Creative Class

Over at Economix, Princeton economist Alan Krueger weighs in on how to measure and evaluate the popularity or success of popular musicians.

To an economist, the most popular artist is the one who would sell the most tickets at a given price. That is, if all artists charged the same price, whoever would attract the largest audience would be the most popular. Likewise, the most popular author is the one who sells the most books at a given price. Demand is higher for some artists and authors than others.

But herein lies the rub: The price of concerts (and books) varies. If Bruce Springsteen charges a lower price than Madonna, his revenues may well be lower even if he draws more fans.

Only in the special case where an increase in price exactly offsets a reduction in the number of tickets sold would gross revenue measure the popularity of an artist. That is, if artist A sells 10 percent fewer tickets by charging 10 percent more, gross revenue could be used as a measure of popularity.

Another consideration is the number of concerts the performers are willing to supply. Celine Dion may have been willing to perform more shows than Bruce Springsteen, accounting for her higher revenues.

Finally, unlike book sales, concert fans cannot always buy a ticket at the list price. Ideally, the revenue collected in the secondary resale market — by scalpers, for example — should be included in the rankings of artists as well.

For those so inclined, a longish but very interesting paper on the subject with Marie Connolly is here.

I’ve been reading Thomas Friedman’s “Flat, Hot and Crowded” about the challenges facing the world and the necessity of American leadership. Then in Sunday’s Oregonian, a summary of a new study for the Center for Strategic and International Studies gives yet another reason for this. The U.S., alone among major developed nations, is not aging into irrelevance. A lot more is riding on the next administration than just getting us through the current economic hardships. America will need to stand up and reassume the world leadership we’ve been abandoning since the ‘80s.

Here are some selected excerpts:

The rich countries have been aging for decades, due to falling birthrates and rising life spans. But in the 2020s, this aging will get an extra kick as large postwar baby boom generations move into retirement. According to the United Nations Population Division, the median ages of Western Europe and Japan, which were 34 and 33 respectively as recently as 1980, will soar to 47 and 52, assuming no miraculous change in fertility. In Italy, Spain and Japan, more than half of all adults will be older than the official retirement age – and there will be more people in their 70s than in their 20s.

…Meanwhile, with the demand for low-wage labor rising, immigration (assuming no rise over today’s rate) will double the percentage of Muslims in France and triple it in Germany. By 2030, Amsterdam, Marseille, Birmingham and Cologne are likely to be majority Muslim.

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An important but limited exception to hyperaging is the United States. Yes, America is also graying, but to a lesser extent. We are the only developed nation with replacement-rate fertility (2.1 children per couple). By 2030, our median age, now 36, will rise to only 39. Our working-age population, according to both U.N. and census projections, will continue to grow throughout the 21st century because of our higher fertility rate and substantial immigration – which we assimilate better than most other developed countries.

…The declinists have it wrong. The challenge facing America by the 2020s is not the inability of a weakening United States to lead the developed world. It is the inability of the other developed nations to be of much assistance – or the likelihood that many will be in dire need of assistance themselves.

All told, population trends point inexorably toward a more dominant U.S. role in a world that will need us more, not less. For the past several years, the U.N. has published a table ranking the world’s 12 most populous countries over time. In 1950, six of the top 12 were developed countries. In 2000, only three were. By 2050, only one developed country will remain – the United States, still in third place.

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Consider China, which may be the first country to grow old before it grows rich… by 2030 it will be an older country than the United States… Russia, along with the rest of Eastern Europe, is likely to experience the fastest extended population decline since the plague-ridden Middle Ages…

The study is called “The Graying of the Great Powers: Demography and Geopolitics in the 21st Century” by Richard Jackson and Neil Howe. The major findings of the actual report are here (PDF).

In the context of this blog, what are the implications for all of the world creative centers, especially in Europe and Japan, that will face aging populations?

WARNING: IF YOU HAVE NOT SEEN ALL FIVE SEASONS OF THE WIRE AND INTEND TO DO SO, AVOID THIS POST.

Let’s take a pause from fashion for a minute and turn our gaze to the fair city of Baltimore, home to one of the finest pieces of drama on television or any medium. The Wire, while Emmy-ignored and critically adored, serves as the one of the more dense and layered deliberations on how a city functions that entertainment has ever produced. No amount of hyperbole can properly convey how much I love this show but, moreover, no amount of hyperbole can properly convey how good this show actually is, whether I fancy it or not. The interconnectivity of the story lines, nuance of the dialogue, and quality of the characters and acting rings out verisimilitude. In five seasons, creators David Simon and Ed Burns laid bare the ways that institutions can fail society through all-too-human lines of desire and corruption.

From the grime of the drug game in the streets, through to the docks where the union gave way to corruption to save their own skin and livelihood and the drugs come in and connect to the big money players, to the development of the docks into waterfront property, through to the school system to see how the streets affect the youth, and finally to the grime of city hall to see where the politics and the media connect to produce and leverage the information and conditions that people react to. When the show ended after season five, the overwhelming sentiment was that the players change but the game remains the same. In the political arena, after dodging a major scandal, corrupt Mayor Carcetti moved to governor, while somewhat conniving City Council President Nerisse Campbell became mayor after years of positioning and planning.

