Ack! Austrian Economics have Invaded my Computer Magazine

Most every single miss fire by Microsoft has been of their own doing.  Very little(if any) has to do with the largely unsuccessful anti-trust suit filed by the FTC in 1998. But Not according to Preston Gralla.  In his article for computer world called, Will Google go the Way of Microsoft?  Ask the FTC? he blames the anti-trust suit for much of Microsoft's failures and warns that the same could happen to Google.  As this is the perfect intersection of all my interests (technology, politics, and economics) I couldn't let his ridiculous premise stand.

Gralla makes this claim in his article:

These suits, no matter the eventual legal outcome, could cripple Google's ability to innovate and expand. To see why, you only need look back at what happened to Microsoft when the federal Department of Justice launched an antitrust suit against it in 1998. The core of the issue back then was similar to what Google faces now. The issue wasn't whether Windows was a monopoly (it was); it was whether Microsoft used its monopoly power to harm its competitors and dominate new markets such as browsers.
Eventually, Microsoft wasn't given much more than a slap on the wrist, but by the time that happened in 2004, the company had been embroiled in the suit for six years. During that period, it spent an immense amount of time and resources fighting the suit, and it wasn't sure which newly contemplated business actions might be deemed illegal.
It's no coincidence that during those lost years, while Microsoft was distracted, Google locked up the search market and Apple sewed up the digital music market with the iPod. During that time, Microsoft was also unable to capitalize on Windows Mobile, a smartphone platform it had developed years before Apple's iOS. Before the suit, Microsoft practically owned the tech industry. Ever since, it's been playing catch-up in every important growth area.

So the premise here is that the anti-trust lawsuit kept Microsoft from innovating between the years 1998 and 2004.  For this premise to hold up, we would have to see evidence that Microsoft was standing still during those years, and, once released from their lawsuit hell, unleashed their innovation again starting in late 2004early 2005.  So how does the premise hold up on the time line?  Not very well...

First of all, Microsoft did a LOT of things between 1998 and 2004.  Their most successful foray into a new market started.  They started and launched the xBox during this time.  That turned out to be a major success for them and is now a staple of their profits.

Microsoft also made lots of strategic planning during these so-called "lost years".  They layed out their entire .NET framework strategy in 2000 - in the middle of their anti-trust lawsuit.  They even managed to get beta release out that year.  The .NET framework is now one of the most widely used programming platforms.  Also, Microsoft dominated PC gaming with their DirectX gaming engine.  They made good, credible updates to that before, during, and after the lawsuit.

Microsoft also tried lots of things with varying degrees of success during these so-called "lost years".  Windows Media Center for instance was their attempt to turn windowsXP machines into entertainment hubs.  While it didn't catch on it also wasn't universally panned.  Microsoft also had innovation failures like, Project Mira.  Never heard of it?  There's a reason why, it was useless as designed.

If the reason Microsoft couldn't innovate was FTC strangulation, then it must have been successful both before and after those "lost years".  But as we will see that just isn't true.  Even before the lawsuit Microsoft had big, public failures like Microsoft BOB.

Even after coming out of the lawsuit Microsoft has still had failure after failure.  Project Origami was Microsoft trying to improve tablet PCs.  It was a bloody disaster in the consumer market.

Now let's look at the 3 things Mr Gralla blames the government for Microsoft not being at the top.  First up, the ipod and digital music.  Microsoft was caught empty handed.  No one foresaw Apple's giant success with digital music.  But, could Microsoft have succeeded if it hadn't been for the FTC?  Well, evidence points to no.  Microsoft got into the digital music market with the Zune, they poored millions of dollars into it.  for 4 years they struggled.  All of them long after they settled the lawsuit.  They never made any headway or found a way to innovate on top of Apple's success.

Now let's look at phones.  Was Microsoft crippled by the FTC?  Hell no!  They're inability to break ground in the smart phone market was not for a lack of trying.  They had an entire product line of Windows CE devices for things like smart phones going back to the mid nineties.   They launched in 2003(again, middle of their "lost years" Windows Mobile.  They released several version after that trying to get their O.S. onto cell phones.  It never caught on and they abandoned it in 2010 and created "Windows Phone" that was an imitator of the iPhone.

