The Prevailing View

Talk to the management at leading technology firms in the same market, and the similarities in opinions are striking. Most hold roughly the same set of opinions, beliefs, and ideas about how specific actions lead to successful business outcomes. For lack of a better phrase, I call this the “prevailing view.”

The prevailing view is an important aspect of every market. It can persist for a long time, and it can change, sometimes slowly and other times quickly. In common speech, momentous changes define the divide between one era and the next.

Where does the prevailing view come from, and how does it shape economic outcomes? That is this column’s topic.

The Direction of Broadband Spillovers

Revenue for US Internet access more than doubled during the first decade of the millennium owing to some simple arithmetic: the number of households using the Internet increased, and prices for broadband access averaged twice those of dial-up. More concretely, in the summer of 2000, while 37.1 percent of US households connected with dial-up, only 4.4 percent had broadband. By October 2009, 63.5 percent of US households connected with broadband.

The upgrade to broadband initially led most US households to spend more time online. At first, much of that new time went into the same activity found in dial-up (for example, checking e-mail, reading news, and shopping). Only gradually did users add activities that dial-up couldn’t handle (such as watching YouTube video, downloading music, or reading many blogs). By now, the transformation is rather apparent: broadband has created more online users and, moreover, these users are more valuable users of electronic commerce and advertising-supported media.

The relationship between broadband’s growth and other online markets is what economists call a growth spillover—that is, growth in one market spilled into another. Spillovers can be negative or positive. For example, broadband’s diffusion produced negative spillovers for the printed magazine and newspaper business, and it produced a positive spillover for online video sharing, such as YouTube.

Spillovers don’t need to be confined to a geographically local area, so they’re often challenging to observe and trace. This column focuses on understanding the geographic direction of the positive spillovers from broadband to online retailers and advertising-supported media, about which we know very little. To whom did the positive gains flow, and where?

Digital Dark Matter

Astrophysicists draw on the term “dark matter” to describe the unseen parts of the universe. Many symptoms, such as the rotational speed of galaxies and gravitational effects, indicate the presence of dark matter. Yet, our present science lacks the appropriate concepts and tools for measuring directly what we only see indirectly today.

Economists need a similar label for some important building blocks of the digital economy that we do not measure using standard tools. Many indirect symptoms indicate their growth and importance. Many labels have been proposed—invisible infrastructure and private provision of public goods, for example. These labels capture a grain of truth, and, yet, miss something, too.

Let’s just call it “digital dark matter” and review what we know.

Will the iPad flatten us all?

This article appeared in the Financial Times on January 14, 2011. It was written by Gillian Tett (pictured on the right, photo credit to the Financial Times). It refers to research by yours truly, Chris Forman and Avi Goldfarb. The specific paper she discusses is titled “The Internet and Local Wages: a Puzzle.” Check it out.

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Will the iPad flatten us all?

As you trudged back to work this month, did you head to an office in a large urban centre, be that Baltimore, Bristol or somewhere else? Or did you sit down at your computer – or with an iPad – in a pleasant ski lodge, beach house or even a simple house in a poorer rural region, such as Arkansas or Wales?

Right now those questions matter not just for your own well-being, but to wider social and economic policy, too. More than a decade ago, the US author Thomas Friedman caused a stir by suggesting that the internet was turning the world “flat”: by connecting everyone, new technologies were creating competition and opportunities across borders, enabling many jobs to migrate….

Global economic growth in four minutes

In the video below (link provided) Hans Rosling puts on an amazing show discussing — of all topics! — the statistics of global economic growth. He does it in four minutes. Below is a link to this video. Watch the video. Be entertained and amazed.

I love this topic as much as the next economist, but I would never have expected it to become such an impressive piece of entertainment. It is only polite to bring up this topic in a dinner table conversation among relatives if they need a sleeping aid. <warning: sarcasm alert> The statistics of global economic growth is a certifiable snoozer. Try the topic on the nieces and nephews sometime. It will motivate them to write their college research thesis on something other than economics. <end of alert>

Look, I am just saying. Not everybody loves the central statistical topic of each profession.

More to the point, this topic would not seem to lend itself to showmanship. Yet, Rosling makes it entertaining. Neh, he does it while discussing — of all things! — the statistics for two hundred years of economic growth for two hundred countries. In less than four minutes. It has to be seen to be believed.

How does Rosling manage to be so entertaining with statistics? Hey, he is a good speaker, so give the guy some credit. However, star power still needs substance to stick. Rosling does something subtle to his substance. To pull off this presentation Rosling uses a number of statistical tricks. Rosling does not hide these tricks, and he is upfront about a few of them, but they are also easy to miss. That is the point of this post: to point out some of the consequences from these tricks, especially the ones that massage the main message.