information or innovation – myriad, BRCA1, BRCA2 and the fracas over gene patents
the leaders of the NJEA had demeaned him and that it was utterly intolerable for him to be viewed as having given in to them; the money was not worth it
—Brett Schundler, former NJ education commissioner, in written testimony regarding Governor Christie’s remarks. Christie’s refusal to cooperate with the teachers’ union impaired NJ’s application for the Race to the Top by fourteen points. The state lost by three: via Bloomberg
It’s unparalleled, and it is very troubling. It seems to me it is on the verge of recklessness.
—Martin Robins, Head of the Alan M. Voorhees Transportation Center at Rutgers University and original director of the Hudson River rail tunnel, remarking on Christie’s decision to withdraw state support from the tunnel on October 7. It was delayed until October 22nd, at the request of Ray LaHood, but Christie maintained his decision to eliminate support for the infrastructure project: via Bloomberg
I simply cannot put the taxpayers of the state of New Jersey on what would be a never-ending hook…
—Governor Chris Christie, who went on to say that he doesn’t want a repeat of Boston’s Big Dig, without observing the many benefits associated with the project.
While the Nobel Prize for Economics is a significant recognition, the Royal Swedish Academy of Sciences does not determine who is qualified to serve on the Board of Governors of the Federal Reserve System.
—Richard Shelby, (R-AL)
The Nobel Prize for economics was recently announced. It went to three economists who provided the theoretical foundation for understanding search markets. Each had found themselves fascinated by the difficulty that buyers and suppliers sometimes have in finding one another. Together, they found that search markets belie commonly held beliefs of classical economics. They have search costs. They’re often inefficient. They provide multiple outcomes. They’re messy.
Messy markets dumbfound classical economics. Markets are supposed to provide unique and efficient outcomes. Search markets don’t, but they don’t resist analysis. The recipients, Peter Diamond, Dale Mortenson, and Christopher Pissarides, demonstrated this with the DMP model for unemployment. But the model also demonstrates the importance of regulation and policy to affect market structure and improve outcomes. This is far from a laissez-faire point of view so commonly held. Though the recipients focused their efforts on the labor markets, the common features they identified in search markets provide a metaphor for understanding other conventional economic markets and, perhaps, non-traditional markets: the process of finding a spouse or even the marketplace for ideas – a concept still reeling from the controversial Supreme Court opinion on Citizens United v FEC.
Diamond, Mortenson and Pissarides, articulated a handful of common traits associated with search markets. Search markets are typically associated with non-exchange-based transactions, such as labor markets. Unlike on an exchange, it’s typically difficult to find the right buyers or sellers, so search and matching costs, for example, are associated with high real costs. Movement in the labor market, for example, requires individuals to quit or be fired, search for a job and be evaluated, and question accepting a position on the basis of the difficulty of and compensation for the work.
Search markets are also inefficient and may include several outcomes. Though only one outcome can be the best, these markets do not yield unique and efficient outcomes associated with classical economics. Instead, they can lead to imbalances, such as resource utilization, which can skew either too high or too low.
The activity within a search market also affects the search market. When a job-seeker, for example, increases their search activity, the overall market becomes more challenging for other job-seekers and easier for recruiting firms. These are called external effects and are not taken into consideration among market participants. It yielded a relationship between job creation and the intensity of workers seeking jobs. If workers increase the intensity with which they look for jobs, the marginal improvement in a company’s ability to fill a position will encourage employers to open searches for more jobs. It also explains why job openings have increased recently, but the unemployment rate has not changed substantially. These may be attributed to structural issues within the labor market, such as uncertainty about regulation and taxes, a reduced ability to sell one’s house and move to where the jobs are, among other reasons. Perhaps we might also see option-taking by employers. For example, many people are looking for work with intensity, firms can easily fill positions. With low search costs, posting additional vacancies allows them an inexpensive option to hire, should they find someone.
