Texas-Size Sophistry

by on October 1, 2006 · 28 comments

The Institute for Policy Innovation has released a study on the costs of movie piracy. It’s a truly remarkable exercise in hand-waving. We’ve written before about the shoddy methodology that copyright industries often use in studies purporting to show the costs of piracy. One of the most common tricks is to assume that every person who pirates a work would have otherwise purchased the work at full price–a clearly false assumption. Some infringers would have purchased the work if they’d been unable to get a pirated copy, but a lot of others would have simply done without it. Hence these estimates are invariably inflated, and any such study funded by the affected industry should be taken with a large grain of salt.

But the Institute for Policy Innovation is a Texas think tank, and everything’s bigger in Texas. That includes sophistry. Not content with the MPAA’s official, numbers, which found that worldwide piracy costs the movie industry $6.1 billion, they’ve taken the MPAA study as a baseline, added a heaping helping of fallacious economic reasoning, and concluded that the cost of piracy is, in fact, $20.5 billion. This is complete and utter nonsense, as I’ll explain below the fold.


Here’s the example they use to illustrate the methodology of the study:

Assume that personal watercraft, like Jet-Skis® , suddenly become very popular and shortages develop. In this situation, the price of personal watercraft will rise and so will the profits of the manufacturers. However, in order to continue to earn these higher profits, the manufacturers will have to make more personal watercraft. In the process, they will buy more waterproof seats from seat manufacturers.

Of course, it doesn’t stop there. In order to produce more seats, the seat manufacturers will have to buy more plastic and more padding. And the plastic and padding manufacturers will have to buy more of the particular materials that they need.

The cascade does not end with the suppliers to personal watercraft manufacturers, but continues downstream as well. The retail sellers of personal watercraft who buy from the manufacturers will also be able to earn more money by raising prices or increasing volume. In their wake, specialty stores that customize personal watercraft or sell parts also stand to benefit.

If a foreigner gives me $1, and I turn around and buy an apple from you for a dollar, and then you turn around and buy an orange from another friend for a dollar, we haven’t thereby increased our national wealth by $3. At the beginning of the sequence, we have an apple and an orange. At the end, we have an apple, an orange, and a dollar. Difference: one dollar. No matter how many times that dollar changes hands, there’s still only one dollar that wasn’t there before.

Yet in IPI-land, when a movie studio makes $10 selling a DVD to a Canadian, and then gives $7 to the company that manufactured the DVD and $2 to the guy who shipped it to Canada, society has benefitted by $10+$7+$2=$19. Yet some simple math shows that this is nonsense: the studio is $1 richer, the trucker is $2, and the manufacturer is $7. Shockingly enough, that adds up to $10. What each participant cares about is his profits, not his revenues.

We can see this from looking at their other statistics:

Motion picture and video piracy exact a heavy toll not only on the U.S. motion picture industry, but the overall U.S. economy as well: $20.5 billion annually in total lost output among all industries, $5.5 billion annually in lost earnings for all U.S. workers and 141,030 jobs that would otherwise have been created are lost. In addition, as a result of piracy, governments at the federal, state, and local levels are deprived of $837 million in tax revenues each year.

Now, if my calculator is working correctly, $5.5 billion+$837 million is $6.337 billion, which is more than $6.1 billion. Presumably the $5.5 billion is pre-tax wages. If we looked at post-tax wages, it appears that wages+tax revenues+corporate profits would add up to approximately–surprise!–$6.1 billion. Passing dollars around doesn’t create more of them. If $6.1 billion comes into the country, the resulting net increase of wealth held by Americans will be, precisely $6.1 billion, regardless of how the dollars are spent.

IPI’s study is like the broken window fallacy on steroids. Not content to simply count “what is seen” once, they count the same dollar over and over again, counting it as a new gain for the economy every time it comes into a new person’s hands.