Nerisse’s character was very loosely based on real-life Mayor Sheila Dixon who was also city council president before rising to the mayoral position after then-current mayor Martin O’Malley became governor.  While Sheila Dixon has said on numerous occasions that she is a fan of the show, it does not reflect what the city or politics are like.

Yet three years after the show ended, this:

Baltimore Mayor Sheila A. Dixon was charged today with 12 counts of felony theft, perjury, fraud and misconduct in office, becoming the city’s first sitting mayor to be criminally indicted.

The case stems in part from at least $15,348 in gifts Dixon allegedly received from her former boyfriend, prominent city developer Ronald H. Lipscomb, while she was City Council president. She also is accused of using as much as $3,400 in gift cards, some donated to her office for distribution to “needy families,” to purchase Best Buy electronics and other items for herself and her staff.

Lipscomb was not indicted in the Dixon case, but he and City Councilwoman Helen L. Holton were charged this week in a separate $12,500 bribery scheme. Both cases grew out of a nearly three-year probe by the state prosecutor into City Hall corruption.

No deep analysis here folks. My only question about this is: What do you think that David Simon and Ed Burns are thinking right now?

And now, as always, some music.

Remember your economics courses in college? Dull, dry, and you were always trying to figure out what the theory and mathematics had to do with reality beyond what you learned from the world that, in most cases, supply and price were inversely related? So much of the rest of the courses seemed to be simply unrelated to the real world.

It amazes me that these economists are always quoted in the newspaper talking about the economy, when many of them know so little about the economy. Outside a very few of them such as Robert Schiller, Nouriel Roubini, and a very few others had the slightest idea in 2006 or 2007 that we were on the verge of an economic catastrophe. For a wonderful critique of economics see Yves.

This brings me to a larger question: can a discipline that cannot predict be a science? If a science suffers a massive failure, would you not think that there would be significant questioning of the practice and theory? As Yves asked, would you trust your health to a doctor whose record of failure to diagnose serious diseases was nearly 100 percent wrong and with such a record saw no reason to change? Why would a “change” agent/leader fill all the important positions with uncritical and probably unaware acolytes of the failed paradigm?

To put it in the language of this blog, economists may be creative, but it is in the production of dangerous fiction (for those that have lost significant sums in their retirement accounts, “pornography” might be a better term).

Can economics be salvaged and what will it take? What say you?

I’ve been examining the Statistics Canada employment data released on Friday. And while I’m not an economist (although I have a background in economic history), some observations are troubling me in relation to the doom and gloom being peddled by the media and some top Canadian economists.

Overall, employment was down 34,000 jobs in December. (Canada’s population  is roughly 1/10 the size of the U.S., for comparison purposes). That places Canadian employment at June 2008 levels – hardly worth panicking about.

Manufacturing jobs are down in Canada, particularly in Ontario. But this trend has been happening since the 1990s. The economic downturn may just be accelerating a process that was inevitable.

Construction jobs are down, too. But this should hardly be surprising given that many residential and non-residential developers cannot obtain the credit needed to finance construction.

Elsewhere, things look okay, too. Management, professional, engineering, finance, and administrative occupations are generally showing stability if not employment increases over the past few months, and year on year. (Indeed the Martin Prosperity Institute issued an Insights report on this phenomenon in Ontario last month)

Canadian firms – so far – have not been shedding workers, generally speaking. This may be because Canada’s economic downturn did not begin until approximately late September 2008 (in contrast to the U.S. downturn that began almost a year earlier) – and the job losses are still to come.

Or, this may be because of the demographic deficit in Canada and directly related talent shortage – generations x and y are far smaller proportionally than the baby boomers (again in contrast to the U.S.).  Employers may fear that if they cut too many talented people, they’ll never be able to hire the same caliber of people – or that their competitors will quickly absorb them.

Perhaps in time the doom and gloom will become a (self?) fulfilled prophecy – in the meantime, I eagerly await your thoughts.

Although many firms in Canada are not hiring, they are not firing either – yet. This has implications for the workplace that we can discuss below and I’ll raise in subsequent posts.

(And Happy New Year!)

The European Commission has made 2009 the European Year of Creativity and Innovation. I’m delighted to be one of the ambassadors. After the finance capital debacle of 2008, it’s high time to place real emphasis on the most productive form of human capital we have – our human creative and innovative capital.  Let’s look forward to a creative, productive, and sustainable year – and perhaps the dawn of a new era.

Click here for details.

Young Japanese men and women are ditching the car as a status symbol, sparking concern for car companies.

That from this story in the Oregonian (via Planetizen). The same can be said of many young Torontonians. I see it in my own life. I am a child of the car culture. Growing up in New Jersey, older kids used to rebuild their GTOs and Barracudas on our street. But now the car I like the most is the one vintage car I own. A couple of years ago, I traded a 10-year-old car for a newer model. Every day now I wish I had the old one back. People will still buy cars, but vintage and used will be back, and more sumptuous Minis, Prius, and their like will supplant today’s luxury cars and SUVs as the aesthetic as well as the economical choice.