Diamond, Mortenson, and Pissarides, initially working independently, soon found one another in perhaps an example of their own theory of search markets. The realization of one another’s interests galvanized their efforts, and they organized the Diamond-Mortenson-Pissarides (DMP) model to explain the Beveridge Curve. The Beveridge Curve denotes an empirical pattern of high unemployment and low vacancies or low unemployment and high vacancies. The DMP model broke new ground by providing an explanation for the relationship between the underlying economy, various regulations, and the position on the curve.
Rigidities in the labor market can contribute to unemployment. Participants seek to optimize both compensation and the quality of the work required. One’s inclination to compromise before finding the optimal combination might be determined by jobless benefits, the performance of one’s portfolio, or the condition of the overall economy. Similarly, employers might delay listing vacancies or hiring in general if they find it more difficult to fire employees when they feel necessary. India, for example, maintains a rule pertaining to industrial establishments of 100 workers or more. Rather than require the customary one-month notice on termination, industrial establishments require a three month written notice to employees and prior authorization from the appropriate government authority.
The DMP model, however, does not deny the benefits of regulation. Indeed, some regulations may introduce rigidities that impede the market, but properly applied, they may improve the functioning of the market. Though higher unemployment benefits predictably lead to higher unemployment and a higher search time for the unemployed, the DMP model suggests that it nonetheless has its place. Some job searches are complicated by the rarity of an individual’s skills. Without unemployment benefits, they might not have the time to conduct a thorough search. Circumstances will require that they take a position that does not capitalize on their abilities, and the mismatch between an individual and their job will result in a net loss in welfare for the economy overall. If a skilled machinist has to stock shelves at Walmart, the economy does not benefit from the investment required to cultivate those skills in the first place and may pay a price in a company’s inability to fill a vacancy. Without a proper match, the economy will function below its capacity.
Though the recipients’ work centered on the labor markets, search markets have also been applied to many areas where buyers and sellers find it difficult or expensive to find one another. Among them, the process of finding a suitable spouse, identifying and negotiating with strategic suppliers, used car shopping, and perhaps expert networks. Some of these have been explored, others may benefit from analysis through the lens of a search market. Expert networks, a relatively new phenomenon, connect those in need of expertise with those who have expertise through a costly and fitful process of collecting, profiling and delivering independent consultants, former executives, former government officials, and others for paid phone consultations and other engagements.
The metaphor of the market has even been used to understand the freedom of speech guaranteed by the Constitution. Viewing the marketplace of ideas as a search market might be just the metaphor Stevens was looking for when he dissented to the Supreme Court’s decision in Citizens United vs. FEC earlier this year. Indeed, it’s an elaboration of Professor George Stigler’s precursor to search markets discussed the search costs associated with information in his 1961 paper, The Economics of Information. Perhaps it was what Stevens had been struggling with when he wrote:
All of the majority’s theoretical arguments turn on a proposition with undeniable surface appeal but little grounding in evidence or experience, “that there is no such thing as too much speech,”
The marketplace of ideas is a search market. It’s messy. It yields multiple and inefficient outcomes. The Nobel Committee’s reward of Diamond, Mortenson, and Pissarides’ work on Monday helped us understand that better and laid bare the insufficiency of the laissez-faire perspective so often taken.
It’s quite clear that stocks are cheaper than bonds. I can’t imagine anyone having bonds in their portfolio when they can own equities.
—Warren Buffett: via Bloomberg
According to Piers Steel, a business professor at the University of Calgary, the percentage of people who admitted to difficulties with procrastination quadrupled between 1978 and 2002. In that light, it’s possible to see procrastination as the quintessential modern problem.
—James Surowiecki: via New Yorker
Procrastination most often arises from a sense that there is too much to do, and hence no single aspect of the to-do worth doing. . . . Underneath this rather antic form of action-as-inaction is the much more unsettling question whether anything is worth doing at all.
—Mark Kingwell: selected by Surowiecki
Happy customers are paying customers and what better way to encourage happiness than a little music. But if you get what you pay for, then shouldn’t a shopkeeper pay for music?
