The Position Makers

Yesterday there was an interesting op/ed piece from W. Michael Cox and Richard Alm, both prominent members of the Federal Reserver Bank of Dallas.

The two economists were examining income flows for Americans and essentially making the claim that the income gap between the top earners and the lowest earners wasn’t indicative of the standard of living enjoyed by both groups. They specifically looked at the expenditures of each tier of earner to compare consumption rates as they believed that consumption rates would be a better indicator than income amounts.

Discussing this aspect of their article: (click image for better resolution)

I feel obligated to point out that their conclusions were completely skewed. It’s true that the standard of living between ‘top-tier’ earners and ‘bottom tier’ earnings is not hugely divergent (see chart below and above), if compared exclusively on an expense level. However, when you look at the amounts that go into savings, retirement, insurance policies, the differentiating factor becomes much more evident as that is money that can be drawn on later. I have to say that it’s a bit disappointing for the economists to fail seeing that the savings rates are what will make the biggest difference between high income earners and those on the low-end. Those higher savings rates, insurance policies, etc will add up to quite a bit of wiggle room if there ever is a large recession or depression. The two economists fail to point out how those earning less, though “stable” at this time, are the ones most prone to a change in economic conditions on a regional level. Moreover, they handedly dismiss the affects of people drawing money from alternative sources, rather than living exclusively on earnings. Where’s that money coming from? Home equity? Savings? Eek! that’s the formula for a really dangerous situation. (”tisk, tisk,” I say as I sense a bit of political pandering as well as the unfortunate affect of living in large societies: a lack of empathizing with the reality of others, in this case low-income earners. Or in other words, Cox and Alm are brushing the real problem under a rug and hoping we Americans will let it slide [as we typically do]. It’s horrible to see justifications that ultimately hurt the general American public. Krugman and Herbert, of the NYTimes, have written extensively on the growing income disparity in America so I encourage anyone to look through the archives. Krugman being an economist as well often expresses a more balanced opinion than the Fed-economists did here.

Now, take a look at this amazing chart: (click image for better resolution)

Lookat this for a second again. Are you seeing how specific gizmozs are being picked up faster than others? The first exponential adoption was the radio. It’s basically assumed that by the mid-60’s everyone had a radio. The radio even continued to grow (or sell) during extended periods of economic contraction–whether that be on a macro-economic level or resource-scarcity contraction such as conditions during WWII. The adoption of the technology was better than cars and washing machines. Moving out to the VCR as the next consumer product boom, we can see a trend of fast market pentration and adoption. Check out the Internet access level growing in tandem to PC adoption. Or the fast ramp up of cell phones.

The question is, what type of curve does your current pet investment have?

For me, this is a question of Garmin (grmn), Evergreen Solar (eslr), Nokia (nok), Nintendo (ntdoy) and Sirius (siri). I also have a cellular interest in China with Qiao Xing Universal Telephone but I’m starting to question the management’s ablitiy to churn a profit…considering they’ve been making huge headways in expanding their market share (in China) but are still unable to clear a profit. (but that’s all for another post!)

If anyone has information like that here but on the emerging markets, I’d be quite curious. I’ll of course post anything I come across.

To start the discussion a bit, I think the adoption curve for PNDs, especially as they move into the mobile-device market with phone/text/music options (nuviphone), we’ll see a better ramp up similar to the cell phone’s general adoption curve. Only, the speedy evolution from phone to “everything in one” will impact the way we represent the information. Meaning, we need to start differentiating between pure cellphone offerings and “everything in one” offerings, as best illustrated by Nokia and Apple, among others. At the same time, Garmin, for example, still sells an array PND devices, from watches for running/hiking/etc to marine and avionic gps systems.

Would we even bother charting the adoption of individual gaming systems or would we focus on gaming systems as a whole, aggregating Nintendo, Atari, Sony, Microsoft, Sega, etc all into one? Would we differentiate between video games and video consoles? If we aggregate Nintendo, Sony, etc together, how do we then handle the platform differentiations between PC and Sony/Nintendo-like offerings?

Many cool questions we can ask by looking at this chart. We need a lot more information before we can answer them unfortunately. Anyone have access to the information we need to start answering these questions?

How does understanding technology adoption help us as investors?

I’ll be discussing this topic in more detail from time to time as I do think there’s something to be said from looking at the general direction technology is driving economic growth worldwide.

These charts can be accessed in their entirety by clicking here.

update:  i highly recommend everyone reading this post from Mark Thoma over at the Economist’s View for a bit more reaction to the Cox & Alma piece.  he had a good quote on Krugman responding to the article:

Now, there’s no question that consumption inequality at a point in time is less than income inequality. But the CEX study on which they rely is widely believed to be seriously flawed, especially for tracking recent trends. For whatever reason, the survey seems to be missing a lot of consumption growth among the affluent. There’s a good summary of that discussion in Gordon and Dew-Becker.

You probably should also know that Cox and Alm previously tried to make the case that there is huge income mobility in America — unconvincingly. In fact, they repeated in full arguments that had been thoroughly debunked years earlier. (Also see Gordon and Dew-Becker on this.)

So my basic reaction to the piece was, there they go again. There’s some truth in what they say, but no news.