Friday, March 6, 2015

New BLS jobs data released today

It's the first Friday of the month, which means the BLS released it's latest estimates of national employment. The headline figure: the economy added 295,000 jobs in February, on a seasonally adjusted basis. That's pretty decent.

The point that all the commentators are noticing, however, is that average hourly earnings increased at merely a 1.2 percent annualized rate, which is well below the official inflation target of 2 percent. The argument seems to be that because wages aren't accelerating, there must still be a lot of slack in the labor market despite the reasonably low 5.5 percent unemployment rate. I agree that the unemployment rate understates the amount of labor market slack due to how it defines the labor force, but disagree with the interpretation of hourly earnings:
Red and blue lines compare seasonally adjusted to actual employment data, while the green and purple lines compare hourly earnings to inflation.
This graph doesn't have today's data in it yet--it usually takes FRED a day or so to update new releases, but does provide us with the appropriate context. Importantly, average hourly earnings simply doesn't correlate with inflation or even labor market strength at all. During the recession inflation plummeted, the unemployment rate soared, and millions lost jobs. But average hourly earnings just chugged along like nothing happened. If you look at the full series, you'll see that there is an ever-so-slight bending of hourly earnings growth so that post-recession growth has been lower, but just barely.

But the bottom line is this: an individual month's data won't tell you anything at all about the path of hourly earnings, and even if it did, that tells you almost nothing about the state of the labor market.

Wednesday, March 4, 2015

What is it with the government emailing system?

The media reports that Hilary Clinton exclusively used her personal email account for work, instead of her official government account, while serving as Secretary of State. This is not the only weird factoid involving the federal email system. Former HHS Secretary Kathleen Sebelius apparently used dozens of secret (but still government-administered) email addresses instead of the official publicly-listed email address. And investigations into IRS auditing strategies revealed that while IRS administrator Lois Learner did use her official email address, most of her archives were accidentally deleted.

I guess I'm not surprised that the government is having so much trouble maintaining a decent email system. Email, while extraordinarily useful, is something that we as a society just haven't figured out how to do well yet. With the web there is an acceptable and standardized set of protocols everyone uses (http or https) and a menu of browsers to implement them that are all essentially the same and do it well. With email, there is nothing resembling a standardized protocol, and every email client is different and maddeningly ineffective. C'est la vie.

It seems pretty stupid to me that Clinton would outright refuse to use her official email for anything. The media is reporting this as an attempt to circumvent transparency laws since it means congress and FOI requests must ask her to disclose work-related emails instead of simply taking them off a government server without her involvement (my understanding is that Congress can compel disclosure of personal emails just the same as emails from government accounts--the potential issue is about compliance, not legal authority). Yet while this does create very bad optics making it look like Clinton is trying to hide illicit dealings, it is also very bad for committing illicit dealings, because by not using her official account at all, authorities know they need to look at her personal emails for any information. If she really wanted to hide something, she should have used her official account for everything else so that no one would ask to see her personal account.

But while Clinton's email habits were stupid from a public relations (or, if you please, from a criminal's perspective), they do shed some light on American transparency laws. We have laws in place that not only mandate the permanent storage of all emails and communications within the government, but also the Freedom of Information Act (FOI) which makes it possible for anyone to sue and obtain those records for essentially any reason they want. Other laws have aimed to emulate this effect for things that aren't normally even recorded, such as official FOMC meetings. I contend that these laws are both wildly ineffective and overly invasive.

I can already hear readers asking: "if they aren't doing anything wrong, then why would government workers need to keep their emails secret?" Well, let me attempt a couple answers.

The example of FOMC meetings is informative. Beginning in 1994, new laws started requiring the FOMC to release transcripts of each meeting afterwords, with some delay. As Alan Greenspan has written about in his book Age of Turbulance, these laws have had a chilling effect on FOMC discussions. Because their statements could be publicized shortly afterwords and cause violent reactions in the stock market, FOMC members mince words, votes are orchestrated in advance, and statements during meetings are made overly optimistic while any real discussions of major risks to the economy are reserved to whispered voices in shadowy hallways outside the meeting rooms, off the official record. Rather than usher in a new era of democratic governance, ineffective and excessive transparency laws have moved us a step closer to Soviet-style bureaucracy.