Much the same is true of the rise of more compact, energy-efficient (and in some cases modern design) houses or apartments over mega-square-foot McMansions. John Seabrook wrote a fascinating book on consumption trends some years back called Nobrow, where he argued that the old notion of conspicuous consumption as status differentiator is giving way to new, more subtle forms of status differentiation. I have little doubt that the Great Reset will reshape consumption and design more and more along these lines.

Writer and award-winning graduate architect Andrée Iffrig is an architecture feature writer and blogger at Suite101.com. Take a moment to check out her trio of writings about Who’s Your City?, including a book review, an article about urban planning for mega-regions, and a blog post about life in a spiky world.

What do you think the sweetest thing is about Who’s Your City?

My interview with CBC’s Matt Galloway is here.

Here’s a quick run down of some 2009 economic forecasts. I am sort of amazed at how gloomy they are.

Paul Krugman on the second Great Depression:

The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression. …

Tim Duy titles his recent Fed Watch, “Starting on an Ugly Note”:

The only certainty for the New Year is that policymakers will continue to pull out all the stops to keep a floor under the US economy. And recent data highlights the difficulty they will face. Hope is high that the incoming Obama Administration can provide the stimulus necessary to generate economic growth by the second half of 2009. The numbers being floated look sufficient to do the job. But will the package provide little more than short term relief or a lasting fix?

Willem Buiter at the Financial Times:

The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally. Even the most hard-nosed, Guantanamo-bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed. Key wholesale markets are frozen; the internationally active part of its financial system has either been nationalised or underwritten and guaranteed by the Federal government in other ways. Most market-mediated financial intermediation has ground to a halt, and the Fed is desperately trying to replace private markets and financial institutions to intermediate between households and non-financial operations … The legal framework for the regulation of financial markets and institutions is a complete shambles. Even given the dismal state of the legal framework, the actual performance of key regulators like the Fed and the SEC has been appalling, with astonishing examples of incompetence and regulatory capture.

There is no chance that a nation as reputationally scarred and maimed as the US is today could extract any true “alpha” from foreign investors for the next 25 years or so. So the US will have to start to pay a normal market price for the net resources it borrows from abroad. It will therefore have to start to generate primary surpluses, on average, for the indefinite future…

There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place. The notion that the US Federal government will be able to generate the primary surpluses required to service its debt without selling much of it to the Fed on a permanent basis, or that the nation as a whole will be able to generate the primary surpluses to service the negative net foreign investment position without the benefit of “dark matter” or “American alpha” is not credible.

And, Jim Kuntsler:

We’ll turn around early in 2009 and discover that we are a much poorer nation than we thought because from now on credit will be extremely hard to get for anyone for anything. The businesses that survive will have to keep going on the basis of accounts receivable. This is the area where the crash of giants will be heard. I’ve been saying since publication of The long Emergency that comprehensive downscaling in all our activities, from farming to business to schooling to governance, will be the categorical imperative of the years ahead. Giant enterprises requiring giant loans to get from quarter to quarter will tend to not make it. Borrowing from the future will become a practical impossibility as past bad debts from previous borrowings continue to unwind, cease performing, and get written off. This argument implies that the federal government will tend to flounder just as General Motors, Citicorp, Target Stores and other gigantic enterprises will tend to flounder. It would be sad to see a President Obama so hamstrung and helpless, and it is largely why I see his role as largely symbolic — as a reassuring presence encouraging the distressed public to bravely bear their hardships, and to be kind and helpful among their neighbors.

Households, like businesses, will have to pay as they go from earned income. The house as ATM is over. Credit cards are maxed out and credit ceilings are lowering like the ceiling in “The Pit and the Pendulum,” preparing to slice-and-dice the old “normal” of family life in America. Bankruptcy will be the new Nascar. A lot of families will lose everything. They will sift and disperse into the housing owned by other family members — parents, siblings — and a strange new not-altogether comfortable kind of togetherness will become common. Over time, a lot of people will go looking for casual work “under-the-table”( and probably low-paying). To some degree, these workers will begin to look and act like a new servant class, and before too long they may be absorbed into the households of people who employ them. There will be plenty of room for them there.

Counties, municipalities, and states will join in the bankruptcy fiesta. It would be reasonable to expect collapsing services as a result. This would be a situation fraught with danger — of rising crime, of public health emergencies as water systems are not kept up and sewage treatment becomes unaffordable. I don’t imagine the federal government stepping into every Podunk or Metropolis from sea to shining sea and propping up these services. People will have to cope with danger and deprivation.

While part of me is drawn to the “going-to-hell-in-a-handboat” perspective, I am also amazed at how the economy is holding up in light of 2008’s multiple body blows. Have we managed the worst and been able to turn the corner, or is this just the beginning of the Great Reset?