That IPI would publish such a study is especially ironic because the libertarian movement used to chide our friends on the left for their poor grasp of economics. One of the great libertarian heroes of the 20th Century was Milton Friedman, who stressed that pumping more dollars into the economy could not create new wealth. Free marketeers derided the Keynesian notion that the government could create new wealth through expansionary monetary policy. We stressed that money is not the same as wealth, and that putting more dollars in peoples’ pockets will not increase the number of goods and services they can consume.

Libertarians won that debate. Thanks to the Volcker/Greenspan Fed, which was firmly committed to Friedman’s monetarist ideas, we’ve enjoyed a quarter century of monetary stability. So it’s downright creepy to see a supposedly free-market organization falling so easily into the same fallacy of confusing money for wealth.

I’m annoyed but not surprised when the BSA or the MPAA puts out a shoddy and misleading study. They’re industry lobbying group. Their job is to make the best possible case for the interests of their members. I don’t think I’d have the stomach for that kind of work, but at least no one has any illusions that they’re an independent or objective source.

But IPI is a free-market think tank–similar in many respects to my employer. Much of their research is supporting causes that are near and dear to my heart, such as lower taxes, entitlement reform, and deregulation. At the Show-Me Institute, we don’t hide the fact that we’ve got a free-market agenda, but we also pride ourselves on our independence and intellectual integrity. Our first allegiance is to the truth, and we try to avoid using misleading statistics or making disingenuous arguments. Not only is that the right thing to do, but I think it makes us more effective advocates for our point of view, in the long run. When a sister think tank publishes shoddy research, it casts all of us in a bad light.

Update I see from the executive summary that the wage figure is pre-tax. $600 million of the $837 million consists of personal income taxes, implying that the total of post-tax wages and government revenue is about $5.7 billion. Presumably the other $350 million comes in the form of corporate profits. The bottom line is that when all is said and done, the increased income in Americans’ pockets is still $6.1 billion, not $20.5 billion.

Update 2: I followed up on this post here.

  • http://weblog.ipcentral.info/ Noel Le

    ***We’ve written before about the shoddy methodology that copyright industries often use in studies purporting to show the costs of piracy. ..Some infringers would have purchased the work if they’d been unable to get a pirated copy, but a lot of others would have simply done without it.***

    Yes, that sounds like a universal justification for theft:” if we can’t steal it, we wouldn’t buy it, so just let us steal.”

    ***One of the great libertarian heroes of the 20th Century was Milton Friedman, who stressed that pumping more dollars into the economy could not create new wealth. ..money is not the same as wealth… putting more dollars in peoples’ pockets will not increase the number of goods and services they can consume. ..it’s downright creepy to see a supposedly free-market organization falling so easily into the same fallacy of confusing money for wealth.***

    Uhhh, I believe the economic lesson is that simply pumping money into the economic does not necessarily create wealth. Still economic activity is essential for wealth, consumer spending power and economic transfer. That unqualified inflow of capital does not generate wealth does not downplay its importance. Your argument is akin to “since VC and private investment money do not necessarily generate innovation, they are not essential to it.”

    ***I’m annoyed but not surprised when the BSA or the MPAA puts out a shoddy and misleading study.***

    They’d say the same about hysterical policy ramblings depicting how artists can ditch DRM and make money selling trinkets and T-shirts.

    ***At the Show-Me Institute, we don’t hide the fact that we’ve got a free-market agenda, but we also pride ourselves on our independence and intellectual integrity.***

    The Show Me Institute is not involved in digital economy research, so its not comparable to BSA and other venues that specialize in that part of the economy (that is, if you consider technological innovation as part of the economy, rather than the subject of philosophical inquiry by those who do not grasp the concept of capital).

    ***Our first allegiance is to the truth, and we try to avoid using misleading statistics or making disingenuous arguments.***

    It scares me when think tanks seek “truths” or other funny goals that end up leading them to argue their way into madness. Generally, they approach economic and innovation policy through philosophical lenses, and end up arguing for unproductive views that would drive American innovation into the ground. Policy is not truth seeking, it is not philosophical inquiry. The point of policy is to craft understanding and facillitation of innovation. Do you disagree.

