Apple Is One Rule Away From Ruling Console Gaming

Apple is very, very close to being able to just about kill off Ninendo and Sony's gaming console businesses and perhaps Microsoft's too if the media features of the Xbox One don't work as well as advertised. Only one very Apple-y rule will keep it from doing so.

Let's start with something that leaked a while ago (I'm going off the leak so I don't break the Apple Developer NDA). iOS 7 will support game controllers. Some legit images leaked out a while back, so you can see what they're planning. There are going to be three kinds of controllers. One cradles phone-sized iOS devices and has a limited button set: ABXY, two shoulders, a D-pad, and pause. The next cradles a phone-sized device and adds two analog sticks and two more shoulder buttons. The third kind is standalone (the diagram of which appears to have been inspired by the Wii Classic Controller), and it has the same, larger button set as the second one. The standalone controller image shows that up to four controllers can be used at once.

The implications for single-use handheld gaming devices are dire. The Nintendo DS and PlayStation Vita can provide a much wider variety of gaming options than touchscreen phones and tablets can thanks to having buttons. With these cradle controllers, now iOS devices can provide those experiences too on top of everything else they do. Well, they would if not for that rule I mentioned. But that's not all.

Thanks to AirPlay, you will be able to play a traditional controller-based game on iOS while sitting on your couch with the video on the TV. In fact, this setup is like the Wii U, only reversed. The Wii U has a smart box hooked up to the TV with a dumb tablet you hold in your hand:

Whereas Apple's setup has a smart tablet in your hand that connects to a dumb box hooked up to the TV:

The killer aspect for Apple is pricing. The Wii U, even after its upcoming discount, will go for $299, and it's the least expensive console of the new generation. A lot of people will already have iOS devices, or at least they can justify getting one because they can use it for far more than just games. A person who has an iPhone, iPod Touch, or iPad can buy into Apple's living room gaming setup for a $99 AppleTV and whatever one controller costs. Even if it's $35 or $40 like a traditional console controller, the combined price still less than half of the Wii U.

There is an immense advantage to buying into this kind of gaming setup. The hardware on iOS devices gets revised about every year. You won't have to wait six to eight years for the Nintendo, Sony, or Microsoft to provide updated specs. Plus, the App Store model makes it far easier for games to get to you and opens up the door for a wealth of third party developers who might never get something on a Wii U, Xbox, or PlayStation due to their barriers. And, again, the console part of it would be "free" to someone already committed to buying iDevices every couple of years anyway for their multitude of non-gaming functions.

Now, the red flag. The fact that there are two different button sets is a bit worrisome for fragmentation reasons, but that's not it. It's that Apple has made a rule that says controllers must be optional. An iOS game must be designed for touch and motion first with the controller only being a bonus add-on.

I know why Apple did this. It's to maintain simplicity for the store. It's also to remove a potential support headache. Apple doesn't want people calling them up asking for refunds when they buy a game and they find out they have to buy a controller in order to play it. Having a game in the App Store that requires a controller just wouldn't do at all.

It also means that Apple won't kill off the other game console makers as quickly as it could have. Think about some traditional handheld or living room console titles, anywhere from Zelda to Smash Bros. to Madden to Halo. They require a boatload of buttons for a reason. Making a game that functions well both with the limitations of touch input and the freedom of buttons is going to be tough, and the categories of games that require controllers will still not be feasible to provide for iOS.

Apple should know this. It knows well the difference between touch input and bucket-o-buttons input. It's why it keeps iOS and OS X separate. Any gamer can tell you that this rule is a bad idea, and people inside Apple should be able to tell you that too.

As far as the living room goes, this strategy makes total sense for Apple. It can make a limited play for living room gaming while not disrupting its plans for the AppleTV. It doesn't have to turn the AppleTV into a full fledged gaming console on top of everything else; an iDevice, a controller, and AirPlay will cover that use case just fine. It can keep selling $99 hockey pucks to people who have no interest in gaming, which makes far more sense as a living room strategy than Microsoft's apparent gambit of wanting to sell $500 Xbox Ones to people who don't play games.

Between controller support and Sprite Kit in iOS 7 and Mavericks, Apple is making a real effort at competing in games this fall. This one rule that controllers must be optional keeps it from being able to take over everything. Between apps that run on either iPhones or iPads but not both and iBooks Author creations that only work on iPads, Apple already has things in its stores that don't work everywhere. I would have thought that a simple modal dialog box saying something like "This game requires a separate controller. Do you want to buy?" might be enough to allow them to have apps that require controllers, but the powers that be chose not to go that route.

