Relevant and even prescient commentary on news, politics and the economy.

The End of Internet Explorer?

For those who thought the Browser Wars were interesting, or for those who like reasons to complain about Microsoft, or for those who think the government sold out in the Microsoft settlement, ZDnet has an interesting story alleging that MS plans to stop offering Internet Explorer as a stand-alone browser. The business logic for this is straightforward: 95% of web sites work on any browser, but around 5%, including some important sites, do not. I strongly prefer Opera, but I am forced to use IE when I post on Blogger, visit Matt Yglesias’ blog, or do my online banking. If these glitches continue into the next generation of IE, then everyone will have to upgrade to the latest generation of Windows to get the latest browser, and Linux users will be out of luck. It’s a beautiful circle for Microsoft: a near-monopoly in the operating system market allows them to attain a near-monopoly in the browser market, allowing MS to reinforce its position in the OS market.

You could lose a lot of money betting against Microsoft’s execution of strategies like these (exception: MSN), but in this case, I’m not sure it will work. There is a substantial installed base of older machines that lack the hard drive space and RAM to run Windows XP, much less the next generation of Windows (codenamed “Longhorn”). A quick check of the stats for this blog shows that, in the non-random sample of Angry Bear readers, exactly 2/3 of my visitors are on Windows 2000 or XP. 15% are on Mac/Unix/Linux (which is how I know the sample is non-random). Online businesses simply cannot afford to cut off 15% to 33% of the market from full functionality on their sites, and so will have to update their server-side code to be robust to Opera, Netscape, and non-IE browsers. I basically agree with Jon von Tetzchner, chief executive of Opera:

“My take is that not distributing IE without Windows is good news for us. This means that a lot of companies are left with the choice between using Opera and paying Microsoft a hefty fee for a Windows upgrade that (makes obsolete) their computers. In the current market, many companies are trying to cut their costs, and a lot of them have no compelling reason to upgrade Windows.”

Why is all of this even an issue? The internet was built around the idea of open standards (e.g., any OS with any Browser would work with any website, because they would all be speaking the same language), whereas Microsoft is built around closed and proprietary standards (only MS browsers, Windows, and websites running MS servers work well together). When MS successfully crushed Netscape, the internet took a big step towards closed standards, though it still remains by and large open–for the time being. Larry Lessig’s blog and his book, The Future of Ideas, are pretty good on general open vs. closed intellectual property issues.

AB

P.S. As long as I’m being nerdy today, it looks like the inventors of Palm, who eventually left under unpleasant circumstances and founded Handspring, have come full circle.

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Transcript Wanted

So Al Franken, Molly Ivins, and Bill O’Reilly walk into a bar appeared together on CSPAN2 over the weekend. Yes, it does sound like the start of a good joke, but it really happened–and by all accounts it was amusing to watch O’Reilly without his mute button handy. Unfortunately, I missed it, and I can’t find a transcript anywhere. If you come across one, please email me.

AB

UPDATE: It’s definitely on this coming Sunday at 5:30 p.m. Eastern. Thanks, readers.

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Whither WMD?

Since I’m citing Orwell of late, here’s this from Josh Marshall:

My God, when they say down the memory hole, they ain’t kiddin! There now seems to be a secret competition — perhaps it was announced and I just didn’t hear it — for the Iraq-hawk who can come up with the most ingenious, Orwellian, up-is-down rewriting of the history of the year- long lead-up to the Iraq war. To this point, the strongest entries are those whispers out of the Pentagon, arguing that it was Colin Powell and the State Department who made them make such a big to-do about weapons of mass destruction. [more…]

AB

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Liberalism and Growth

Recently, I said I would try to make the case that liberalism causes growth. Certainly, correlations suggest that this is the case. For instance, income is substantially higher in Blue states than Red states. The inability of the Soviet Union to match the productive output of the United States is another example. A more remote example was the lack of growth in Western Europe prior to the Reformation. I’ve even heard the case made that the reason China and the Middle East failed to capitalize on their respective technological leads over Europe going into the second millennium is that those countries never had similar reformations. China remained a dictatorship and the Middle East remained largely theocratic, preventing the emergence of capitalism.

In a recent book, The Free-Market Innovation Machine, widely respected (i.e., neither known as left nor right, just a really smart guy) economist William Baumol makes the case that over the long run, the important feature of capitalism is not that it leads to static efficiency, meaning supply equals demands and labor and resources are directed to their most productive uses. While those are important, the key distinguishing feature of capitalism is that it forces firms to compete on the dimension of innovation. Firms that innovate more consistently and prolifically outperform; those that are innovative laggards vanish by the wayside. Innovation has positive externalities, is fecund, and leads to economic growth. Ideas and knowledge fuel innovation and, in turn, education and an open society fuel ideas and knowledge.