  • http://weblog.ipcentral.info/ Noel Le

    ***We’ve written before about the shoddy methodology that copyright industries often use in studies purporting to show the costs of piracy. ..Some infringers would have purchased the work if they’d been unable to get a pirated copy, but a lot of others would have simply done without it.***

    Yes, that sounds like a universal justification for theft:” if we can’t steal it, we wouldn’t buy it, so just let us steal.”

    ***One of the great libertarian heroes of the 20th Century was Milton Friedman, who stressed that pumping more dollars into the economy could not create new wealth. ..money is not the same as wealth… putting more dollars in peoples’ pockets will not increase the number of goods and services they can consume. ..it’s downright creepy to see a supposedly free-market organization falling so easily into the same fallacy of confusing money for wealth.***

    Uhhh, I believe the economic lesson is that simply pumping money into the economic does not necessarily create wealth. Still economic activity is essential for wealth, consumer spending power and economic transfer. That unqualified inflow of capital does not generate wealth does not downplay its importance. Your argument is akin to “since VC and private investment money do not necessarily generate innovation, they are not essential to it.”

    ***I’m annoyed but not surprised when the BSA or the MPAA puts out a shoddy and misleading study.***

    They’d say the same about hysterical policy ramblings depicting how artists can ditch DRM and make money selling trinkets and T-shirts.

    ***At the Show-Me Institute, we don’t hide the fact that we’ve got a free-market agenda, but we also pride ourselves on our independence and intellectual integrity.***

    The Show Me Institute is not involved in digital economy research, so its not comparable to BSA and other venues that specialize in that part of the economy (that is, if you consider technological innovation as part of the economy, rather than the subject of philosophical inquiry by those who do not grasp the concept of capital).

    ***Our first allegiance is to the truth, and we try to avoid using misleading statistics or making disingenuous arguments.***

    It scares me when think tanks seek “truths” or other funny goals that end up leading them to argue their way into madness. Generally, they approach economic and innovation policy through philosophical lenses, and end up arguing for unproductive views that would drive American innovation into the ground. Policy is not truth seeking, it is not philosophical inquiry. The point of policy is to craft understanding and facillitation of innovation. Do you disagree.

  • Steve R.

    Tim: Excellent post.
    Noel: Your response consists of only logical fallacies. Rather than debating the economic concepts raised by Tim with alternative economic thoughts, you make numerous illogical assertions, one such assertion is that Tim’s analysis is a universal justification for theft.

  • http://weblog.ipcentral.info/ Noel Le

    Man, if you think Tim raises economic questions, you’re right. However, his discussion of economic issues is anything other than serious.

    The *alternative* economic theories I propose would be the ones in force in front of us, that sustain American innovation and industry.

    As Tim would have it, tinkering morality would supplant our economic strength, and I read his post under that general lietmotif. Thats where I gather that applying Tim’s piracy justification and you would have a universal justification for theft.

    Where on earth does this reading of Friedman come from. Tim:)

    Where are my illogical fallacies Steve. I’ll discuss any points if you show me eactly where you and I disagree.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    Tim: Excellent post.

    Noel: Your response consists of only logical fallacies. Rather than debating the economic concepts raised by Tim with alternative economic thoughts, you make numerous illogical assertions, one such assertion is that Tim’s analysis is a universal justification for theft.

  • http://weblog.ipcentral.info/ Noel Le

    Man, if you think Tim raises economic questions, you’re right. However, his discussion of economic issues is anything other than serious.

    The *alternative* economic theories I propose would be the ones in force in front of us, that sustain American innovation and industry.

    As Tim would have it, tinkering morality would supplant our economic strength, and I read his post under that general lietmotif. Thats where I gather that applying Tim’s piracy justification and you would have a universal justification for theft.

