January 04, 2015
The Washington Post once again displayed its contempt for economics when it published Michael Harris’ book review of The Internet Is Not the Answer, a new book by Andrew Keen. Many of the central points in the review are seriously misleading or just outright wrong.
The best example of the latter is the claim in reference to the turning over of the backbone of the Internet from the government to the private sector in the 1990s:
“It was, in the words of venture capitalist John Doerr, ‘the largest legal creation of wealth in the history of the planet.'”
Handing over the Internet to the private sector was not a creation of wealth, it was a transfer of wealth. The wealth already existed — it was the backbone of the Internet. It simply went from being held by the public to being held by private individuals. This is comparable to creating wealth with patent monopolies. At the point where a patent is issued, the wealth already exists. However the patent allows it to be privately appropriated rather than shared by the public at large.
Harris compounds the confusion when he approvingly cites Keen’s assessment of Amazon:
“But Keen argues that ‘the reverse is actually true. Amazon, in spite of its undoubted convenience, reliability, and great value, is actually having a disturbingly negative impact on the broader economy.’ He points to what he describes as Amazon’s brutally efficient business methodology, which has squeezed jobs out of every sector of retail, according to a 2013 Institute for Local Self-Reliance report that Keen cites. The report says brick-and-mortar retailers employ 47 people for every $10 million in sales, while Amazon employs only 14. Perhaps the question Keen is getting at is this: Are we consumers, or are we citizens? It’s a frustratingly complex inquiry.”
There are two different issues here. The first is the extent to which Amazon has led to productivity growth. In general this is a good thing for the economy. Companies like General Motors and U.S. Steel have adopted labor saving technologies over the last century. This has reduced prices for consumers and allowed workers to enjoy higher standards of living. There is no obvious reason we should want people to have to waste time working in retail stores if we can adopt technologies that save us the trouble. Insofar as Amazon has helped to increase productivity, this is a good thing.
As a practical matter, productivity growth has actually been relatively slow over the last two decades. In other words, the pace at which people are being displaced by new technology has been slower in the Internet Age than it was in the three decades following World War II. The people who are yelling about robots taking our jobs are basically displaying their ignorance, not informing us about events in the world.
We do have a problem of unemployment, but this is due to inept economic management that has failed to create sufficient demand in the economy. This could easily be done by having the government spend more money, but we have superstitions that prevent larger deficits. It could also be done by reducing the trade deficit through lowering the value of the dollar, but we have powerful interest groups that don’t want to see the value of the dollar lowered. We could also get to full employment by shortening the work week and having more paid leave, as Germany has done. But our economic policymakers mostly lack the creativity to consider this approach.
In any case, productivity growth is clearly not the economy’s problem. Bad economic policy is.
The other point about Amazon and its labor practices is that it has been harshly anti-union and adopted a number of questionable tactics in its treatment of workers. For this it certainly deserves to be criticized, but not for making retail more efficient.
Amazon also deserves criticism for avoiding the requirement to collect sales taxes in most states through most of its existence. This is effectively a subsidy to Amazon and other Internet retailers at the expense of traditional brick and mortar stores. This massive subsidy, which exceeds Amazon’s cumulative profits since its creation, is strangely not mentioned in this review.
When the review turns to Uber and Airbnb it shows similar confusion. If these services can allow for more efficient taxi service and for lower cost lodging, that is a plus for the economy and society. It is not a plus insofar as they profit by evading legitimate regulations in areas like safety and insurance. The review, apparently following the book, attacks them for increasing the efficiency of these sectors and ignores the regulatory issues. (FWIW, any city government with sentient policymakers could establish their own New York bnb, Detroit bnb, etc. and eliminate the middle man.) This again indicates some very serious confusion.
If the Post wants a book reviewed that addresses important economic issues it would be useful it it arranged for a review by someone with at least a minimal knowledge of economics.
Note:
The comment that Amazon was “evading” the requirement to collect sales taxes was changed to “avoiding.” As two comments noted, “evading” means that they broke the law. Amazon did not break the law in avoiding this obligation that applies to its brick and mortar competitors. It took advantage of a loophole in the law and lobbied extensively to make sure that the loophole was preserved. To my knowledge, they did not break the law in this area.
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