This is where the connection between liberalism and wealth lies. A society that, for example, burns and bans books, will not be innovatively prolific. George Orwell, writing as Emmanuel Goldstein, expresses it well; Goldstein is describing the slowdown in innovation that accompanied the rise of The Party:

Science and technology were developing [before The Party took over] at a prodigious speed, and it seemed natural to assume that they would go on developing. This failed to happened, partly because of the impoverishment caused by a long series of wars and revolutions, partly because scientific and technical progress depended on the empirical habit of thought, which could not survive in a strictly regimented society. [p. 193 of the 2003 edition]

Liberal societies are less regimented; within liberal societies, cities are generally the least regimented areas, which I hypothesize explains the Blue-Red income and wealth gap. The causal chain is that the receptiveness to new ideas that accompanies liberalism leads to the production of more ideas, leading to more innovation, leading to more growth.

AB

P.S. In another recent book,

The Rise of the Creative Class
, Economist Richard Florida of Carnegie Mellon argues that “scientists, engineers, architects, educators, writers, artists, and entertainers” constitute a creative class (about 30% of the population) that generates most of society’s new ideas. This class is drawn to cities, he argues, precisely because cities are most open to new ideas. Florida’s arguments are generally strong, but unfortunately, I thought the writing was a bit burdensome. On the other hand, I wholeheartedly recommend Baumol’s book to anyone interested in Capitalism, innovation, and growth.

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More on Priorities

Earlier, in reference to the exclusion of some lower-middle class familes from the increased child tax credit, I said that “I’m sure we’ll hear that this was an inadvertent slip (right now, the House is blaming the Senate’s $350b “limit”), but inadvertent slips tell a lot about the priorities of those making the slips.” Now, cranky but generally correct physicist Robert Park gives us another telling example of what’s included and what’s excluded:

GAS GUZZLERS: TAX BILL INCLUDES A BREAK FOR MONSTER SUVs.

Language in yesterday’s tax deal making the cost of heavy pickup trucks fully tax deductible immediately for small businesses will also apply to humongous luxury SUVs weighing more than 6000 lbs. Meanwhile, a low-income child credit provision that would have benefitted many low-income working families was dropped to stay within the $350B limit. As a House Ways and Means Committee spokesman explained, “adjustments had to be made.”

Park’s weekly newsletter is great, read the whole thing. I guess that we can always drill in ANWR to counteract the SUV subsidy embodied in the tax credit. As for the poor, let them eat cake.

AB

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What he Said

Former president Bill Clinton, speaking at the John F. Kennedy Library, said he “can’t find anybody with a straight face” to defend the tax package, whose advocates “compromise the future of our country.” Of the Republicans, Clinton said: “When ideological people find themselves in a hole, they ask for a bigger shovel.”

AB

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Moderately Positive Outlook?

CNN has a story, “MaƱana economics: Economists keep saying the sun will come out tomorrow … and tomorrow … and tomorrow.” Here’s the outlook:

GDP actually grew just 2.4 percent in 2002. When surveyed at the start of 2002, forecasters predicted 3.5 percent growth in 2003. Lately, they’ve cut their forecast for the year to 2.2 percent. Now, they’re expecting 3.6 percent GDP growth in 2004.

The improved projections are attributed to the tax cuts (which are in fact somewhat stimulative, though that stimulus may come at the expense of long run investment, as government borrowing to finance deficits pushes interest rates up and crowds out private investment), low interest rates (which have done a lot to keep consumer spending up–mortgages and cars–but haven’t similarly stimulated business investment), the falling dollar (good for exporters; bad for domestic firms that buy a lot of inputs from abroad), rising consumer confidence, and a rising stock market.

2.2% growth is basically ok, closer to recession than to boom, but basically neither. It would take growth rates somewhat above 3% to reverse the unemployment increases that we’ve seen over the last two years.

But not all the news is rosy: using the administration’s own numbers (from the CEA), the tax plan is projected to destroy jobs from 2005-2007. Why? Well it’s billed as creating 700,000 new jobs in total, while creating 1.4 million in 2003-2004 alone. So to total up to 700,000, that many jobs have to vanish after 2004! That’s rather convenient, given the election cycle.

And some of the news is outrageous:

A last-minute revision by House and Senate leaders in the tax bill that President Bush signed today will prevent millions of minimum-wage families from receiving the increased child credit that is in the measure, say Congressional officials and outside groups.

The $400 checks that these families will not get were a big part selling this plan, a way to avoid the “sellout to the wealthy” label. The group that does not benefit includes those making $10,500 to $26,625, meaning that many of these families, likely the majority, do in fact earn enough to pay income taxes, and therefore would benefit from the child credit even if it is not fully refundable (it isn’t).