    Where on earth does this reading of Friedman come from. Tim:)

    Where are my illogical fallacies Steve. I’ll discuss any points if you show me eactly where you and I disagree.

  • http://www.blogger.com/profile/14019452 Steve R.

    Noel: Assume that a person has $1 to available to spend. That person has several spending choices, he can save it, he can buy a legal DVD, he can buy a pirated DVD, or he can by a beer. The legal DVD by coincidence costs $1. The pirated DVD costs $0.50.

    If that person pays the $1.00 for the legal DVD, there is no issue. However, if that person where to buy the pirated DVD, the content industry is claiming that this is a cost to our entire economy, which it is NOT. I can agree, without sympathy, that the content industry may be hurt, but the overall economy won’t be. To explain, that person still has $0.50 left to make an additional legitimate purchase. Furthermore, in buying the pirated DVD that person is still putting money into the overall economy. The pirate, after all, for his business to flourish has to buy blank DVDs, he has to buy recording equipment, and he has to pay money for basic supplies such as eating, rent, and clothing. (By an amazing coincidence these are the very same expenses the content industry also has.) In terms of the overall economy, it is irrelevant who receives the money. The economy, in the abstract, doesn’t care who is right or who is wrong.

    An effective response would have been one demonstrating that the content industry was somehow providing enhanced value to the overall economy because of a legitimate revenue stream. So far, I have not heard any such argument based on rationality.

  • http://www2.blogger.com/profile/14380731108416527657 Steve R.

    Noel: Assume that a person has $1 to available to spend. That person has several spending choices, he can save it, he can buy a legal DVD, he can buy a pirated DVD, or he can by a beer. The legal DVD by coincidence costs $1. The pirated DVD costs $0.50.

    If that person pays the $1.00 for the legal DVD, there is no issue. However, if that person where to buy the pirated DVD, the content industry is claiming that this is a cost to our entire economy, which it is NOT. I can agree, without sympathy, that the content industry may be hurt, but the overall economy won’t be. To explain, that person still has $0.50 left to make an additional legitimate purchase. Furthermore, in buying the pirated DVD that person is still putting money into the overall economy. The pirate, after all, for his business to flourish has to buy blank DVDs, he has to buy recording equipment, and he has to pay money for basic supplies such as eating, rent, and clothing. (By an amazing coincidence these are the very same expenses the content industry also has.) In terms of the overall economy, it is irrelevant who receives the money. The economy, in the abstract, doesn’t care who is right or who is wrong.

    An effective response would have been one demonstrating that the content industry was somehow providing enhanced value to the overall economy because of a legitimate revenue stream. So far, I have not heard any such argument based on rationality.

  • http://weblog.ipcentral.info/ Noel Le

    ***So far, I have not heard any such argument based on rationality.***

    Steve, the digital industry is a funny thing. Do you know why? It does not present immediate explanations of why its generative, wealth creating, or even why its intersting. In short, the digital economy is something to be studied, but studied in the sense that important insights are ones that help produce creative and productive activity; that facillitate, per Professor Dam, innovation over time.

    It would be a logical fallacy to derive truths about the industry without considering all inputs and motivations involved. Nobody really knows all that these encompass. Thus, the error w/ FOSS proponents is that they assume they know how innovation works (man, if you’ve ever worked in the industry, or spent time in serious policy circles, you would appreciate how funny the notion of knowing how innovation works is), without at least considering the primary factors in the digital economy: the incentives of innovators, and the choices of consumers. They would essentially lead capital risking entities into the ground and consumers with half finished products- all for the sake of some tinkerers who feel that others always owe them something to tinker with.

    I’m not saying your argument falls to this trap steve, but explaining to you how I approach the issuess given what I’ve seen here.

    An intersting point you make about the irrelevance of “who receives the money.” Tell me how your little scenario differs from justification for a black market.