As long as that rule exists, there still is room for dedicated gaming hardware. We'll see how long that rule lasts.

A Few Good Years Have Passed

Last night, my wife and I watched the 1992 classic A Few Good Men. I was of course familiar with the famous courtroom scenes, but it's actually the first time I had seen it all the way through. My wife hadn't seen it either, but she is in the Navy now, so I figured she'd enjoy it for that reason. Her favorite line actually didn't end up being any of the famous ones. Rather, it was Kevin Pollack's Lieutenant Weinberg wryly stating that, "No one likes the whites". This is true; no one she knows likes the Navy's dress white uniforms. It had some inaccuracies that bugged her though, not the least being Tom Cruise's Lieutenant Kaffee treating Demi Moore's Lieutenant Commander Galloway as though he outranked her throughout.

Anyway, I had recorded it off of AMC, and it had little fact boxes popping up at the bottom periodically. It wasn't until one of those boxes appeared some time into it that it really clicked for me why Jack Nicholson's Colonel Jessup was so intense about being on the wall and so forth. He was the leader at the Guantanamo Bay base, and at the time that Aaron Sorkin wrote the play on which the movie was based, the Cold War was still going on. Not that Cuba is the United States' friend now or anything, but the implications of the island being Communist were far more important then than now.

I was born three years before Sorkin's play first hit the stage. I can remember old maps from elementary school that said USSR and can recall seeing fallout shelter signage here and there, but I have no recollection of the Cold War and its existential threat to the US. I was four when the Berlin Wall fell; I was six when the Soviet Union dissolved. Even if I had learned about Russian nukes being pointed at my country at the time, I wasn't old enough to really understand the implications.

For my generation, Guantanamo Bay has a very different connotation. It's not an outpost of democracy on the edge of Communist territory; it's a holding cell for War on Terror suspects. The incident that started everything for the plot in A Few Good Men was a Marine shooting a single bullet outward across the fence unprovoked. While that's never something you want to see happen, it probably would be more or less a nonevent these days beyond whatever punishment a Marine gets for unnecessarily discharging a weapon. It wouldn't be an event that could potentially cost lives. Cuba isn't a battlefield anymore. Guantanamo is a very different part of the wall that keeps America safe now.

The climactic scene with Kaffee haranguing Jessup on the stand is still as intense as ever, but it has lost a little something because of the way the film takes for granted that the audience understands the Cold War subtext of the film. I am pretty well versed in history and probably would have put it all together eventually, but it's not something that people in the Millennial generation and beyond will get instinctively. I certainly understand it in an intellectual sense, but I don't feel it viscerally. A young person could make it through the whole thing and think that Jessup is just really cranky because he thinks every member of the military who isn't in an office in D.C. plays a part in guarding the wall that protects the homeland. The latent yet very specific threat of nuclear war will be lost in that scenario.

If Hollywood ever decides to remake this film, it will definitely hammer (probably excessively so) on that element of it during the first couple of acts. The future Jessup will throw around terms like "the Red Menace" to make sure it's clear (crystal, even) that the stakes here are related to the Cold War. For him and his generation, "Cuba" probably primarily conjures feelings surrounding the Cuban Missile Crisis or the Bay of Pigs; for me, it conjures Elian Gonzalez well before any of JFK's incidents down there. It's still a really good movie if you don't have that in the forefront of your mind, but it's not as good as it can be without it.

One of the other popup fact boxes said that Rob Reiner had hoped to make A Few Good Men be a timeless movie and that, aside from Cruise's civilian wardrobe, it is. We must add one other caveat besides loud shirts: it's timeless except for its inherent assumption that Guantanamo Bay, Cuba will always have Cold War connotations for its audience. It certainly does not for most anyone younger than 30, and it might not for those older than that anymore either given its prominence in the last decade's news cycle.

To watch A Few Good Men again:

Apple Wants iCloud to Be the World's DVR

The Wall Street Journal has been revealing some details about Apple's plans in the television space. Steve Jobs famously said he thought he had "cracked" the problem of television shortly before he passed away last year, and everyone has been trying to figure out what he meant ever since.

The latest report from the WSJ, if true and I'm interpreting it correctly, likely reveals what Jobs thought was the breakthrough:

The Cupertino, Calif.-based company proposes giving viewers the ability to start any show at any time through a digital-video recorder that would store TV shows on the Internet. Viewers even could start a show minutes after it has begun.

