Discussion of:Discussion of:“. . .How Motion Pictures “. . .How Motion Pictures

Industrialized Industrialized Entertainment”Entertainment”

Robert J. GordonRobert J. GordonNorthwestern University and NBERNorthwestern University and NBER

Cornucopia Quantified Cornucopia Quantified Conference,Conference,

Barcelona, May 21, 2010Barcelona, May 21, 2010

This Paper is of Particular This Paper is of Particular InterestInterest

Point of departure: my two favorite Point of departure: my two favorite examples of why I “believe in Field”: examples of why I “believe in Field”: the 1930s as the most productive the 1930s as the most productive decade.decade.

Autos, the difference between a Autos, the difference between a 1928-vintage Model A ford and a 1928-vintage Model A ford and a 1941 streamlined Oldsmobile with 1941 streamlined Oldsmobile with automatic transmissionautomatic transmission

Second example, the moviesSecond example, the movies

The Movies in 1928 and 1939The Movies in 1928 and 1939

The first talkie, the “Jazz Singer,” 1928The first talkie, the “Jazz Singer,” 1928 Flickery black and whiteFlickery black and white Tinny soundTinny sound Amateurish high-school-level production valuesAmateurish high-school-level production values

And then, the two revolutions of 1939 as And then, the two revolutions of 1939 as seen by audiencesseen by audiences It wasn’t just what they saw from our It wasn’t just what they saw from our

perspective, but what they saw from their perspective, but what they saw from their perspectiveperspective

Happiness is reality in relation to expectationsHappiness is reality in relation to expectations

The Two MomentsThe Two Moments

After Dorothy’s house swirls up in a After Dorothy’s house swirls up in a black and white tornado, it crashes on black and white tornado, it crashes on the Wicked Witch of the East. Dorothy, the Wicked Witch of the East. Dorothy, carrying Toto, exits the black and carrying Toto, exits the black and white house interior and suddenly . . .white house interior and suddenly . . .

Second story: four men set out for San Second story: four men set out for San Fernando Valley with a big can of film.Fernando Valley with a big can of film.The audience had no idea what the sneak The audience had no idea what the sneak

preview would be. The doors were locked preview would be. The doors were locked for four hours, and . . . for four hours, and . . .

Further Evidence on 1939-42 as Further Evidence on 1939-42 as the Apogee of Quality in the Apogee of Quality in

American MoviesAmerican Movies

Look at the ratings of the top 100 Look at the ratings of the top 100 movies of the 20movies of the 20thth century century

Aljean Harmetz wrote three books on Aljean Harmetz wrote three books on the behind-the-scenes making of the behind-the-scenes making of particular movies (which? Why books particular movies (which? Why books in our house)in our house)

Then there’s Citizen KaneThen there’s Citizen Kane1939 1939 1941 19421939 1939 1941 1942

Three pointsThree points

Why is 1938 rather than 1939 used Why is 1938 rather than 1939 used as the base point of the analysis?as the base point of the analysis?After all, the economy was extremely After all, the economy was extremely

depressed in 1938 vs. 1937 or 1939.depressed in 1938 vs. 1937 or 1939.% LN output gap: [explain data % LN output gap: [explain data

source]source]1937:Q11937:Q1 -16.1%-16.1%1938:Q21938:Q2 -24.9%-24.9%1939:Q41939:Q4 -18.9%-18.9%

Second PointSecond Point

There was massive quality change in There was massive quality change in motion pictures during the 1930s. motion pictures during the 1930s.

No treatment of quality change except for No treatment of quality change except for Diagram 1 (p. 15) “Examples of Diagram 1 (p. 15) “Examples of comparative quality dimensions”comparative quality dimensions”

Too much on movies as close substitutes Too much on movies as close substitutes to live entertainment, too little on movies to live entertainment, too little on movies as becoming increasingly as becoming increasingly betterbetter than local than local entertainment, esp. outside of a few big entertainment, esp. outside of a few big citiescities

Disc. Quality change pp. 14-15 qualitative, Disc. Quality change pp. 14-15 qualitative, no attempt to quantifyno attempt to quantify

Third PointThird Point

Why compare just 1900 and 1938?Why compare just 1900 and 1938?Why not compare by decades?Why not compare by decades?

What was the rate of increase of total What was the rate of increase of total welfare by decade, including beyond welfare by decade, including beyond 1938 into the 1950s and 1960s1938 into the 1950s and 1960s

Can the TFP conclusions be further Can the TFP conclusions be further developed from one number for 1900-38 developed from one number for 1900-38 to a set of decadal growth rates?to a set of decadal growth rates?