    Yet your point that there needs to be demonstration of a digital entertainment industry contributing to economic welfare through legitimate consumption is intersting. Look at the earnings reports of Hollywood!! I’ll skip the whole debate about perfect vs. imperfect IP. However, to have the exception subsume the rule, to over-generalize a theoretical lesson beyond its due and make this an assertive policy view is to overplay your hand.

    *** An effective response would have been one demonstrating that the content industry was somehow providing enhanced value to the overall economy because of a legitimate revenue stream… buying the pirated DVD that person is still putting money into the overall economy. The pirate, after all, for his business to flourish has to buy blank DVDs… the content industry may be hurt, but the overall economy won’t be.***

    For one, if you accept that the digital entertainment industry contributes to economic growth at all, then you have to accept that to what extent it does, it relies on legitimate consumption and business transactions. If you are denying that Hollywood contriutes to the economy, then fine. But this does not mean that we would be better off by legitimzing a black market. No, the overall economy won’t be handicapped by Hollywood making less money, but one has to ask where the loss in profits go. The contributions of the digital industries to commercial activity is greater than sales of peripherals purchased to facillitate black market and illegal theft I grant you that.

    *** In terms of the overall economy, it is irrelevant who receives the money. The economy, in the abstract, doesn’t care who is right or who is wrong.***

    It is relevant who receives the money, when we know who risked his investments, and that future ventures will be unlikely if we do not ensure economic returns. The economy will continue even if Hollywood is less profitable, but look at what you are trading in. Profitable business for tinkerers.

    Yes, its surprising, even in this day and age, to forget about the whole incentive basis of capitalism.

  • http://weblog.ipcentral.info/ Noel Le

    ***So far, I have not heard any such argument based on rationality.***

    Steve, the digital industry is a funny thing. Do you know why? It does not present immediate explanations of why its generative, wealth creating, or even why its intersting. In short, the digital economy is something to be studied, but studied in the sense that important insights are ones that help produce creative and productive activity; that facillitate, per Professor Dam, innovation over time.

    It would be a logical fallacy to derive truths about the industry without considering all inputs and motivations involved. Nobody really knows all that these encompass. Thus, the error w/ FOSS proponents is that they assume they know how innovation works (man, if you’ve ever worked in the industry, or spent time in serious policy circles, you would appreciate how funny the notion of knowing how innovation works is), without at least considering the primary factors in the digital economy: the incentives of innovators, and the choices of consumers. They would essentially lead capital risking entities into the ground and consumers with half finished products- all for the sake of some tinkerers who feel that others always owe them something to tinker with.

    I’m not saying your argument falls to this trap steve, but explaining to you how I approach the issuess given what I’ve seen here.

    An intersting point you make about the irrelevance of “who receives the money.” Tell me how your little scenario differs from justification for a black market.

    Yet your point that there needs to be demonstration of a digital entertainment industry contributing to economic welfare through legitimate consumption is intersting. Look at the earnings reports of Hollywood!! I’ll skip the whole debate about perfect vs. imperfect IP. However, to have the exception subsume the rule, to over-generalize a theoretical lesson beyond its due and make this an assertive policy view is to overplay your hand.

    *** An effective response would have been one demonstrating that the content industry was somehow providing enhanced value to the overall economy because of a legitimate revenue stream… buying the pirated DVD that person is still putting money into the overall economy. The pirate, after all, for his business to flourish has to buy blank DVDs… the content industry may be hurt, but the overall economy won’t be.***

    For one, if you accept that the digital entertainment industry contributes to economic growth at all, then you have to accept that to what extent it does, it relies on legitimate consumption and business transactions. If you are denying that Hollywood contriutes to the economy, then fine. But this does not mean that we would be better off by legitimzing a black market. No, the overall economy won’t be handicapped by Hollywood making less money, but one has to ask where the loss in profits go. The contributions of the digital industries to commercial activity is greater than sales of peripherals purchased to facillitate black market and illegal theft I grant you that.

