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  • Archive for the 'Economics & Finance' Category

    Economic and Political Turmoil a Century after the Great War: Is it De Je Vu All Over Again?

    Posted by Kevin Villani on 17th October 2014 (All posts by )

    This year marks a century since the outbreak of WW I and coincidently the initiation of US Federal Reserve System operations. Prior to these events, politics were democratizing, economic growth was booming, economies were liberalizing and global trade and finance were growing, all at a pace not seen again for almost another century. Recognizing that achieving these mutual benefits required an externally imposed political discipline, all of the countries participating in this happy situation voluntarily followed a set of rules governing domestic and international trade and finance for automatic and continuous adjustment to changing economic reality, then provided by the gold standard.

    It was during this enlightened period that philosopher George Santayana wrote: “those who cannot remember the past are condemned to repeat it.” Hedge fund manager and Brookings Director Liaquat Ahamed set out to remind us why countries failed to recapture this economic dynamism after the Great War with the publication of the Pulitzer Prize winning Lords of Finance: The Bankers Who Broke the World in 2009. This book took on greater significance when in 2010 Federal Reserve Board Chairman Ben Bernanke recommended only this historical account in response to the Financial Crisis Inquiry Commission’s request for a book reference explaining the 2008 financial crisis. What history had this most recent financial crisis already repeated and what was Chairman Bernanke determined to avoid repeating in the aftermath?

    Read the rest of this entry »

    Posted in Book Notes, Current Events, Economics & Finance, History, Public Finance, Systems Analysis | 6 Comments »

    The Great Lightbulb Conspiracy

    Posted by Grurray on 15th October 2014 (All posts by )

    This year has seen many historical anniversaries, and one that has gotten some recent notoriety is the 90 year anniversary of the planned obsolescence of the light bulb by an industry cartel.

    How exactly did the cartel pull off this engineering feat? It wasn’t just a matter of making an inferior or sloppy product; anybody could have done that. But to create one that reliably failed after an agreed-upon 1,000 hours took some doing over a number of years. The household lightbulb in 1924 was already technologically sophisticated: The light yield was considerable; the burning time was easily 2,500 hours or more. By striving for something less, the cartel would systematically reverse decades of progress.

    It’s even more notable because last week three pioneers in LED technology just won the Nobel Prize.

    We all know about the efficiency standards for light bulbs that are effectively banning incandescent bulbs in slow motion. I’ve noticed during my usual stops at the home improvement stores that the choices for the vintage bulbs are fewer and farther between, and the prices for what’s left are creeping up.

    The promise of the new standards is that the new LED lighting is far superior. While it’s much more expensive, the steady drumbeat of the diffusion of technology is supposed to reduce the costs, eventually putting them within reach of the common household.

    The costs have indeed dropped exponentially, but that’s undoubtedly been helped by government aid and deliberate shortages of the old technology. Besides the federal standards, every state has some sort of efficient lighting rebate program that artificially decreases the price. Tax breaks and other incentives have encouraged manufacturers like GE to expand production in the US and create a few hundred jobs, which, although nice, don’t quite make up for the thousands they shipped to China during the Great Light Bulb Leap Forward. How much of the price gains can be attributed to Moore’s Law type improvements and how much to government supports is a legitimate concern.

    Now there’s some question about how long prices are going to keep falling going forward.

    In stark contrast to the promised dynamics that the technology is supposed to follow, LED prices actually rose considerably last month.

    In contrast, 40W equiv. LED bulb prices were up 14.3% in the U.S. market. Manufacturers including Cree, Philips, GE and other renowned brands have raised prices for certain products in the U.S. market.

    Because of industry consolidation, the top ten LED manufacturers now control 61% of the market. That much control brings pricing power over the market, and they are apparently now using it.

    With green energy executive orders on Obama’s agenda and the unelected EPA issuing mandates, the oligopoly is sure to get worse with permanently higher cost per lumens the possible result.

    The LED industry, taking a page from the incandescent bulb industry so many years ago, is discovering the key to the rent seekers’ success – competition is for losers, and unfortunately sometimes so is progress.

    Posted in Economics & Finance, Energy & Power Generation, Politics, Tech | 21 Comments »

    Regulatory capture is normal, and that’s the problem

    Posted by Lexington Green on 3rd October 2014 (All posts by )

    portraits of Julian Sanchez and Megan McArdle

    You must read this excellent piece by Megan McArdle, It’s Normal for Regulators to Get Captured. “regulatory capture is not some horrid aberration; it is closer to the natural state of a regulatory body.”

