Comments on economics, mystery fiction, drama, and art.

Wednesday, May 28, 2014

Broadband Download Speeds and Costs

Much has been written lately about the speed and cost of broadband in the US relative to other countries.  An article in the New York Times allows us to look at a snapshot of these two factors for a group of 21 mostly higher-income countries.  Figure 1 shows the relative speeds and costs, by country.  To get this, I divided each country's speed (cost) by the (unweighted) average of the download speed (download cost).

(Click to enlarge.)

Compared to this group of countries, the US has a relatively slow download speed (16.9 thousand megabits per second, compared to a group average of 27.4, and a relatively high download cost of $0.53 per megabit per second (group average, $0.46).  The US cost is not that far from the group average (15% higher), but the download speed is substantially (38%) slower.

If we look at the relationship between download speed and download cost, we get this:

(Click to enlarge.)

On average, download costs fall as download speeds rise (the correlation coefficient is -0.397, significantly different from zero at the 1% level).  Interestingly, the US lies almost perfectly on the regression line--on average, the U.S. has a download cost that we would "predict" from its download speed.  [I should note that the relationship is strongly affected by four outliers--two extremely high-cost, low-speed (Greece and Turkey) and two very low cost, high-speed (The Netherlands and South Korea) countries.  Excluding those four countries, the correlation coefficient falls to -0.288, still significant, and the US has a higher cost than "predicted."]

I have no big point here, just some interesting data.

Sunday, May 25, 2014

Volatility of the Components of Consumption Spending

Every now and then I create a chart that shows so incredibly clearly what we expect to see that I go back and make sure I didn't do something wrong.  This is one of those times.

I decided to look at the volatility of the three main components of consumption spending (real spending on consumer durable goods, real spending on consumer non-durable goods, and real spending on consumer services).  My measure of volatility is the absolute value of the month-to-month percentage changes in spending.  The data (from FRED) are for January 1959 to April 2014.  And this is the chart:

(Click to enlarge.)

Red is consumer durable goods, yellow is consumer non-durable goods, and green is consumer services.  And I found the results almost too good to be true, so I checked them several times.  Yep.

And the descriptive statistics go right along with it.  Durable goods spending is roughly three times as volatile as non-durable goods spending, and almost six times as volatile as spending on services.  Not only that, but the variation in changes in durable goods spending (as measured by the coefficient of variation) is also larger.

Spending Component

Mean of Monthly

Standard Deviation of Monthly Percentage Changes

Coefficient of Variation of Monthly Percentage Changes

Real Consumer Durable Goods

Real Consumer Non-Durable Goods

Real Consumer Services










 Another interesting bit of data is that the price index for consumer durable goods follow a remarkably different time path than do the price indexes for non-durable or services, as the following chart reveals.
(Click to enlarge.)

Thursday, May 08, 2014

Should a forecast of more rapidly rising food prices lead us to fear more rapid inflation?

Brad DeLong links to this commentary on Alan Meltzer's recent WJS op-ed.  Let us quote from Meltzer's piece:

We are now left with the overhang. Inflation is in our future. Food prices are leading off, as they did in the mid-1960s before the “stagflation” of the 1970s. Other prices will follow.

Meltzer, earlier in his essay, pointed to a forecast of a 3.5% increase in food prices over the coming year as a reason to be concerned about an inflationary upsurge.

Well, when I see something like that, I have to ask, "Really?"  And so, what did happen to inflation in the 1960s?  The flowing chart shows the rolling 12-month rate of inflation as measured by the CPI (black), the rolling 12-month rate of inflation as measured by the CPI excluding food (blue), and the 12-month rate of increase in food prices (red).

(Click to enlarge.)

I suppose one could (charitably) conclude that, yes, in the mid-1960s, food prices rose somewhat faster than did prices in general, or prices excluding food.  But in the late 1960s and early1970s, food prices rose more slowly.  I'm not sure that we can, then, conclude that food price increases are a harbinger of faster overall inflation.  It is true, in general, that food price increases tend to lead overall price increases--the correlation, over the 1947-2014 period, between food price increases in the most recent period and overall price increases one year later is 0.659.  So Meltzer's point is not entirely specious.  But it is certainly not proof of a causal relationship.  And, if it were, the experience of the recent past, during which food prices have increased at rates of less than 2% per year for the past 18 (overlapping) 12-month periods is hardly cause for (immediate) concern.

Meltzer's concern that a forecast of more rapidly increasing food prices are a harbinger of more rapid general inflation, then, should, first of all, lead us to ask how accurate such forecasts have been in the past.  But, even if he is correct, inflation rates of around 3% are hardly the end of the world. 

(Click to enlarge.)

Indeed, a rate of increase in food prices of 3.5% seems, on average, to imply a rate of (CPI) inflation of about 3.5% one year later.  The (roughly) 1.5% rate of increase in food prices over the past year implies a rate of inflation of about 2% over the next year.  On the other hand, the (roughly) 2% increase in food prices of the 1-2 year ago period would have suggested, on average, about 2.8% to 3% (CPI) inflation, and that has not transpired.

Finally, there's nothing in the historical data that suggest that food price increases build on themselves, or on the overall rate of inflation.  That is, there's no evidence that food price increases accelerate on their own, or as a consequence of increased (CPI) inflation.

I don't mean to dismiss Meltzer's concerns, but the evidence does not suggest that there's a whole lot to worry about in the present circumstances.

Tuesday, May 06, 2014

What is technology?

Brad DeLong:  " is not devices and practices, but, rather, collective tacit knowledge about what to do in certain kinds of situations and how to solve certain kinds of problems--situations and problems for which there is no comprehensive cookbook, or if there is a cookbook it is of use only if you and your peers already know how to cook. Michael Polanyi's "tacit knowledge..."

...channeling Ricardo Hausman
"...The problem is that a key component of technology is knowhow, which is an ability to perform a task. And knowhow, unlike devices and ideas, neither involves nor can be acquired through comprehension... tacit knowledge.... Technology has trouble diffusing because much of it requires knowhow, which is an ability to recognize patterns and respond with effective actions.... Knowhow moves to new areas when the brains that hold it move there. Once there, they can train others. Moreover, now that knowhow is becoming increasingly collective, not individual, diffusion is becoming even slower.... Cities, regions, and countries can absorb technology only gradually, generating growth through some recombination of the knowhow that is already in place, maybe with the addition of some component – a bassist to complete a string quartet. But they cannot move from a quartet to a philharmonic orchestra in one fell swoop.... Progress happens by moving into what the theoretical biologist Stuart Kauffman calls the “adjacent possible”... technology does not diffuse because of the nature of technology itself."

I always tell my classes that technology is what we know about how to do things, that sometimes what we know is embodied by (embedded in) machines and tools, but the most important aspects of any technology are what we, individually and collectively, know.