    *** In terms of the overall economy, it is irrelevant who receives the money. The economy, in the abstract, doesn’t care who is right or who is wrong.***

    It is relevant who receives the money, when we know who risked his investments, and that future ventures will be unlikely if we do not ensure economic returns. The economy will continue even if Hollywood is less profitable, but look at what you are trading in. Profitable business for tinkerers.

    Yes, its surprising, even in this day and age, to forget about the whole incentive basis of capitalism.

  • http://www.gioblog.com Tom Giovanetti

    Fascinating, Tim, that you shoot down the study and then, at the very end, take a look at the executive summary. Generally, when people claim a dedication to intellectual honesty, they actually read a study before shooting it down.

    And your economics training came from where?

    You shot this study down because you are sympathetic to pirates and are a critic of the content owners and their defense of their property. I suggest that you read the study before commenting further, or you are going to be embarassed. Again.

  • http://www.gioblog.com Tom Giovanetti

    Oh, and by the way, IPI has been doing its part for the free-market cause for over 19 years now. And the Show-Me Institute has been around for how long? Have you made it a year yet?

    Young pups never have a sense of perspective. Tim, you think you invented public policy analysis just because you’re too new at it to know any better. You’re a sophomore, and you should be more humble. It will be some time before you speak for the movement.

  • http://www.gioblog.com Tom Giovanetti

    Fascinating, Tim, that you shoot down the study and then, at the very end, take a look at the executive summary. Generally, when people claim a dedication to intellectual honesty, they actually read a study before shooting it down.

    And your economics training came from where?

    You shot this study down because you are sympathetic to pirates and are a critic of the content owners and their defense of their property. I suggest that you read the study before commenting further, or you are going to be embarassed. Again.

  • http://www.gioblog.com Tom Giovanetti

    Oh, and by the way, IPI has been doing its part for the free-market cause for over 19 years now. And the Show-Me Institute has been around for how long? Have you made it a year yet?

    Young pups never have a sense of perspective. Tim, you think you invented public policy analysis just because you’re too new at it to know any better. You’re a sophomore, and you should be more humble. It will be some time before you speak for the movement.

  • http://tieguy.org/ Luis Villa

    Tim: you know you’ve made the big time when the people you deconstruct resort to ad hominem attacks before they actually attack your logic. Congrats!

  • http://www.techliberation.com/ Tim

    Mr. Giovanetti,

    I did read the whole study, but that’s not the point. The paper’s methodology is described quite clearly in the opening paragraphs, and my criticism was of that methodology. All the math in the world won’t give you a right answer if you start with flawed assumptions.

    I notice you had time to comment on this post twice, but couldn’t spare so much as a sentence actually addressing the substance of my criticism.

    It doesn’t take decades of experience to recognize faulty reasoning. Even after 19 years of doing public policy work, 1+1 still equals 2, and $6.1 billion is still $6.1 billion.

  • http://computationaltruth.net/rants/ logicnazi

    Uhh passing dollars around does create more of them, it is fairly elementary macro economics. The velocity of money really does matter.

    While later theories have changed/corrected this point key advances by Keynes was to recognize the multiplier effect of government savings. In particular in basic Keynesian economics the effect of government spending is really 1/(1-MPS) where MPS is the marginal propensity to spend (i.e. how likely you are to spend an extra dollar you get). Now the monetarists have challenged the notion that there is a fixed MPS but the basic point that whether or not a dollar is just sitting there or changing hands matters.

    Ultimately the reason it matters is that we are concerned about the total amount of stuff we have not the total amount of pieces of paper with $1 we have. If how fast the dollars were moving around didn’t matter then a depression wouldn’t even make sense unless we went and burned the money. Just compare situation A where everyone is hiding their cash in mattresses and almost no one is working because no one is willing to part with money to hire people and situation B where everyone is working because people are confident they will make money and so are willing to spend the money they have.