    This is true. That is why the entire modern administrative state has to be re-thought, re-configured and replaced. It does not work, it never worked, it cannot work.

    The regulatory state is the defining feature of the Industrial Era, America 2.0 state. It needs to be shut down, wrapped up and replaced.

    This does not mean return to the law of the jungle. It means making laws that actually align incentives with desired ends, as imperfect as that always is.

    Read the rest of this entry »

    Posted in America 3.0, Book Notes, Chicagoania, Economics & Finance, USA | 14 Comments »

    Milton Friedman: “Only a crisis — actual or perceived — produces real change.”

    Posted by Lexington Green on 29th September 2014 (All posts by )

    Milton Friedman

    There is enormous inertia—a tyranny of the status quo—in private and especially governmental arrangements. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.

    Milton Friedman, Capitalism and Freedom, Preface to the 1982 edition.

    This could easily have been the quote at the front of America 3.0.

    A crisis, or series of crises, are likely to be coming in the years ahead as the economy and government based on industrial era (America 2.0) models fails more and more completely and obviously. The inertia, the tyranny of the status quo, embedded in our existing institutions is going to resist meaningful reform. It will not be an inert resistance, either, it will be attacks on agents of change. To use Clausewitz’s phrase, the defense of the status quo will be “a shield of blows.” Some people will be hurt by the blows.

    But it won’t work. It cannot work.

    Our task in the book was and is precisely to offer alternatives to existing policies, and explain why our proposed alternatives suit America’s inherited underlying culture, and the technology which will shape our future. Many of the things we suggest in the book have been dismissed as “impossible” even by friendly critics. But as Milton Friedman correctly noted, the politically impossible can become the politically inevitable, if it is an idea whose time has come.

    Posted in America 3.0, Book Notes, Economics & Finance, Quotations | 10 Comments »

    Sign of a New Peak for Stocks?

    Posted by Carl from Chicago on 20th September 2014 (All posts by )

    Back in the woeful years of the dot.com boom and bust I worked for a company with a dubious distinction. The value of that company in the stock market was less than the value of the cash we had on our books. What the market was essentially saying is that the sum total of all our efforts as employees was NEGATIVE – we would be worth more if we just shut down immediately and gave back the cash to investors. The fate of that company, of course, was to go bankrupt.

    Today there are some other major signs of froth in the market. Yahoo is a classic web / advertising / technology stock with a solid market capitalization of $40 billion. Yahoo’s CEO, Marissa Mayer, was a Google alumna and has been receiving a lot of press for her intelligence and drive to change the company, as well as her good looks.

    Screen Shot 2014-09-20 at 8.43.59 AM

    However, all is not as it seems.  The primary value for Yahoo isn’t its online advertising, email, or users – it is the stakes that they amassed in the hot Chinese e commerce company Alibaba (NYSE: BABA) and also Yahoo Japan.  In fact, the value of Yahoo is less than the value of these stakes, which are approximately $45B, partially due to the reason listed in this Bloomberg article:

    While the market value is large for Yahoo’s Asian assets, that doesn’t necessarily reflect the value available to investors and the company because of taxes, said Ben Schachter, an analyst at Macquarie Securities USA Inc. Yahoo, which would have made $8.3 billion by selling Alibaba shares at the IPO, only reaped around $5.1 billion after taxes.

    Taxes are ‘‘one of the big issues,” Schachter said.

    While it is true that $45B in investment value isn’t worth $45B because of the after-tax implications, it certainly implies that the market isn’t valuing Yahoo at very much at all.  It is also possible that the market thinks that Alibaba is over-valued at its current price of near $100 (after a huge run-up from its IPO price of $68, another huge sign of froth in the market) but the two stocks will generally track closely together now.  Yahoo is sort of a broken “tracking stock” for this value.
    Read the rest of this entry »

    Posted in Business, Economics & Finance | 7 Comments »

    “How Gangs Took Over Prisons”

    Posted by Jonathan on 18th September 2014 (All posts by )

    This article describes a situation that is similar to what happens in a neighborhood controlled by the Mafia. Monopolies and cartels raise the prices of the products they sell by restricting supply. This is usually a bad outcome. However, when the product is crime or violence there are benefits to restricting supply.