But even if these laws didn't cause institutional dysfunction, the would remain an imposition on the privacy of public servants. People who have done nothing wrong can have plenty of things to hide from the public. I can't stress that enough. A citizen doesn't need a reason to want to keep personal information out of the hands of the public at large. The example that always comes to mind here is sexual orientation. Although we've seen much progress on gay rights in recent years, it is still the case that being openly gay means people face employment discrimination and harassment, and while wanting to restrict that information to people you trust is not the bravest decision, it is a valid one. Yet the fact is that even if you restrict use of your work email to strictly work-related functions, you can't avoid revealing personal information in them. Even the most casual comments from your boss or co-workers--"How was your vacation?"--cannot be honestly answered without revealing one's sexuality--"My husband and I had a great time in Gatlinburg." When we FOI the emails of government workers, we are requesting not just work related information, but also intimate details about their private lives. Imagine if Apple had been required to disclose all work emails in, say, 2005--there is little doubt in my mind that these would have rendered Tim Cook ineligible for the CEO position he holds today. The truth is that our private lives cannot be separated from our work lives, and that various prejudices in society mean innocent private details can be exploited for evil. Work emails are also, at least in part, private emails.

Some efforts, such as declassification of state secrets and independent auditing and review of agency decisions, do promote democratic transparency. But disclosure laws that target individual workers for public disclosure instead foster prejudice and inefficiency with very little potential to expose actual corruption.

Sunday, March 1, 2015

What is an "Edge Provider?"

On Friday I posted my thoughts on the recent FCC decision to reclassify internet service providers as common carriers in order to protect net neutrality. You may have noticed my post didn't mention so-called "edge providers" which have been a key point of contention in the net neutrality debate. The reason for that is the term "edge provider" is completely bogus.

Let me explain.

Here's how the FCC defined terms back in their first attempt at net neutrality regulation in October 2014:
Edge Provider. Any individual or entity that provides any content, application, or service over the Internet, and any individual or entity that provides a device used for accessing any content, application, or service over the Internet.

End User. Any individual or entity that uses a broadband Internet access service.
They interpreted it to mean anyone sending packets over the internet. As the Washington Post noted, that includes literally everyone on the internet. To read this blog post, you had to send an http request to my blog server, which then replied with the html text, which then caused you to send off several other http requests back to my server to get image files, CSS files, javascript files, and more. If you look at that Taylor Rule Calculator in the upper right on this blog, you actually sent four different http requests to the St. Louis Federal Reserve servers to get that data. Congrats! The FCC says YOU are an edge provider!

The FCC is wrong of course. The term "edge provider" meant something to network programmers long before the FCC and the net neutrality debate corrupted the term. To understand what an edge provider is, you must first learn about the provider edge. I've made a crappy graphic to help:
There are two Internet Service Providers, Time Warner on the left, and Comcast on the right, which connect various end users, denoted by the thin spokes, to each other. When an end user on one provider network wants to communicate with an end user on a different network, that network traffic must cross the "provider edge"--a super-speed connection between ISPs, shown here as the thick line between Time Warner and Comcast. Providers must agree on how to split revenues in order to maintain the common provider edge infrastructure.
In this graphic, there are two Internet Service Providers (ISPs)--the ISP on the left is part of Time Warner, while the ISP on the right is part of Comcast. The small spokes coming off of each ISP are the connections to individual "end users"--that is, internet subscribers--of each respective ISP. The giant connection between Time Warner and Comcast is a super-speed internet connection between two (or more) ISPs known as the "provider edge."