    Having said this the study you mention is still obviously wrong. I mean people who don’t buy CDs with their dollars don’t just sit on their dollars they likely go buy other things. Now the net effect of the dollar is probably going to be the same whether it goes to the CD company or some other company. In fact since the individual gets the benefit of the CD without wasting resources on things like CD transport or materials arguably the american economy benefits.

  • http://computationaltruth.net/rants/ logicnazi

    To be more clear the reason that Friedman rejected the Keynsian notion that pumping money into the economy helps is because he rejected that there is such a thing as the marginal propensity to spend. Instead he substituted the permanent income hypothesis suggesting that they always roughly spend about the same regardless of what is coming in. Now clearly this isn’t perfectly true but it certainly is an important point to recognize.

    However, friedman is NOT challenging the point that the velocity of money matters. He is only challenging the point that pumping money into the economy effects the rate at which people spend money.

    Perhaps I’m puttting too much emphasis on your one little comment about “No matter how many times that dollar changes hands, there’s still only one dollar that wasn’t there before.” but it only works in your example because you only consider trades of existing goods and not actual labor.

    If I have a house and have the skill to build houses while you have a car and the skill to build cars but neither of us has enough money to employee the other then we BOTH are better off if one of us gets enough money to hire the other to build a car and then that money lets them hire the first person to build a house.

    Friedman’s point is just that the first situation won’t happen because people will borrow money or otherwise plan over their life.

  • http://tieguy.org/ Luis Villa

    Tim: you know you’ve made the big time when the people you deconstruct resort to ad hominem attacks before they actually attack your logic. Congrats!

  • Doug Lay

    Giovanetti, on his blog, is wrapping the entertainment industry in the U.S. flag, claiming that a shift in consumer expenditures from content to consumer electrnics will mean a shift in dollars from the U.S. to the Pacific Rim. I’ve been expecting this line of attack for awhile – claiming that the entertainment industry is more all-American than the tech industry. Hmmmm…where does the money from iPod and TiVo sales go again? Where are Google and YouTube headquartered?

  • http://www.techliberation.com/ Tim

    Mr. Giovanetti,

    I did read the whole study, but that’s not the point. The paper’s methodology is described quite clearly in the opening paragraphs, and my criticism was of that methodology. All the math in the world won’t give you a right answer if you start with flawed assumptions.

    I notice you had time to comment on this post twice, but couldn’t spare so much as a sentence actually addressing the substance of my criticism.

    It doesn’t take decades of experience to recognize faulty reasoning. Even after 19 years of doing public policy work, 1+1 still equals 2, and $6.1 billion is still $6.1 billion.

  • http://computationaltruth.net/rants/ logicnazi

    Uhh passing dollars around does create more of them, it is fairly elementary macro economics. The velocity of money really does matter.

    While later theories have changed/corrected this point key advances by Keynes was to recognize the multiplier effect of government savings. In particular in basic Keynesian economics the effect of government spending is really 1/(1-MPS) where MPS is the marginal propensity to spend (i.e. how likely you are to spend an extra dollar you get). Now the monetarists have challenged the notion that there is a fixed MPS but the basic point that whether or not a dollar is just sitting there or changing hands matters.

    Ultimately the reason it matters is that we are concerned about the total amount of stuff we have not the total amount of pieces of paper with $1 we have. If how fast the dollars were moving around didn’t matter then a depression wouldn’t even make sense unless we went and burned the money. Just compare situation A where everyone is hiding their cash in mattresses and almost no one is working because no one is willing to part with money to hire people and situation B where everyone is working because people are confident they will make money and so are willing to spend the money they have.

    Having said this the study you mention is still obviously wrong. I mean people who don’t buy CDs with their dollars don’t just sit on their dollars they likely go buy other things. Now the net effect of the dollar is probably going to be the same whether it goes to the CD company or some other company. In fact since the individual gets the benefit of the CD without wasting resources on things like CD transport or materials arguably the american economy benefits.