Finally, let's look at search.  No doubt Google dominates the market.  But they didn't steal the entire market from Microsoft.  When Google first came around, yahoo was the biggest search engine.  Google and Microsoft did become the big competitors for a while, but Google just won.  They did it better than Microsoft, and it was never for a lack of trying.  Microsoft is still trying.  Microsoft launched ANOTHER search engine(their third, by my count) called "Bing" in 2009.  This is well after their supposed FTC induced innovation coma.  That search engine has never taken more than 5% Marketshare.  In fact it only went over 4% for a few brief months.  If Microsoft lost the "search" wars because of their anti-trust lawsuit, they should've made a more credible attempt afterwards.  They didn't and haven't.

Another argument is that the anti-monopoly lawsuit distracted Microsoft and lawyers sucked up resources that could have gone to innovation.  If Microsoft's legal bills were a problem, it was their own doing, not the government's.  Microsoft was ridiculously over zealous with protecting their trade marks and violated other company's intellectual property.

Microsoft sued a company named "Lindows" because it sounded too much like "Windows".  (The company was trying to get Windows to run on Linux: hence - Lindows).  Microsoft eventually paid the company millions of dollars to change their name.  Microsoft also sued a 17 year old canadian named "Mike Rowe" for registering the domain name "MikeRoweSoft" for his business.

As if things like that weren't enough for their legal department, the company spent a hell of a lot more time defending itself against private lawsuits brought by other companies.  Note that that link is not an all-inclusive list of lawsuits.

So why did Microsoft lose their innovation?  I would argue that it wasn't the anti-monopoly lawsuit that slowly brought them down a few pegs, I would argue that it was the fact that they were a monopoly.  They got lazy and spent more time trying to protect their monopoly than innovating.  They let Firefox creep on on their Internet Explorer Market.  Gmail took away their Webmail market.  Linux became the cheaper alternative for netbooks and phones.  I might be wrong on why they ultimately were dethroned, but I can safely say that it had nothing to do with the FTC.

Who are the makers and the takers?

Since the end of the presidential election last week, I've been seeing a lot of tweets and blog posts that will say something like "takers outvoted the makers"(see here, here, and here for examples).  I find the "makers and takers" narrative fascinating.  I've found few other narratives that so quickly and easily divides Americans and get us to hate each other. I wanted to take a closer look at the supposed logic behind it.

"Makers and Takers" is a right-wing meme.  The basic story is thus:  The economy is make up of people who make stuff and people who take stuff.  The takers take from the makers - usually using the power of government.  The story comes from Ayn Rand's Atlas Shrugged.  But she called them producers and looters.

Unfortunately, as often as conservatives will refer to "takers" as the problem, they rarely define or identify who these nasty people we're supposed to hate are.  Mostly, it seems to be based entirely on whether or not you pay federal income tax(payroll and other federal taxes don't count).  That is the impression I get from Mitt Romney, Paul Ryan, and other random conservatives.  The conservative commentator, Mary Matalin, helps clarify a little more.  Old people and veterans don't count, only people who use any anti-poverty program.

So, let's look at two different people.  Let's take a single parent with two children.  The parent works 2 jobs.  28 hours a week at Walmart, and another job at Home Depot working another 28 hours(give or take since schedules in retail shops tend to fluctuate).  At each job this person works hard and therefore earns above minimum wage... about $8.50.  Neither job pays benefits.  This translates to just under $2,000 a month(before payroll taxes and state income taxes).  That makes him qualified for a small amount of food stamps and for their kids to get Medicaid.  In right-wing language, this 56 hours a week worker is a "taker" and a "moocher" and a "looter".