The vision here is pure Apple. The company identified an area of complexity, in this case managing TV recordings, and plans to offer a simple solution where it simply does it for you. Here, iCloud becomes the world's DVR. There won't be boxes in every individual home making millions of individual recordings of the same programs; there will be one place that "records" the programs (Apple's datacenter) and all of the boxes will stream that copy.

You won't miss a show because you forgot to set up a recording; Apple is recording it for you. You won't miss a show because the DVR filled up; Apple is recording it for you. You won't miss a recording because you're out of free tuners, or because the cable went out, or because a cloud went between you and the satellite. Don't worry. Apple's recording it for you.

Obvious road blocks have to be overcome before this vision of the future can come to pass. For one, the WSJ reports that Apple doesn't have a single deal worked out yet with any content providers or cable providers to make this happen legally. For another, this setup requires a completely reliable Internet connection. If the Internet goes out, you not only have no TV anymore (not a guaranteed problem today) but you can't watch your recordings in the meantime either.

Plus, ISPs aren't going to be happy about a system like this because it would put an enormous strain on their networks. They are already playing around with bandwidth caps, and that's without most people getting their TV through the Internet. Perhaps the new H.265 standard will solve this particular issue, but it's not going to be available for anything until "as soon as 2013" (which probably means later than that, given the choice of weasel words here).

This sounds like a really cool way forward. I have my doubts that we'll see anything like it any time soon because content owners, cable providers, and ISPs are some of the worst companies in the world. Of course, Apple worked things out with cell operators, who are just as bad if not worse, so there is some hope out there.

Paul Ryan Is Mostly Unremarkable

Paul Ryan is the pick as Mitt Romney's vice president. Lots of pixels and ink have been devoted to what that means and how Ryan changes the game (or not, as the case may be).

Ultimately, Ryan isn't that remarkable among Republicans. Look over his record.

He voted for George W. Bush's unfunded tax cuts and his unfunded Medicare Part D expansion. He voted in favor of the unfunded war of choice in Iraq. He voted for TARP and the bailouts, practically begging his colleagues to support the former. When Barack Obama took office, Ryan got religion about deficits and eventually put together his famous series of budgets that cut taxes and spending.

In other words, he is a garden variety politician. Spending by his party's leader is a judicious use of our resources that strikes the right balance, while spending by the other party's leader is wasteful and a burden to future generations. Deficits created by his party aren't worth worrying about, but those racked up by the other party are dangerous. Nothing is new under the sun.

Ryan does shine as a communicator, as he's able to state his cases in a clear and often convincing manner. He will do a better job at advancing his party's ideas than Romney does. However, there's nothing in his record that makes Ryan all that special. He's a Republican who mainly just votes the party line.

Why Government Austerity Isn't a Good Idea Right Now

The practice of government austerity, defined as the raising of taxes and lowering of spending to improve the government's balance sheet, is not what the United States needs right now. Here's why.

The economy can basically be summed up as the total number of goods and services produced in the country. The measure for that is GDP. At present GDP is growing, but at a very slow rate.

Also at present, private American citizens are deleveraging in aggregate, or paying down their debt loads together. They're doing it at a faster rate than the citizens of many other developed economies with high private debt.

In the economy, one person's spending is another's income and vice versa. The banker who buys a latte at Starbucks helps pay for the barista's salary, while the interest paid on the barista's credit cards helps pay for the banker's salary.

The economy grows from year to year as people produce more (and more valuable) goods and services. Some people spend less than they make and save the rest, while some others spend more than they make. It's not all spendthrifts who do the latter; retirees, for instance, spend more than their incomes as they live off of their retirement savings. An entrepreneur bootstrapping a new business would also be expected to spend more than his or her income.

Under normal circumstances, there will be a good mix of people spending less than they make and spending more than they make. We don't have that now. Far more people are looking to spend less than they make than the opposite as they pay down their debts and/or increase savings. The large number of people who are behind or underwater on mortgages are a significant part of those net savers. Their preference will be to pay down that debt no matter how alluring increased consumption becomes. This state of affairs has become known as a balance sheet recession.

Due to the deleveraging, economic activity in the private sector is lower than it otherwise would be. Due to high unemployment, it's really lower than it otherwise would be. Only two things could compensate for it. One is running a trade surplus, but the country hasn't done than since the 1960s.

The other is if the government steps in and spends more than it takes in by running a deficit. It does that already, of course, and has for many years.

Now let's think about government austerity. The government would roll back its economic activity by spending less, and it would further inhibit private sector activity by raising taxes. Some people claim that an austerity program would help the economy by unleashing a flood of economic activity currently held back by people worried about a potential sovereign debt crisis in America. I don't see it.

