond. You will have to post a 5 cent micropayment to comment, which is then returned to you if the blogger doesn't think your comment is spam. That will kill off comment spam right there. Micropayments will kill off all spam, whether comments or email, through the same mechanism, just another great benefit of bringing actual economics to the internet.

CompEng

April 15, 2009 03:30 PM

Ajay,

On the use of micropayments for services like email delivery and its incredible effectiveness at killing spam, I 100% agree with you. I do hope that happens sooner rather than later.

LAO

April 15, 2009 05:40 PM

Mere commenter traffic might cost more money than it actually generates in advertiser sales or subscription revenue. What's more, comments can sometimes serve the commenter's own purposes -- pursuasion, testing one's thinking, expanding insight, etc. Sometimes it just seems to be the allure of a soapbox. Even though I've been going around joking about how I'm going to make a fortune with a commenter supported blog called "My 2 Cents", I don't expect to go through with it, but neither would I be surprised if things shifted in that direction. Just look at the number of blogs that have almost no audience -- they are not free to the blogger.

I agree with you that there is still tremendous untapped potential in the Internet. Anything that empowers individuals I think has a better chance to frame the next economic wave than the larger themes referenced by Kartik, because too many people are just denied participation in those. I think that is probably why housing became a bubble -- the lax lending put capital appreciation potential within the reach of individuals who hadn't much chance of an expensive education or a fat 401K. My neighbor, the food wholesaler, became a "builder". You could say the same of certain bankers -- the supposed brightest of the bright -- why seek the thankless drudgery of a graphene or DNA researcher, or starting a capital-intensive enterprise, when just breaking into the inner Wall Street circle can get you millions? If you would stop thinking that most people are imbeciles, you might be able to deliver something that could take off like wildfire. Or not.

Kartik

April 15, 2009 06:03 PM

"Actually, it's the lower half of the skill ladder that supports meritocracy."

No. That is somewhat true in India, but in the US it is quite the opposite. The lower half votes heavily Democrat. The upper half votes Republican. 'Limousine Leftists' are a statistically tiny group. Check voting trends by income bracket.

"I don't know Elon's work too well but I certainly don't consider him a great success, for anything he's done. "

What? The man, who is an immigrant to the US, netted a personal fortune of $300M by age 30. His next 2 companies are also in contention for big payoffs. All while being the father of FIVE kids.

I don't know what you consider success if Elon Musk is not it.

If you can't get anyone here to be sold on your vision of micropayments, why will it be the opposite while you are seeking funding?

I mean, I support anything that increases meritocracy and reduces leftism.

"This outside consulting model will replace whatever of "management" is still necessary, most of which isn't. "

I suppose your startup does not need a CEO, then?

There is always a role for good management, as has been the case for all of human history.

"...it's obvious to me that this is the future. "

It is obvious to some people that the re-birth of Jesus Christ will happen, or that Kalki will arrive as the 10th incarnation of Vishnu, or that the entire world will adopt Islam. That doesn't mean it will happen.

" I don't need to sharpen my pitch as the only people I need to pitch are content creators on a new,

You have to pitch to investors too. Again, while this is a small group here, it appears that no one is sold on your vision, and only I am even willing to engage in a discussion on the topic.

LAO

April 15, 2009 06:20 PM

Ajay, My previous comment was meant as a response to you.

Ajay

April 15, 2009 06:24 PM

LAO, commenter traffic costs almost nothing and it will lead to more mp revenue, so there's no downside. The reason housing became a bubble is not the borrowers, there are always idiots who want to borrow too much, it's the lenders and their lax standards. There was a credit bubble, driven by the savings glut, and it was invested badly. As for people getting into finance, it's also because finance required less brainpower than the aforementioned scientific options, although probably more actual drudgery, and finance is more meritocratic too. Almost anybody with a brain or drive can go far in finance, while science generally gates people with idiotic PhD requirements. Why waste your time publishing largely unrelated scientific papers while getting paid nothing as a graduate student in order to someday get into nanotubes or DNA sequencing work, when you can climb the financial ladder much quicker? As for what I think of people, it's fairly obvious that most people are fairly stupid. However, that's irrelevant as all it takes is one person like me to build something like a micropayments system and everybody can benefit. Maybe it won't be me who does it, but micropayments are inevitable because they are the best system and will eventually win out.