    (Via Instapundit.)

    Posted in Crime and Punishment, Economics & Finance, Tradeoffs | 6 Comments »

    Massive Disruption to the Cable Industry Coming – Part II

    Posted by Carl from Chicago on 9th September 2014 (All posts by )

    Recently I wrote about the impact to the cable industry that is coming in the form of Microwave Fixed Wireless here.

    While on vacation in Door County I noticed a small store front office in Bailey’s Harbor for Door County Broadband. The first thing I thought of is how would a company like this operate out of a small storefront with just one truck (parked outside)? Then I realized that this firm is the local upstart providing Microwave Fixed Wireless against the incumbent phone / cable company in that region, Frontier. Unlike the local phone / cable company (who really are one and the same nowadays), you can run a microwave fixed wireless broadband company with few employees because you don’t have to pay for all the same physical infrastructure (telecom poles, physical connections) when you are doing a wireless model; you just need to 1) get the physical infrastructure (towers) in place and then 2) hook up the dish in the homes and point it at the tower. This model needs far fewer “boots on the ground” than the traditional model.

    While researching this further, I came across this document called

    America’s Broadband Heroes:
    Fixed Wireless Broadband Providers
    Delivering Broadband to Unserved and Underserved Americans

    This document is clearly biased in favor of the upstart fixed wireless providers, but has many interesting and sourced facts about the industry and is highly recommended reading.

    While wireline and mobile wireless carriers focus on regulatory gaming and manipulation of the Universal Service Fund to benefit their bottom lines, many Americans are left without access to broadband services because they reside in places that are deemed to be unprofitable by traditional carriers. Even more Americans have substandard or overpriced broadband access and no alternatives for obtaining better service because of the lack of competition in the broadband market. It is clear that the current system is broken, and the absence of competition, abuse of USF and the lack of access to critical network facilities for competitive entrants puts our nation into a position of disadvantage compared to other OECD countries.
    Read the rest of this entry »

    Posted in Big Government, Business, Economics & Finance | 10 Comments »

    Head in the Sand on Dams and Hydropower

    Posted by Carl from Chicago on 24th August 2014 (All posts by )

    The popular (untrue) image of the ostrich as a bird that puts its head in the sand came to mind as a I read a recent NY Times article titled “Large Dams Just Aren’t Worth the Cost“. This article describes the usual culprits that plague dam construction:

    1. Cost overruns
    2. Dams take much longer to construct than originally planned
    3. Dams displace local residents (many in impoverished third world countries) who rarely thrive in their new locations
    4. Dams that are paid for with foreign loans (for many years the World Bank provided funding) often do poorly because the dam revenues come back in local currency and the loans are denominated in dollars; thus even if they hit their “nominal” returns, they don’t reach their “planned” returns when adjusted for currency depreciation

    These are all true objections to dam construction. However, these same criteria can be applied to virtually any energy construction project, from coal plants to nuclear plants to major LNG efforts.

    One key point that the article completely misses is that dams don’t require spending for “fuel” once they are up and running, and often it is fuel and distribution of fuel that bankrupt energy companies in the third world. The dam requires rain / water to generate power, and if this changes significantly, it can change the amount of power provided, but this is still generally better than “nothing”.

    There simply would not be electricity in many areas of the third world without hydropower, and the choice really isn’t between other alternatives and dams, it is a choice between power and no power. Once a dam is built they often can be run with a few individuals and if there are major problems you can bring someone in to fix them. You don’t need to find coal or fuel oil (which moves in price and is denominated in dollars that the country often doesn’t have). On the other hand, complex machinery and distribution systems can’t be left in the hands of areas with revolutionary governments and broken economies because in short order they are often taken apart and destroyed.

    Read the rest of this entry »

    Posted in Economics & Finance, Energy & Power Generation, United Nations | 23 Comments »

    Deirdre McCloskey at the Illinois Policy Institute: The Ethical and Rhetorical Foundations of Modern Freedom and Prosperity

    Posted by Lexington Green on 21st August 2014 (All posts by )

    GREAT talk by Deirdre McCloskey at the Illinois Policy Institute last night.

    She was promoting her book Bourgeois Dignity: Why Economics Can’t Explain the Modern World which is the second in a trilogy with The Bourgeois Virtues: Ethics for an Age of Commerce. She announced last night that she just finished the third volume.