I’m sure we’ll hear that this was an inadvertent slip (right now, the House is blaming the Senate’s $350b “limit”), but inadvertent slips tell a lot about the priorities of those making the slips.

AB

UPDATE: The numbers about job growth and loss before and after 2003-2004 in the CNN story are based on a mistake Max Sawicky made, where that mistake basically amounts to believing the president’s Council of Economic Advisors February 2003 report. You see, crazy Max thought that by a “creating a job”, the CEA meant “one person working for one year who would not be working under the baseline scenario for that year”, when it turns out that the CEA meant something different. Max explains the details here. I suppose the WSJ editorial page can just blame it on Clinton for confusing us all about what “is” means. I should emphasize that even under the CEA’s interpretations, it remains very front-loaded, meaning the majority of job gains–such as they are–accrue bye the end of 2004.

X-posted at It’s the Economy.

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Another Red vs. Blue Post: Does Blueness Cause High Income?

Earlier I showed that, on balance, the Blue states (Gore) subsidize the Red states (Bush). For every dollar that a Red state pays in taxes, they get back an average of $1.12; on the other had, for every dollar a Blue state pays in taxes, they get back an average of only $.87. That’s a -13% rate of return! And Bush said that the 2% rate of return on Social Security is bad! (See the postscript). Observing this disparity, I said this in passing:

“Factually, this [subsidy of Red states by Blue ones] doesn’t bother me. The Blue states are generally wealthier than the Red states, and this is a natural consequence of progressive taxes.”

But this leads naturally to an interesting question: Does liberalism cause higher income? Or does high income cause people to be more liberal? Or is there some third variable–education is a natural candidate–that causes both higher income and more liberal attitudes?

First, the facts: raw income-by-state data are available here, and population data are here. You can see them conveniently combined into one table here. Here are the highlights:


# States
(Includes
D.C.)
Total Income Total Population Average Median Household Income
Red 30 $5,628,131,171,397 140,626,203 $40,021.92
Blue 21 $6,501,454,021,776 140,795,703 $46,176.51
National 51 $12,129,585,193,173 281,421,906 $43,101.07


Clearly, while the population of the Blue states roughly equals that of the Red states, the Blue states earn nearly $900 billion (7% of GDP) more than the Red states. This means that because the tax system, even after factoring in all possible deductions and shelters, is moderately progressive, the Blue/Democratic states pay no less than 7% more of the nation’s tax bill than do Red/Republican states.

What’s the point of all this? In a future post, I’ll make some grand generalizations about progressive societies, the Dark Ages, and the connections between liberalism and wealth creation. I may even make the case that liberalism does in fact cause wealth. In the meantime, I offer this you this quip to use when debating Republicans who complain about the dire need for more tax cuts: It’s our money, we can promote the common weal by giving it away via a progressive tax system if we want to. If you don’t like it, lower the average Blue state tax bill by $3,000 and raise the average Red state tax bill by $3,000. I think that’s a great answer to some moron saying “move to Cuba”.

AB

P.S. An exact Bush quote, from an October 2000 debate between Bush and Gore: “I want to get a better rate of return for your own money than the paltry 2 percent that the current Social Security trust gets today.” In that debate, Bush made the same point in slightly varying ways a number of times (Entire transcript here).

P.P.S. Note to math geeks: yes, I used median income as the average, because that’s what I found easiest on the census.gov page. In general, the median of the income distribution is below the average, so take this as a back, or perhaps two sides, of the napkin post. “Average Median Household Income” is computed as SUM(median incomes*populations)/SUM(populations), separately for Red and Blue states.

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Ingenious Republicans

My last post made me think about how clever the Republicans are. That 5% tax rate on dividend and capital gains income for lower income families is tactically brilliant. First, it makes a great sound byte:

Intrepid Reporter: Senator X, isn’t the new tax bill you just voted for a big give away to the wealthy?

Senator X: Not at all, my young friend. In fact, while we did cut the rate for the wealthy to 15%, we cut the rate on poor and middle income families down to 5%.Thats one-third as much.

Intrepid Reporter: Isn’t that essentially meaningless, given that only a handful of poor and middle income familes earn any income at all from dividends and capital gains. Virtually all of their disposable income is spent on day care, the mortgage, health care, maybe college savings. How many families with children making $41k have, outside of retirement accounts, more than $1,000 in stocks, Senator?

Intrepid Reporter: Oh, neat. I’ll write that up.

Second, it’s close to free: since the large majority of the people to whom the 5% rate will apply don’t have any dividend or stock income, the actual cost of this 5% provision is probably quite low (the costly part is lowering the rate on the wealthy from 35% to 15%). Third, insofar as the 5% rate does in fact apply to some people, who are they? Seniors! What’s so special about seniors? Well, of course we love each and every one of them. But in politics, what they are really known for is voting in large numbers. It’s a trifecta!

AB

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