If regular people were only just saving money, I might believe that. They're not. They're paying down debts, and they will continue to do so until their overall level of debt is sustainable. Most regular people also pay no attention to current events, have no idea what the state of the government's debt is other than "it's big", and do not think about future tax rates when planning purchases.

Cutting back government economic activity right now will just hurt the economy. That will just put more people out of work, thereby slowing economic growth. Growth is already slow right now; cutting back on government spending might cause the economy to shrink as it has in some European countries. Austerity in a bad economy is self-defeating in that way. If the economy shrinks, the government collects fewer taxes and can't reduce its deficits as quickly as it had intended to (or at all, if it's a severe case).

The government can try to jump start the economy by doing more spending, but it must do it smartly. Passing out tax rebate checks probably won't get the job done, as many of them will just go to paying off debt. That might bring the ultimate end of the deleveraging cycle a tiny bit closer, but $400 or $800 is peanuts compared to a mortgage.

It'd be better to use it to directly employ people and invest. Have state and local governments re-hire teachers, police officers, and firemen who have been laid off. The government could fix the nation's infrastructure and put construction workers back to work, something that will benefit everyone. High unemployment takes a toll, and long term unemployment takes an even larger one.

I am still working to understand economics better and figure out what is the best way forward. I'm not sure of a lot of things, but that austerity would be bad for the US is one thing I'm certain of.

Does High Debt-to-GDP Ratio Inhibit Growth?

A Twitter friend of mine sent me a paper by Reinhart, Reinhart, and Rogoff titled "Debt Overhangs: Past and Present". It presents evidence that periods in advanced economies where the public debt/GDP ratio is above 90% for five or more years are marked by lower growth than periods where the public debt/GDP ratio is lower. The implication, if not the conclusion, is that a large debt overhang can cause GDP growth to be lower than it otherwise should be.

The introduction of the paper reveals the question that its trying to answer: if interest rates for a high debt/GDP economy are low, should the government take it as a sign that it should not worry about the debt and use borrowed money to try to stimulate the economy? The authors seem to argue that the lower growth rate during high debt/GDP periods means that no, that isn't the right approach to take.

The debt-to-GDP ratio has two factors: debt and GDP. For public debt to go above the 90% threshold, either debt had to rise greatly versus GDP, GDP had to fall greatly versus the debt load, or both. It's interesting to see how that plays out with the paper's core data.

The data it presents covers the past 200 years for today's advanced economies. Page 13 of the paper is where the table of it begins. If you look at each period of at least 90% debt-to-GDP ratio, you'll see that nearly all coincide with at least one of four factors: war, financial crisis, the Great Depression, and international recessions. There are two exceptions.  One is when Spain lost the last of its colonies. The other is Greece in the 1800s, and that country, as best as I understand it, wasn't really an advanced economy during that time.

War causes debt to rise as governments mobilize, and it can negatively affect GDP quite a bit if its on your own soil. A financial crisis will not only hit GDP but also cause a government to start running deficits (or much larger deficits) as tax revenues fall and social safety net spending rises. The Great Depression lowered GDP for everyone, and international recessions do the same thing on a smaller scale.

The paper doesn't discuss the possibility that both the high debt/GDP ratio and the sustained period of low growth might have been caused by some other element (war, financial crisis, etc.), which would mean that the solution to slow growth might not have anything to do with reducing the public debt load. It devotes only two sentences to this kind of question of causality:

Another line of reasoning for dismissing concerns about public debt and growth is the view the causality mostly runs from growth to debt.  The multi-decade long duration of past public debt overhang episodes suggests that at very least, the association is not due to recessions at business cycle frequencies.

It's probably not due to the regular ups and downs associated with the business cycle. However I don't think that war, severe banking panics, equity market collapses, the popping of enormous asset bubbles, or things of that nature are part of the regular business cycle either.

Two of the authors, Carmen Reinhart and Kenneth Rogoff, wrote a Bloomberg editorial in 2011 well before this paper was published but along the same lines. They've been working on this issue for years. They do at least admit there that, "Anyone familiar with doing empirical research understands that vulnerability to crises and anemic growth seldom depends on a single factor such as public debt."

In both that editorial and especially the paper, they talk about how the overhang of private debt can be a big problem too. That's definitely for sure. If you're a believer in the idea that we're in a balance sheet recession, you're definitely on board with private debt being a problem. Individuals deleveraging will consume and invest less, depressing economic growth rates.