    This essay, entitled The Great Enrichment Came and Comes from Ethics and Rhetoric gives some insight into her ideas.

    Read the rest of this entry »

    Posted in America 3.0, Book Notes, Britain, Economics & Finance, Politics, Rhetoric, Science | 36 Comments »

    Miami Condo Boom

    Posted by Jonathan on 15th August 2014 (All posts by )

    Funny how this kind of thing sneaks up on you.

    Prepare to be overwhelmed with the most comprehensive bus tour of the nearly 60 new condo towers proposed for Greater Downtown Miami.
     
    Miami condo expert Peter Zalewski – who has been cited more than 1,000 times by local, state, national and international news outlets – is scheduled to narrate the 10 AM morning tour of the Greater Downtown Miami preconstruction condo market where more than 17,300 new units are proposed. The 2 PM afternoon tour of Greater Downtown Miami is narrated in Spanish by licensed Florida real estate broker Jenny Huertas. Zalewski will ride on the afternoon tour to answer any questions.

    17,000 new units. Of course it’s unlikely that all of them will be built, but still. And this time around the developers aren’t borrowing so much, and many of the buyers are paying cash, but still. Wasn’t it just last week that we were in the midst of an endless economic stagnation? Or maybe it was a bubble. It’s easy to lose track.

    It looks like there’s a lot more US dollars in Latin America than anyone thought. Or could it be inflation? Nah. If there were inflation we’d see crazy stuff like the Dow at 17k and $12 hamburgers. . .

    I’m sure it will all end well.

    Posted in Business, Economics & Finance, Human Behavior, Markets and Trading | 8 Comments »

    “Is Thinking Now Obsolete?”

    Posted by Jonathan on 5th August 2014 (All posts by )

    From Thomas Sowell’s latest column:

    Some have said that we are living in a post-industrial era, while others have said that we are living in a post-racial era. But growing evidence suggests that we are living in a post-thinking era.
     
    Many people in Europe and the Western Hemisphere are staging angry protests against Israel’s military action in Gaza. One of the talking points against Israel is that far more Palestinian civilians have been killed by Israeli military attacks than the number of Israeli civilians killed by the Hamas rocket attacks on Israel that started this latest military conflict.
     
    Are these protesters aware that vastly more German civilians were killed by American bombers attacking Nazi Germany during World War II than American civilians killed in the United States by Hitler’s forces?
     
    Talk-show host Geraldo Rivera says that there is no way Israel is winning the battle for world opinion. But Israel is trying to win the battle for survival, while surrounded by enemies. Might that not be more important?

    Worth reading as is everything that Sowell writes.

    Posted in Current Events, Deep Thoughts, Economics & Finance, Education, Israel, Leftism, Rhetoric | 19 Comments »

    Medicine as a government benefit.

    Posted by Michael Kennedy on 3rd August 2014 (All posts by )

    Obamacare is having serious trouble as I have discussed. The success stories, like California, are an example of what I have called Medicaid for All.

    “It’s a total contradiction in terms to spend your public time castigating Medicaid as something that never should have been expanded for poor people and as a broken, problem-riddled system, and then turn around and complain about the length of time to enroll people,” said Sara Rosenbaum, a member of the Medicaid and CHIP Payment and Access Commission, which advises Congress.

    Most of the new enrollees are Medicaid members and those enrolled in “private insurance” learn that they have severely restricted choice of doctor or hospital.

    Now we have a new development.

    Read the rest of this entry »

    Posted in Big Government, Economics & Finance, Health Care, Medicine, Political Philosophy, Science | 5 Comments »

    What next for health reform ?

    Posted by Michael Kennedy on 26th July 2014 (All posts by )

    It looks to me that the Supreme Court will have little justification for continuing the Obamacare program as it exists. The Halbig decision should kill it off. It is clear that the IRS subsidies to federal exchange subscribers are illegal.

    The only statement anyone has found in the legislative history that addresses this point comes from the Act’s lead author, who affirmed that Congress did intend to withhold tax credits in federal Exchanges. During a September 23, 2009, mark-up of his bill, which ultimately became the PPACA, Senate Finance Committee chairman Max Baucus (D-MT) refused to consider a Republican amendment regarding medical malpractice on the grounds it fell outside the Committee’s jurisdiction. Sen. John Ensign (R-NV) protested, asking how Baucus’ bill could do other things that lie outside the Committee’s jurisdiction, like direct states to create Exchanges. Baucus responded the bill creates tax credits, which are within its jurisdiction, and makes eligibility for those tax credits conditional on states creating Exchanges. Conditional necessarily means that Baucus intended to withhold tax credits in states that did not create their own Exchanges.