Let's take another person.  Say, a former presidential candidate who made 14 million dollars last year by doing nothing.  He pays about a 15% tax rate in income taxes.  He didn't do anything except give his money to a banker.  But since he paid income taxes, In right-wing language, that makes him a "maker" and a "producer".

In this scenario, I question the right-wing framing of maker and taker.  Who is truly the maker, and who is the taker?  Are the minimum wage (or just above minimum wage) workers really taking?  Is that work of packing your groceries and loading the shelves that meaningless?  Is the work of giving someone else your money so important that it is the equivalent of MAKING something?

I would be tempted to reverse it and call the rich guy the "takers" and the workers (who are actually WORKING) the "makers".  But I find this whole narrative odious and would rather see it die than co-opted.  We're all in this together and we all have something to contribute to society.  If we think individuals are taking advantage of the system let's deal with that.  Let's not deal with it by demonizing the most vulnerable people in our society.

General Theory Study Guide: Chapter 3, Section I

This Chapter introduces the Keynesian concept of "effective demand".  He does so in the most confusing way possible.  I'll try to simplify as much as I can.

In section I, all Keynes does in this section is define "effective demand".  Here's the theory from Keynes's own words.

The amount of employment... depends on the amount of the proceeds which the entrepreneurs expect to receive from the corresponding output.  For Entrepreneurs will endeavor to fix the amount of employment at the level which they expect to maximize the excess of the proceeds over the factor cost.

In other words, Employers will guess what the most profitable level of employment will be, and that is how many people will be hired.  If entrepreneurs don't believe hiring more people will be profitable, they won't hire them.  The point where the cost of employment meets the expected increase in revenue is the point of "effective demand".

Keynes contrasts this with the classical theory(The belief that supply creates it's own demand).  For that belief to be true, any increase in the number of employed people must mean that the cost of hiring will always be less than or equal to the expected profits .  If that were the case, then entrepreneur's would constantly be hiring people until there was no one left and employment really would be determined by the Marginal Disutility of Labor.

Obviously, Keynes doesn't believe the above paragraph is true.  He will lay out his explanation and theory of why in Chapter 3, section II.

Hopefully, my non-math and non-statistical explanation of his definition of "effective demand" will help you understand Keynes's math heavy explanation in Section I.

Debunking Those So-Called "revenge"/"Obamacare" Layoffs (w/Math)

Did you know that 355,000 people were laid-off last week because Obama was re-elected?  Or, at least, that's what many Conservative activists would have you believe.  Apparently, there is this growing meme going around the internet that companies are laying people off because Obama and "Obamacare" is here to stay.  This is all likely to be typical partisan bull-crap.  I never thought I'd have to explain the inner-workings of the Free Enterprise System to the party that claims to love capitalism.  But... here we go.  We'll start with basic concepts and then move on to "the math".  By the end of this post, you'll know why this meme is likely to be crap, the numbers backing up that assertion, and when (and how) we'll have the numbers to prove it.

First of all, this is a huge country with a huge economy.  Large numbers of people are being hired and fired, laid-off and brought back every single day.  Additionally, large numbers of business are being started and bankrupted, growing and shrinking, every single day.  The beauty of free enterprise is that nothing ever stands still.  Things are moving and changing all the time which causes other things to move and change and so on.  This is the reason it is so hard to study macro-economies.  There are so many micro-economic things going on you can never be 100 percent certain of which event caused another event.

The best anyone can do to understand how an event affects the economy is to gather economic numbers(like jobs and sales data) and compare trends to certain events.  Unfortunately, even for the professionals, that is not an easy task.  Nor, can many things be definitively proven.  That's because, as any scientist will tell you, "CORRELATION DOES NOT IMPLY CAUSATION"!.  That phrase should be tattooed on the wrists of every economist so they have to stare at that phrase while typing up papers and reports that make that very claim.

In the beginning of the post I claimed 355,000 people lost their jobs last week because of the election.  That of course was a half-truth.  In an economy as big as ours we have 100s of thousands of people losing their jobs every. single. week.  Even in a healthy and growing economy.  The fact is, we have even more people being hired every week to offset that.  But, the right-wing aren't using employment numbers to make their current claim(we won't actually know those numbers until Thursday).