The main findingsThe main findings

Motion pictures changed entertainment from a Motion pictures changed entertainment from a rivalrous service into a non-rivalrous rivalrous service into a non-rivalrous commoditycommodity (so did the phonograph at the same time)(so did the phonograph at the same time) (Baumol’s disease obsolete before it was (Baumol’s disease obsolete before it was

pronounced)pronounced) Film close substitute to live entertainmentFilm close substitute to live entertainment Inverted U – initially distant substitute, then Inverted U – initially distant substitute, then

close, then distant as live entertainment close, then distant as live entertainment differentiateddifferentiated

Relation to Rosen on economics of superstarsRelation to Rosen on economics of superstars

QuantitiesQuantities

Entertainment output up 28X 1900-1938Entertainment output up 28X 1900-1938 AAGR 9.2 [actually 8.8]AAGR 9.2 [actually 8.8] Per capita AAGR 5.9 [actually 7.4]Per capita AAGR 5.9 [actually 7.4]

Accounted for 2% of GDP growth and 3% Accounted for 2% of GDP growth and 3% of TFP growth 1900-38of TFP growth 1900-38

Motion picture contribution to growth Motion picture contribution to growth “only slightly lower than GPTs such as “only slightly lower than GPTs such as steam, RR, and electricity”steam, RR, and electricity”

To produce 1938 output with 1900 To produce 1938 output with 1900 technology would have required 1/3 of technology would have required 1/3 of 1938 GDP! (visions of live shows on every 1938 GDP! (visions of live shows on every small-town street)small-town street)

More QuantitiesMore Quantities

Price = sum of ticket price and opp costPrice = sum of ticket price and opp cost 1900-38, ticket price declined 80 percent 1900-38, ticket price declined 80 percent

but opportunity cost increased 300 but opportunity cost increased 300 percentpercent These numbers must be nominal. Real wages These numbers must be nominal. Real wages

didn’t increase 1900-38 by 300 percentdidn’t increase 1900-38 by 300 percent Confusion Table 12. Wage 27 to 78 is nominal Confusion Table 12. Wage 27 to 78 is nominal

$ (AAGR +2.8) but “growth of real hourly wage $ (AAGR +2.8) but “growth of real hourly wage rate” is 2.80!rate” is 2.80!

$6.2B full cost 1938 = 8% of GDP, but GDP $6.2B full cost 1938 = 8% of GDP, but GDP doesn’t include other opp costsdoesn’t include other opp costs

Full “Social Savings”Full “Social Savings”

1938 7 billion spectator hours1938 7 billion spectator hoursMultiplied by price difference live and Multiplied by price difference live and

movie entertainment (implicitly $2/7)movie entertainment (implicitly $2/7)Social saving equals 2/7 * 7 billion = Social saving equals 2/7 * 7 billion =

$2B$2BWhy is this a rectangle? Why not a Why is this a rectangle? Why not a

Hausman-type triangle with ½ * Hausman-type triangle with ½ * expenditure share / demand expenditure share / demand elasticity?elasticity?

CommentsComments

Approve of general frameworkApprove of general frameworkNew and old forms of entertainment are New and old forms of entertainment are

substitutessubstitutesUse of spectator-hour as the unit of outputUse of spectator-hour as the unit of output

Most of paper’s results derive from this one Most of paper’s results derive from this one assumptionassumption

Comparable to the distinction between Comparable to the distinction between computer speed and memory vs. number of computer speed and memory vs. number of computer boxescomputer boxes

Computers are a single sold good whereas Computers are a single sold good whereas movie quantities refer to the industry as a wholemovie quantities refer to the industry as a whole

Becker FrameworkBecker Framework

Watching movies (or TV) requires Watching movies (or TV) requires spectator timespectator time

Where did the time for all those 1938 Where did the time for all those 1938 spectator hours come from? Total spectator hours come from? Total hours are fixed in quantity.hours are fixed in quantity.

Becker: substitution from labor to Becker: substitution from labor to leisureleisureMy tables show 1900-1940 was the big My tables show 1900-1940 was the big

era of declining hours per weekera of declining hours per week

Further AgreementFurther Agreement

It is correct to take account of time use and It is correct to take account of time use and time saving when valuing new inventionstime saving when valuing new inventions

Bakker’s examples (p. 10) Bakker’s examples (p. 10) Time saving: highways, RRTime saving: highways, RR Nordhaus on welfare of life expectancy gainsNordhaus on welfare of life expectancy gains

Increase in price and quantity together Increase in price and quantity together implies quality improvement (cite M. Bils)implies quality improvement (cite M. Bils)

Agree that data imprecision is not a big deal Agree that data imprecision is not a big deal because the orders of magnitude are so largebecause the orders of magnitude are so large(esp. because starting from zero in 1900!)(esp. because starting from zero in 1900!)