Kartik

April 15, 2009 06:56 PM

Ajay,

This is a long-shot, but were you at PaybyTouch in the past, by any chance?

Ajay

April 15, 2009 07:10 PM

Kartik, perhaps you should check the statistics, my statement is based on the fact that the higher income brackets voted more for Democrats in the last couple presidential elections. Limousine liberals may be a small group, latte liberals are not: I mentioned both. Elon's had a nice haul but he's just middle-class by silicon valley standards. I realize he's your buddy so you stick up for him, perhaps you should ask him why Paypal never did micropayments. The fact that Paypal never did mp, despite being the dominant internet payments company, was an abysmal failure on their part. Right, I should convince all of you about mp cuz we all know that if random internet commenters like an idea, then it will receive funding. I'm doing a mp frontend for a payments startup, AFAIK mp is not even mentioned in the fundraising process. We have a CEO, it's future startups that won't, after mp is widespread. Since you refuse to define what you mean by management or how it's not covered by my provision for outside consultants, your statements about management are meaningless. It's obvious that micropayments are the future to me based on the reasoning I've given. When you cannot provide one single reason why that's wrong and instead go on about secondary predictions about fragmentation, why would I even begin to think otherwise? Micropayments can be done so cheaply that you do not need investors, so a pitch is not really necessary. The startup I'm working with is pitching to raise money for their other more mainstream payments services. As for what you guys think here, as if it matters at all what some random chumps on the internet think? I just talk about micropayments because I'm so enthused about it that it comes out whenever people start talking about ancillary topics. It would be nice if you guys could raise some real critical feedback, but you're clearly not up to the task.

Ajay

April 15, 2009 07:32 PM

Kartik, I never even heard of PaybyTouch till you just mentioned them, nice try associating me with a company that defrauded its investors. Such ad hominem attacks on top of your weak critiques so far only make you look worse.

CompEng

April 15, 2009 11:22 PM

Ajay,

You should know that the biggest obstacle to a good idea taking the market isn't technical: it's mindshare. Most people just have no interest in other people's ideas unless they can easily see them in the context of what they already believe in. Micropayments are like that: a genuinely good idea it will take a long time for people to really believe in because the barrier to paying any price at all is psychologically large. They don't like to cross the line of paying for something unless they feel they are getting something valuable. People that are more than willing to shop online for all kinds of junk still believe in the ad-supported model because they don't want to give out their credit card numbers, or equivalents unless they feel like they're getting something worth real money. It's not rational issues you have to worry about most, but selling the experience.

Ajay

April 16, 2009 12:35 AM

CompEng, I agree broadly that any sufficiently new system usually faces some resistance. That said, I don't that's the problem here. I think there are plenty of sellers who want to sell and there are plenty of buyers who want to pay in an easy way. But that last part is the key, micropayments have to be seamless. You go to a new site and with one click, you've paid 1-5 cents for an article, no logins for every site you go to. So I do believe the biggest obstacle here is technical, though it's more about usability than anything else. As for psychological barriers or credit card issues, that's nonsense, fabricated by idiots who want to stupidly rationalize why mp has failed in the past. People already use credit cards everywhere online, so that hasn't been a problem since the '90s. As for psychology, the real psychology is that users don't want to have to login to every disparate site or worse, enter their CC info every time. This real usability problem has been conflated with some imagined mental payment barrier, which is easily refuted by pointing out how much more money people spend on other easy-to-use systems like ringtones or iTunes. I do think you're right that there's a minority that just doesn't want to pay, but they're easily ignored. The big problem for the vast majority of users has simply been usability, or the lack of it from past mp attempts.