The right-wing is pointing to companies that are announcing massive lay-offs as proof, PROOF! that Obama and "Obamacare" are killing jobs.  So let's look at those numbers.  Fortunately, the department of labor keeps statistics on how many companies have a "mass layoff event".  Their definition of a mass layoff event is when at least 50 initial claims are filed against an establishment during a consecutive 5-week period.  Fortunately, they have the entire archive of their past data posted online.

As it turns out, there are a lot of mass layoff events every month.  For the last year there are usually over 1,000 mass layoff events every month (not seasonally adjusted).   I add that "not seasonally adjusted" because mass layoff events tend to fluctuate depending on the time of year.  For instance, post Christmas time will have a lot of lay offs as stores get rid of their extra holiday help.  Therefore, instead of comparing month-to-month numbers, it is sometime better to compare this months number to this month of last year.  That is what we're going to do.

November 2011 had 1393 mass layoff events.  Last I looked at a calendar there were 30 days in November.  So that means, on average, there would be at least 46 mass layoffs every single calendar day during a Normal November.  This is assuming mass layoffs happen on weekends as well.  If we assume mass layoff events only happen during the week the average would be even higher.  But since I want to give the right-wing the best chance to prove their crazy theories, I'll stick with the lower number.

Let's compare that number to right-wing doomsday claims.  If there are mass layoffs we should be seeing an increase over the average rate of 46 a day.  We should be seeing 50, 60, or 70 a day to register an increase in layoffs.  If there was a massive movement I would expect to see double of the average(like happened in 2008 when the Bush economy was spiraling downwards).

Exhibit A: The article I linked to earlier has a scary-sounding tweet that claimed that "45 companies announce layoffs in last 48 hours[after Obama's re-election".  In a 48 hour period, we should see an average of 94 mass layoff events.  That means their scary claim would be less than HALF the pace of mass layoffs during a typical November.  If their claim is true, that would be a low number and something to be celebrated.

Exhibit B:  The Blaze, home of Right-Wing Glenn Beck, has a B.S. article listing 37 layoffs and "closure" announcements in a 48 hour period.  Even smaller than the claim in exhibit A.  Additionally, they cheat by listing EVERY layoff announcements, even ones that are less than 50(my 46 number counts only those over 50).  They are still very VERY far short of an increase, let alone a doubling.

Exhibit C:  These right-wing bloggers have now setup a website to try and document supposed mass layoffs.  Here are their numbers since the Wednesday after Obama was elected(combining layoffs and storeplant closures):  Wedenseday was 25, Thursday was 23, Friday 17, Saturday 25, Sunday 1.  I don't know if this site cheats like the Blaze and lists layoffs that are less than 50 - I'll let somebody else click and read each announcement.

As you can see these listing are far short of even reaching the typical November rate and therefore offer absolutely ZERO proof of mass "revenge" or "Obamacare" layoffs.  I suspect that not all mass layoff events are reported.  I'm guessing the real number is higher than these articles report, but they are also likely at a typical November rate.

Unfortunately, the mass layoff event data isn't printed quickly.  It takes time for the department of labor to compile the statistics and interview companies about their layoffs.  For instance, September's numbers weren't reported until October 23rd.  Which means we won't get November's number until around December 23rd.  (November 23rds report will be of October, before Obama's reelection).

When the report does come up, I recommend looking at seasonally adjusted numbers, to see how much different the number is from October.  The seasonally-adjusted numbers averages out seasonal affects.  As long as that number is near October's it will mean there was no mass "revenge" or "Obamacare" layoffs.  Additionally, you can check the raw numbers and compare them to the previous November numbers.  Unless that number is twice it was last year, it'll mean no mass layoffs happened above and beyond normal economic activity.

My educated guess is that these layoffs would've happened anyways.  For those claiming they are laying off because of Obama, I think some business people are making political claims to serve a personal agenda.