Note that in the graphic, Netflix, as well as the two Netflix subscribers, are all end users. All three have paid their respective ISPs for access to the internet. Consider what happens when Netflix subscriber 1 streams videos online: Time Warner collects money from Netflix for uploading those packets, and then charges Netflix subscriber 1 again for downloading those same packets. Both Netflix and the subscriber pay Time Warner for that activity. Now consider the case where Netflix subscriber 2 watches Netflix videos: Comcast gets money from Netflix subscriber 2 for downloading those packets, but doesn't get any money from Netflix for uploading those packets--the portion Netlfix pays actually goes to Time Warner instead of Comcast. Thus, from Comcast's perspective, Netflix is an "edge provider" and not one of their "end users." On the flip side, from Time Warner's perspective, it's Netflix subscriber 2 that's the edge provider, sending all these http requests to one of their own end users (Netflix) without paying them for the internet connection.

But the distinction is moot. Yes, in the case where Netflix streams video across a provider edge, each provider only gets half of the revenue, but then they each did only half the work! The issue is not that edge providers are allowed to free-ride on each other's networks--everyone has paid for their internet access--but rather that Time Warner and Comcast need to negotiate agreements between themselves on how to split their revenues to maintain the provider edge infrastructure. And it's obvious why these two companies want to charge Netflix twice, rather than just negotiate between themselves: Time Warner and Comcast are now the same company!

Now let's talk about congestion. According to the internet service providers, they need to be able to price discriminate in order to prevent the provider edge from becoming congested. First, note that the physical cables are not the limiting factor on how fast data can go through the provider edge--rather, in almost all cases, the limiting factor is actually the provider edge router, which is essentially just a computer that sits at one point on the provider edge in order to act as a traffic cop, directing each of the incoming streams from "edge providers" to their respective destinations at "end users." So when we talk about "upgrading networks" we are almost always talking about replacing these routers, not digging up and replacing the miles of cable between them. As I noted yesterday, ISPs can congestion-price traffic over the provider edge without discriminating on the basis of content (with the caveat that as I mentioned ISPs can negotiate between themselves on how to divide that revenue). Economically, those congestion fees, whereby people pay more to send and receive packets at high-traffic times of day on high-traffic parts of the network, can fully cover the costs of upgrading this provider edge infrastructure to maintain the Pareto-efficient level of service.

My point in all this is that once you note that ISPs can negotiate with each-other over how to maintain the provider edge, the actual distinction becomes irrelevant--they will just negotiate to the same equilibrium as if all the end users subscribed to a single ISP. Hence, "edge provider" is a completely meaningless distinction, economically speaking. The anti-neutrality lobby has re-purposed a relatively mundane semantic distinction to confuse people into supporting their position which, conveniently, also allows them to extract enormous rents from internet users with no other options but to pay the ransom.

Friday, February 27, 2015

A few thoughts on net neutrality

I'm no lawyer, and in any case we haven't seen the full regulations that FCC will eventually promulgate as a result of it's recent decision to reclassify internet service providers as common carriers. So, much of this is just speculation. Anyway, these are my thoughts:
  1. This is a classic case of asymmetric intensity among voters.

    A recent poll showed that 74 percent of americans have no opinion on this. Don't troll me with their poorly-worded question (3)--their wording is almost word-for-word what opponents of reclassification say in their press releases. Their key results are that 74 percent have no idea what net neutrality is, and that net neutrality regulations are overwhelmingly popular among those who do know what the term means. They didn't ask how many are aware of the FCC reclassification and should have--my guess is that three-fourths aren't following that either.

    So, the people who care about the issue want regulations, and people who don't want regulations don't care enough for it to affect their vote. This doesn't necessarily mean reclassification was inevitable--powerful, wealthy lobbies are strongly opposed--but makes it a lot more likely than if most opponents were as intense as the proponents.
  2. Net neutrality does not prohibit "fast lanes" or "slow lanes" on the internet.

    When you sign up for broadband internet, you pick from a variety of different speed options, and that will remain true under reclassification. If you pay for a crappy connection, you're going to be in the slow lane. If the company uploading the website you are accessing paid for a crappy internet connection, you're going to be in the slow lane.
  3. Net neutrality does not let content providers to "free-ride" on the internet.