Kartik

April 16, 2009 04:05 AM

Ajay,

I do not think they defrauded their investors. An old classmate of mine once was a VP there, and his name was Ajay.

How does an ad hominum attack start with 'This may be a long shot'?

Sheesh. Paranoid much?

Kartik

April 16, 2009 04:20 AM

Ajay,

"my statement is based on the fact that the higher income brackets voted more for Democrats in the last couple presidential elections. "

Dead wrong. In 2004, no bracket over $50,000 voted Dem, and over $200K, only 37% voted Dem.

In 2008, it was less stark, but still a GOP advantage. Do some research.

"Elon's had a nice haul but he's just middle-class by silicon valley standards. "

$300,000,000 is middle class in Silicon Valley!?!?!? Have you lost all sense of decimal proportion? If that were true, wouldn't you have tens of thousands of people who could afford to give you $5M in Series A funding, out of their slush fund?

You are just trying to minimize one of the most extraordinary examples of under-40 success of all time.

"Since you refuse to define what you mean by management or how it's not covered by my provision for outside consultants"

Management is the effective marshalling of human and material/financial resources to achieve a positive return against competitors.

Management Consultants have existed for decades. Fortune 500 companies have not gutted out every last executive in favor of consultants. Get real.

"We have a CEO, it's future startups that won't, after mp is widespread."

Future startups will not have CEOs. Right.

"It would be nice if you guys could raise some real critical feedback, but you're clearly not up to the task."

Is this what you tell your prospective investors?

"...only make you look worse."

I am not worried one bit about looking worse than someone who says future startups will not need CEOs, and that earning a $300M fortune by age 31 is unspectacular, middle-class success.

CompEng

April 16, 2009 09:41 AM

Ajay,

I'll agree that usability is a far bigger barrier than the unwillingness to whip out a credit card. That said, I'm one of those guys that buys a few CDs a year but won't buy things on Itunes. My argument used to be DRM and portability: now all I can say is I just don't feel like it. :)

Ajay

April 16, 2009 05:01 PM

Kartik, heh, so you thought I reminded you of your old classmate? My only knowledge of PaybyTouch is the quick wp search after you mentioned them, that found that they abruptly shut down last year and some of their investors then sued UBS. I thought you were trying to associate me with a perhaps fraudulent company, rather than genuinely wondering if I was a former classmate, which I could not know about. As for income brackets, the CNN exit polling data I just looked up seems to show a wash last year for the higher income brackets, except that Obama won the same $200k group that you mention in 2008, 52-46, presumably on the strength of the limousine liberals. I'm not sure what to make of data that shows such a wide 17-point swing from one election to the next in that $200k group. My statement was based on the fact that the democrats dominate rich urban counties while republicans win all the other counties, shown in the famous maps with most of the country red by county, and other income bracket data that I'd seen. I'm not sure how to reconcile these different data. Look, either you know that $300 mil is not a huge haul in silicon valley and are just blowing hot air or you're simply ignorant. You're right that there are many silicon valley gazillionaires that could invest in startups more, some like Reid Hoffman or Marc Andreessen do, most don't. I don't judge Elon by his cash haul but by what he's done, there are many who cashed out in the '90s simply because of the irrational boom, not because of any great accomplishment. I think Paypal was possibly the lone success of the dot.com boom but I'm not sure how much credit Elon gets for that, plus my initial statement was only that he hadn't done much since. Again, you provide no specific competency of management that can be tested against whether outside consultants can do it, so your protestations are meaningless. There will be no Fortune 500 when there are no large corporations, guess what happens to "management" then? They're gone.

CompEng, yeah, I never buy music but even if I did, I'd never have bought it from iTunes cuz of DRM. Now, I'd just never buy it cuz I'd never buy anything from Apple, or Microsoft for that matter, plus digital music will soon be free. The inevitable future for digital music is a razor/blade model, where the mp3s are given away for free as marketing for paid concerts.

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

BW Mall - Sponsored Links

Buy a link now!