  • http://computationaltruth.net/rants/ logicnazi

    To be more clear the reason that Friedman rejected the Keynsian notion that pumping money into the economy helps is because he rejected that there is such a thing as the marginal propensity to spend. Instead he substituted the permanent income hypothesis suggesting that they always roughly spend about the same regardless of what is coming in. Now clearly this isn’t perfectly true but it certainly is an important point to recognize.

    However, friedman is NOT challenging the point that the velocity of money matters. He is only challenging the point that pumping money into the economy effects the rate at which people spend money.

    Perhaps I’m puttting too much emphasis on your one little comment about “No matter how many times that dollar changes hands, there’s still only one dollar that wasn’t there before.” but it only works in your example because you only consider trades of existing goods and not actual labor.

    If I have a house and have the skill to build houses while you have a car and the skill to build cars but neither of us has enough money to employee the other then we BOTH are better off if one of us gets enough money to hire the other to build a car and then that money lets them hire the first person to build a house.

    Friedman’s point is just that the first situation won’t happen because people will borrow money or otherwise plan over their life.

  • http://weblog.ipcentral.info/ Noel Le

    The point is that the Show Me Institute is not involved in technology policy and has no expertise in that area. I don’t see its years of being around as important,

    ***I notice you had time to comment on this post twice, but couldn’t spare so much as a sentence actually addressing the substance of my criticism.***

    I can’t believe I’m hearing this Tim. Do you really mean it. One could easily critique the methodology of your posts, which are quasi-substantive and are aimed at riling up the blind and faithful.

    I read you enough that I’m not going to give a critique thats not immediately called for, but don’t leave yourself open…

  • Doug Lay

    Giovanetti, on his blog, is wrapping the entertainment industry in the U.S. flag, claiming that a shift in consumer expenditures from content to consumer electrnics will mean a shift in dollars from the U.S. to the Pacific Rim. I’ve been expecting this line of attack for awhile – claiming that the entertainment industry is more all-American than the tech industry. Hmmmm…where does the money from iPod and TiVo sales go again? Where are Google and YouTube headquartered?

  • http://weblog.ipcentral.info/ Noel Le

    The point is that the Show Me Institute is not involved in technology policy and has no expertise in that area. I don’t see its years of being around as important,

    ***I notice you had time to comment on this post twice, but couldn’t spare so much as a sentence actually addressing the substance of my criticism.***

    I can’t believe I’m hearing this Tim. Do you really mean it. One could easily critique the methodology of your posts, which are quasi-substantive and are aimed at riling up the blind and faithful.

    I read you enough that I’m not going to give a critique thats not immediately called for, but don’t leave yourself open…

  • Kurt

    When the hell are these “experts” at the IPI pass Microeconomics 101?

    I mean, COME ON PEOPLE, its like, required for all business degrees.

    If they took it they would know that the supply and demand curve is price driven. There are many products that a person would buy if they were free or next to free that they wouldn’t buy if they were sold at any cost. Its simple Adam Smith economic logic, and its lost on these fucktards. I am not going to listen to anymore bullshit arguments from these government sponsered thugs anymore. Its bad enough they pissed on the Constitution to give themselves unlimited copyright but now they have the taxpayer enforce their racket? Fuck them. Boycott all **AA goods now.

  • Kurt

    When the hell are these “experts” at the IPI pass Microeconomics 101?

    I mean, COME ON PEOPLE, its like, required for all business degrees.

    If they took it they would know that the supply and demand curve is price driven. There are many products that a person would buy if they were free or next to free that they wouldn’t buy if they were sold at any cost. Its simple Adam Smith economic logic, and its lost on these fucktards. I am not going to listen to anymore bullshit arguments from these government sponsered thugs anymore. Its bad enough they pissed on the Constitution to give themselves unlimited copyright but now they have the taxpayer enforce their racket? Fuck them. Boycott all **AA goods now.

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