    They have to pay for connection to the internet too. Consider this blog. I'm the content provider, and I paid twice to deliver this blog post to your browser. First, I paid for my personal internet connection so I can upload my text to the server. Then I pay again to connect the server to the internet as well so you can http-request it (that is, part of the hosting fees goes to the ISP to pay for internet service with a static IP).
  4. Net neutrality does not prohibit ISPs from charging different prices to content providers versus users.

    Generally speaking, ISPs give you a slower upload speed than download speed, meaning that providing content is more expensive than using it. This will remain true under net neutrality.
  5. Net neutrality does not prohibit congestion pricing.

    The main argument made against net neutrality is that ISPs need to be able to price-discriminate in order to prevent too much congestion from slowing down users. But, net neutrality allows ISPs to charge for data usage, and to adjust that charge based on location and time, meaning that it can perfectly congestion-price all parts of it's network. To use an analogy with highways: under the policy you can charge trucks a toll, but you can't inspect their cargo.

    In concrete terms, Time Warner can charge Netflix more for uploading data during high-traffic times of day, and can charge you more for watching Netflix at high-traffic times of day, but can't charge Netflix a higher price than Hulu for the same thing. This is good because it means Time Warner can't raise your rates because you run a popular blog; they can't say to you "looks like your blog's got a lot of followers out there, it would be a shame if none of them could read it." That is exactly what Comcast did to Netflix.
  6. FCC reclassification probably will involve more regulations than if Congress had passed a net neutrality statute.

    The FCC does have the power to exempt the internet from any regulations that are outdated, irrelevant, or inapplicable to the internet. However, there are still some regulations besides net neutrality that it would be hard for the FCC to argue can't be applied to the internet, such as the requirement that common carriers maintain 24/7 repair services.

    If your phone or electricity goes out in the middle of the night, those companies are required to start repairs right away. Before reclassification, this was untrue of the internet: ISPs aren't legally required to have anyone on staff to repair internet outages, and can wait and do the repairs tomorrow, next week, next month, or whenever. Under reclassification, that will probably change, and that means higher costs to ISPs. In perfectly competitive markets I might argue this harms consumers since better quality service is not always better than lower prices; however, internet companies are essentially monopolies--who have the worst reputations on service quality--so there is a case to be made that this will be good for consumers. There could also be other regulations that are not good for consumers (but for all the debate, no one has actually named any, and that is telling).

Wednesday, February 25, 2015

Today's ruling reveals how SCOTUS will analyze King v Burwell

Yates v United States has been bouncing around twitter all day, far more famous for the fact that Justice Kagan cited Dr. Seuss in her dissenting opinion:
" A fish is, of course, a discrete thing that possesses physical form. See generally Dr. Seuss, One Fish Two Fish Red Fish Blue Fish (1960). So the ordinary meaning of the term “tangible object” in §1519, as no one here disputes, covers fish (including too-small red grouper)."
However, a more interesting aspect of the case was why the majority opinion sided with Yates. As Mark Joseph Stern explains:
"Yates fought back, insisting that undersized grouper didn’t qualify as a “tangible object” under the Sarbanes-Oxley, which was enacted following the Enron scandal to stop financial firms from shredding incriminating documents. In a closely divided ruling, the Supreme Court sided with Yates, with a plurality of the justices reading the statute to cover “only objects one can use to record or preserve information, not all objects in the physical world.” Justice Samuel Alito concurred in the judgment, providing a key fifth vote for Yates, noting that “the statute’s list of nouns, its list of verbs, and its title” all apply to “filekeeping,” not fish. This, Alito held, “tip[s] the case in favor of Yates.”"
So there you have it. The Supreme Court just ruled that it must reject the literal, dictionary definitions of terms, even though the statute does not offer an unambiguous alternative, based on the context and totality of the statute. As numerous experts have noted, if the court applies this same standard to the ACA, then it thoroughly kills King's case in King v Burwell.