But how would high public debt take a toll on the economy? One way is if the government also deleverages by cutting spending and/or raising tax revenue to pay down the debt. That certainly could be problematic, but it hasn't been so far in the US. The federal government has not done anything substantial to address its deficits and debt loads. State and local governments have had to though, and it has resulted in a large decrease in the public sector workforce. That is keeping unemployment high and is depressing the growth rate for sure.

The other way is if the private sector savings rate rises due to fears of higher taxes to pay down that debt in the future. I really doubt that's a big factor. Only 61.7% of voting age people voted in the 2008 election, and that was the highest turnout since 1968. A 2007 study showed that only 35% of Americans nationwide qualify for a "high" level of knowledge of current affairs. Furthermore, 43% of US households live paycheck-to-paycheck. They can't afford to adjust their spending based on decades-out tax expectations even if they wanted to. The likelihood that a significant number of people consider future taxation in their purchasing decisions is low.

Finally, I used FRED data to run a correlation between the federal debt/GDP ratio and the personal savings rate. The range is since 1966, the maximum I could do. It came out to -0.743, meaning that as the debt/GDP ratio has risen, the savings rate has fallen. Running a regression yields a microscopic p-value, meaning that we can reject the premise that the two things are related. If lots of people consider the national debt load when deciding their savings rate, they certainly aren't acting on it or at least assuming that they need to tighten up in the face of future taxes for debt payments.

What I was really looking for from the paper was some kind of call to action or policy recommendation. It doesn't contain one other than "don't impose austerity, but don't leave the long term debt question unanswered, and do try to get it below 90% of GDP as soon as possible". That's not all that useful, although even getting the first part correct is somehow difficult for world governments right now.

Ultimately I don't think this paper leads to a real policy recommendation because it doesn't look at all about how countries left periods of 90% debt/GDP or higher. Did higher growth occur before or after the end of the period? Did the countries leave the periods more due to growth or focus on paying down the debt? They don't say. And anyway, the most important question is not what caused the nations' debt loads to fall but what ignited growth. Again, they don't say.

The closest they get to answering the exit strategy for a country (other than noting defaults) is mentioning that Belgium's 1920-26 period of high debt was associated with a rebuilding boom after WWI. It's implied that the country grew out of its high debt problem. So does that then mean that countries should embark on similar build-to-grow campaigns (such as massive infrastructure investments, perhaps) to solve the problem? They don't say. The UK was able to grow quite well from 1830-68 with far higher debt than the US has now thanks to being the largest and most powerful country in the world. Might the US's similar status allow it to do the same, or are the situations too different to be comparable? They don't say.

The correlation between high public debt/GDP ratios and slower growth than normal is compelling, but as always, correlation doesn't imply causation. The Great Depression caused 90% debt/GDP or more in some countries, but it didn't in the US and a few other nations. They languished for well over a decade with low growth without high debt/GDP causing it. That as much as anything proves that a nation can have an extended period of low growth without debt/GDP over over 90% as the cause. Without that causal link, the idea that this paper's central thesis offers any universally applicable practical advice disappears.

It's certainly possible that low interest rates on US debt are not a green light to borrow more to try to stimulate the economy, but I didn't really get that out of this paper.

Two Charts That Illustrate Why Unemployment Is So High Still

The answer to why the employment part of the recovery has been so slow is a very simple one. I'll use two charts to show why: private sector employment and public sector employment. The data is seasonally adjusted and comes from FRED, and the public sector figures have temporary census workers removed (because they're just that: temporary) thanks to data published by Veronique de Rugy of George Mason University.

First up, the private sector:

Click the image to make it bigger. The X-axis is months after the official end of the recession.

Compared to the last two recessions, the rate of job growth from the official end of the recession (June 2009) is actually doing OK. The public sector is by no means "fine", as it lost nearly 8.9 million jobs from its peak of employment (January '08) to its trough (February '10) and it's still about 4.5 million jobs below that peak. That deficit in jobs doesn't even account for the number of jobs needed to keep up with population growth either.

However, its growth is similar to that after the 1990-91 recession, and it's doing better than after the 2001 recession. It would be great if it was growing jobs at a higher rate, but its current rate is not out of the ordinary for a post-recession economy.

Now, the public sector:

There's your problem. Overall public employment has done just about nothing but fall since the end of this recession. The terrible recent jobs numbers can mostly be blamed on the decline of the number of government workers. It's less a federal problem than a state and local problem, but that's your explanation for why unemployment isn't lower.