BMI whole-heartedly agrees. They emerged as a way to collect royalties from radio stations, but they also assess payments from bars, restaurants, bowling alleys, stores and others that might play an iPod or a radio, use a CD player or a karaoke machine, or feed a jukebox during the course of business. BMI and its peers organize permission to play music by selling each of these businesses licenses. For every dollar they collect, they disburse eighty-seven cents in the form of royalty payments to artists. If the dulcet tones of the latest tween sensation sweetens the atmosphere, encourages people to linger, and sells a few more hair-clips, then perhaps it is worth the money. The shopkeeper is happy. The artist is happy. But is the right artist happy?
BMI knows that music is valuable. They know to whom it is valuable. But they don’t necessarily know who is delivering the value. Radio stations have playlists. They can be publicly monitored for accuracy. But what the local wine bar or Italian restaurant plays isn’t. Instead, BMI applies statistical analysis to predict what’s playing on those iPods and cd-players, and it’s based on what they know from the local radio stations. It seems like a reasonable approach. Use local radio play to predict what people listen to locally, but it belies the reason why one might play a cd or use an ipod.
Shopkeepers don’t play ipods or cd’s because they want to replicate the radio’s playlist. They play them because they want to replace the radio’s playlist. Not only are the advertisements tedious and distracting, few stations stray from the bland, hit-based formats of classic rock, urban, hot and light adult contemporary, among others. It’s no wonder that many businesses want to introduce and curate their own mix of artists and entertainers to delight and entice their customers. If they want to take the extra step of licensing the music, however, BMI won’t remunerate the relevant artists. Instead, it will fall back on the statistical samples from local radio playlists, and rather than support the artists specifically responsible for enhancing the business owner’s experience, the same bland hits from the radio receive the credit and the royalties. BMI enriches major artists at the expense of smaller artists.
BMI has an incentive to benefit major artists disproportionately. While a small act has no market power, a major act does. Justin Bieber and his label, for example, could presumably threaten to shift from BMI to ASCAP, and the shift would materially impact BMI’s finances. A defection from one major artist might lead to defections from others, and with the loss of scale, the thirteen cents of each dollar designated for operating expenses might increase to fourteen cents or fifteen cents. BMI has correspondingly organized itself to find ways to sell more licenses, drive more revenue to hit-making acts, and shift more wealth to major artists. If it’s at the expense of smaller acts, no matter.
One might suggest that surveillance would provide transparency and lead to a more equitable distribution. BMI could provide a better accounting of playtime for any particular song or artist. If they start counting, then they may find more dispersion among acts represented than anticipated in unsupervised settings, such as restaurants, bars, bowling alleys. Better counting might lead to an adjusted distribution, shifting the balance toward smaller acts. But if it impacts Justin Bieber and his label, they may choose to raise prices, so they can maintain or increase revenue. Rather than redistributing the same volume of revenue, BMI can either raise prices for their licensees or maintain the same distribution as before, perhaps increasing the amount designated for Bieber and his label, just to keep them happy. Surveillance, aside from its intrusiveness, doesn’t necessarily solve for the market power of the large acts.
Album sales plummeted from 45.4m in a week in December 2000 to 5.7m in a week in May 2009 and 4.9m in a week in May 2010. Soundscan’s data suggests that 2010 album sales will be the lowest on record. With digital track sales in the neighborhood of 20-25 million a week, even if each song equated an album, the combined sales-figures pale in comparison with December 2000’s rate.
The permissioned performances bundled and sold by BMI to any given business promise a solution to dismal sales. With no relief in sight, BMI will experience more pressure to raise revenue for labels and artists. BMI representatives have a compelling service, but it’s the bundle that makes it powerful. Its power derives as much from the large acts as the multitude of smaller acts, and the sheer volume of small acts contribute to BMI’s overall strength. Whether BMI’s efforts ultimately reflect a fair distribution of revenue is another matter.
Aka San, the Gedou Baby and Masani Gedou!
Step One – an iconic manga image
Step Two – post your child to the internet
Step Three – find an accidental analog
The Manga Word Bubble Format
- a benign introductory statement disguised in gentleness and warmth;
- a snippy or highly discouraging statement aimed at the reader;
- the punchline, Gedou, meaning “Downright Heresy,” which implies “shame on you.”
Stilltitled 