Too Much Selling of HowToo Much Selling of HowImportant Are the ResultsImportant Are the Results

Comparing one industry based on utility-Comparing one industry based on utility-based output measurement with other based output measurement with other industries using conventional measures is not industries using conventional measures is not fairfair Seems wildly implausible that US motion pictures Seems wildly implausible that US motion pictures

contributed more to growth than invention of the contributed more to growth than invention of the RR in the UK, much less in the USRR in the UK, much less in the US

Not to mention electricity, of which movies were Not to mention electricity, of which movies were one of many subsidiary inventionsone of many subsidiary inventions

Pushing the importance of its results, paper is Pushing the importance of its results, paper is also repetitive without enough qualification also repetitive without enough qualification that all the comparisons are being made vs. that all the comparisons are being made vs. flawed Lebergott and NIPA numbers.flawed Lebergott and NIPA numbers.

Let’s Do Similar Analyses of Let’s Do Similar Analyses of Other Great InventionsOther Great Inventions

Any conclusion of the importance of Any conclusion of the importance of growth in a single better-measured growth in a single better-measured industry is invalid until all industries have industry is invalid until all industries have been subject to same treatmentbeen subject to same treatment

Phonograph, telephone, electric light, Phonograph, telephone, electric light, consumer appliances, radio, auto, truck, consumer appliances, radio, auto, truck, bus, tractor, just to mention a few that bus, tractor, just to mention a few that mattered in 1900-38mattered in 1900-38

Related to puzzle of slow Lebergott real Related to puzzle of slow Lebergott real cons p.c. 1900-1929.cons p.c. 1900-1929.

Problems with TFP Problems with TFP CalculationsCalculations

Standard problem. Fuzzy distinction Standard problem. Fuzzy distinction between TFP growth and capital between TFP growth and capital quality growth is not even discussedquality growth is not even discussedJorgenson obfuscationJorgenson obfuscation1900-38 improved quality of cameras, 1900-38 improved quality of cameras,

projectors, film, lights, not to mention to projectors, film, lights, not to mention to aesthetic experience of the 1920s movie aesthetic experience of the 1920s movie palacespalaces

Questions about Dual Questions about Dual InterpretationInterpretation

These calculations do not use the These calculations do not use the discipline of labor’s implied sharediscipline of labor’s implied share

Data are used on Y, L, W, and PData are used on Y, L, W, and PShare = WL/PYShare = WL/PYSurprised that live entertainment Surprised that live entertainment

prices fell by 1.3% annually in the face prices fell by 1.3% annually in the face of wage increases. How in light of of wage increases. How in light of Baumol?Baumol?

Is this a mix effect?Is this a mix effect?

General Problem with General Problem with Opportunity CostOpportunity Cost

Valuing leisure time at the real wageValuing leisure time at the real wageIgnores the fact that this is true only at the Ignores the fact that this is true only at the

marginal hour between work and leisuremarginal hour between work and leisureDiminishing marginal utility suggests that Diminishing marginal utility suggests that

most leisure has opp cost substantially less most leisure has opp cost substantially less than real wagethan real wage

There’s another elasticity to estimate, just There’s another elasticity to estimate, just like the price elasticity of the demand curvelike the price elasticity of the demand curve

Consumers do not behave as if marginal Consumers do not behave as if marginal leisure hours were valued at the real leisure hours were valued at the real wagewage

Minor, p. 8 on 1929-50Minor, p. 8 on 1929-50

Big news long neglected, in 1999 BEA Big news long neglected, in 1999 BEA revised up 1929-50 real GDP growth from revised up 1929-50 real GDP growth from 2.6 to 3.5 percent per annum2.6 to 3.5 percent per annum

Paper correctly states this occurred Paper correctly states this occurred because of “annual chain index”because of “annual chain index”

And incorrectly states because of “hedonic And incorrectly states because of “hedonic indices to adjust for quality changes”indices to adjust for quality changes”

Separately, where did Lebergott get his (p. Separately, where did Lebergott get his (p. 25) apparent 13.7 AAGR of price for all 25) apparent 13.7 AAGR of price for all recreation services? Table 8 has 3.13%. recreation services? Table 8 has 3.13%. Which is it?Which is it?

ConclusionsConclusions

This paper is the tip of the iceberg. Can do the This paper is the tip of the iceberg. Can do the same thing forsame thing for PhonographPhonograph RadioRadio TVTV InternetInternet

The paper should give more space to qualifying The paper should give more space to qualifying its own results and less (if any) space to its own results and less (if any) space to comparing the resulting growth rates to flawed comparing the resulting growth rates to flawed economy-wide measureseconomy-wide measures

Should express some self-doubt when suggesting Should express some self-doubt when suggesting that the invention of movies mattered as much as that the invention of movies mattered as much as the invention of the railroadthe invention of the railroad