My Conversation with Austan Goolsbee at Web 2.0 Summit

He introduces himself as “another tall, skinny guy with big ears and a funny name.” Economics adviser to Barack Obama during the campaign, and now a member of the President’s Council of Economic Advisers and chief economist of the Economic Recovery Advisory Board, Austan Goolsbee is a key figure in framing the economic thinking of the Obama administration. Perhaps most importantly for those of us in Silicon Valley, he’s an economist clued in to the tech world. His economics papers cover such topics as the impact of taxes on technology diffusion, the impact of internet subsidies on public schools, and the economic impact of leisure time spent on the internet. He’s worked closely with Richard Thaler and Cass Sunstein of Nudge fame, and thinks a lot about the power of default options to shape behavior, a topic that any web developer should also know by heart.

I’ll be interviewing Austan Goolsbee on stage at the Web 2.0 Summit. In preparation for our conversation next week, I spent an hour with him yesterday morning. He’s a fascinating guy. To give you a taste of the kinds of things we’ll be talking about, here’s a short transcript of his response to my question about the economic impact of the internet:

Somehow, in my economist heart always lies the revealed preference thing, which is: People are investing tons of their time, tons of their money, tons of their energy into the internet; they wouldn’t be doing this for no reason. Regardless of whether we have the data, our presumption ought to be that it’s a big productivity improver. But I also think that the evidence on big general-purpose technologies like that is usually that when they’re first invented, the impact takes a while to show up, but when it does, boy is it a big time thing, outside just the industry itself, across the board.

If you go back ten years, which isn’t that long, the social landscape and the technological landscape are almost unrecognizable. And just that impact, at this early stage, is sufficiently big that you’ve got to think that twenty years from now, the internet is going to have humongous productivity implications.

Take the health sector. People say “not only does the health sector need to enter the 21st century, it needs to enter the 20th century!” The technology is sufficiently backwards in terms of the information processing – everything’s on paper! If you start envisioning healthcare, energy, the government itself — major league shares of the GDP — and what the potential is of marrying that to the newest technologies…! Economic potential, historically speaking, tends to be a bit like water. Water will always get to the lowest point. If there’s big potential somewhere, it may take a bit of time, but we always find a way to unlock it.

We’ll be talking about what Goolsbee would recommend doing differently if we had a “do-over” on the economic stimulus, the importance of innovation to any future economic recovery, education and income inequality, financial services oversight, and President Obama’s desire for “iPod government” (which Goolsbee describes as “making [government] simple and easy to use, so that people like it, rather than giving people the third degree and a lot of red tape.”)

If you had a chance to sit one-on-one with one of President Obama’s economic advisers, what would you ask him? Help me prep for the interview by making suggestions in the comments. It will be tough to do as good a job as Jon Stewart, but hopefully we can come up with some questions that get Austan going!

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  • Sam Penrose

    We face the worst job market in a lifetime. Education and social services are under great strain. The press and political/economic establishment of which you are a star member focuses more on GDP, financial markets, and budget and trade deficits than on employment and other “human capital” measures. Do you think they have their priorities right, and if not, what are you doing about it?

  • As the Internet allows for any language, do you see network effects kicking in and letting foreign entrepreneurs to market directly to US consumers? What impact might there be to the local tax base? Does internationalizing the Internet potentially give rise to jurisdictional issues that would make it impossible for local governments to reclaim those lost online sales tax dollars? If so, what should be done differently?

  • We know that Google makes the majority of its revenue not from the sell price of its services but rather from growing the number of connexions between content producers and content consumers.

    What does Austan thinks of economies that rely on making as many connections as possible between people, rather than on proper value of goods and services? And does it say something of connections between people and things, or even between things?

  • Mike Sierra

    The Obama administration has voiced support for making various government activities “transparent,” with as much relevant information available via the web as possible, a subject dear to Tim’s heart. Recently during Senate Finance Committee deliberations over the Baucus bill, a pair of senators proposed an amendment that before any final bill were voted on, it would have to be available for public review for 72 hours, along with a full CBO scoring of the final language. That amendment, echoing a related promise by President Obama, was defeated. Most “transparency” efforts thus far (at least the ones I’m familiar with) have centered around the administration of government agencies, the allocation of stimulus spending for example, an executive function. Do you perceive any long-term conflict in getting Congress itself on board with such an initiative in the formulation of laws, given its particular sausage-making reputation? Is there anything particularly in public choice economics that would help us weigh lawmakers’ motivations in protecting their prerogative in being as opaque as they wish?

    I also have a more conventional question unrelated to the web, one that I’m genuinely curious if he can answer: Many question the wisdom of the economic stimulus spending package. At a time of rapidly rising unemployment, the administration predicted that if nothing were done, the unemployment rate would peak around 9%. Enacting stimulus spending, on the other hand, would mean it would peak earlier at a lower rate of 8%. In reality, after enacting the stimulus, the current rate is close to 10%. (The three curves are shown here: How do we account for this large discrepancy? It’s no doubt difficult to make such predictions, and certainly many other factors besides the stimulus package affect the unemployment rate. It’s certainly plausible that without the stimulus, unemployment might have peaked even higher. But based on our understanding of economic science, on what basis would we know that claim were true, and not an alternate scenario of either lower unemployment or no effect whatsoever? Do you consider the error in making this prediction one of the accuracy of the inputs into the model used, or a more fundamental problem with the assumptions behind the model?

  • The recent 10-year projections of the Baucus Bill costs were only “budget neutral” because massive taxes start for 3+ years before any spending happens. They also do not account for the total amount that we’re spending on health care. And the Baucus Bill is only a prop: it’s not the “real” bill.

    There’s been much discussion of current costs, but I see nothing of what Barack is actually promising in terms of our total health care bill.

    Is Barack Obama actually promising that our total health care bill will be lower under his plan? Will he veto a bill that came to him that would actually cause our total health care bill to increase?

    If this is a priority for the bill, will he provide us with numbers to back up that promise before the bill comes up for a vote?

    For me, that last question points to the most important kind of transparency for any administration could provide. The need for transparency is highest for legislation so large and so sweeping in its policy changes.

    How can we possibly have a reasoned debate about this bill unless its costs are clearly and openly discussed before a vote?

  • Tim, I watched the Daily Show excerpt and Jon Stewart was uncharacteristically rolled over. Goolsbee was very smooth and side stepped every attempt Stewart made to pin him down.

    If you want to raise the healthcare issue, it would be better to steer away from the fairly safe “electronic records” arena and push him on why the administration has not led on the issue and insisted on single payer, or at the very least, a real public option with teeth. Healthcare access and costs will have more impact on technology innovation than almost anything else I can think of.

  • Jane Lindner

    I’m very interested in the news that Finland is the first country to make access to broadband a legal and human right.

    Over $7billion in stimulus money is going towards increasing US rural access to broadband.

    Are there other government policies like tax breaks that drive high-speed internet backbone development?

    (sort of combined two questions that I had submitted before. alas, more context and coherency in twice the twitter character number!)

  • AP

    What is the accuracy of economic models used to make macroeconomic predictions that inform economic policy? Are they tested against historical data? What are the error bars? Or less technically speaking when a top government official says that we are past the worst of the recession, does he know what he is saying or is he just being a pundit?