    I just don’t see how the Court can ignore that history. The political left has been on a rant about Congressional intent since the decision was announced.

    Read the rest of this entry »

    Posted in Economics & Finance, Health Care, Leftism, Medicine, Politics, Taxes | 10 Comments »

    Words and Phrases I Dislike: “Middle-Skilled Jobs”

    Posted by David Foster on 20th July 2014 (All posts by )

    WSJ has a good article about three people who have put themselves on good career trajectories without benefit of 4-year college degrees.  One is a welder, one is a nurse, and one is an owner of franchised fast-food restaurants.  Unfortunately, however, the article uncritically uses the term “middle-skilled jobs,” which is seen increasingly in articles about the job market.  These jobs are said to be those which require more than high school and less than four years of college, and typically involve some sort of technical or practical training.

    “Middle-skilled”….really?  Is the job of a toolmaker in a factory really less-skilled than the entry-level job likely to be obtained by someone with an undergraduate Sociology degree?  Is a nurse’s job less-skilled than the work likely to be assigned to someone hired on the basis of his English degree?  Does owning and operating a food truck really require less skill than the kind of tasks typically assigned to an undergraduate Business major?  Is the work of an air traffic controller less-skilled than the kind of a job likely to result from a major in Victim Studies?

    It is good that there is increasing recognition of good career paths not requiring college degrees; however, the term “Middle-Skilled Jobs” is misleading and contributes to the continuation of credential-worship.

    Posted in Academia, Business, Economics & Finance, Education, Media, Tech | 17 Comments »

    Words and Phrases I Dislike: “Controls X Percent”

    Posted by David Foster on 18th July 2014 (All posts by )

    …as in, “Universal Entities controls 73% of the Gerbilator market.”

    Uh, no, actually they probably don’t.  IBM once had something like 70% of the market for computer hardware, software, and services.  The big integrated steel companies, Bethlehem Steel and US Steel, once had a very high share of the American steel market.  Sears once had a high share of the retail market.  These examples could be multiplied easily and almost endlessly.

    A seller into a market does not control that market, or its position in that market, absent direct violence (the Mafia and various drug cartels, for example) or heavy government intervention–and even the latter is unlikely to be reliable in the long term, as the owners of TV station licenses facing first cable competition, and later Internet competition as well, found out, and as the owners of taxicab franchises facing Uber and similar competition are now discovering.

    The phrase “controls X percent,” when applied to a market, is almost always intellectually lazy, and is used far too often by writers who should know better.

    Posted in Business, Economics & Finance, Media | 9 Comments »

    Incentives and Economics

    Posted by Carl from Chicago on 14th July 2014 (All posts by )

    A few years ago I went to Norway and had a great time. In this post I described how expensive everything was in Norway due to their highly valued currency (tied to oil riches) combined with the relentless decline of the US dollar (tied to ZIRP and other dubious economic moves). In the simplest terms, a fast food meal or a beer in Norway cost over $20 USD which is complete madness.

    Business Insider discussed the Scandinavian economic experiment, where high taxes are applied to goods and services in order to fund a vast social safety net. From the article:

    In Norway, a burger and fries at a fast food joint will set you back $23. A six-pack of warm grocery-store beer is nearly $30.
    These hefty price tags are due, in part, to high wages for low-skilled service jobs. But high taxes play a role too.
    Most products have a 25 percent value-added tax, which means that $5.50 of the cost of that burger goes to fund Norway’s generous social programs.
    As a visitor, you get little for the added price. But, as a resident, your daily spending helps to fund an expansive package of benefits, including health care, child care, high-quality education, pensions, and unemployment insurance.

    Some are now proposing this high-cost method, with large taxes embedded in everyday prices, as a solution to the inequity in incomes and wealth that is discussed widely in politics and economics today.

    From the perspective of someone who is highly interested in economics and tax policy, my two rules of thumb are:
    1) that the tax policy raise the money that it intends to raise
    2) that the tax policy not significantly distort economic activity

    Any society that implements high taxes such as Norway needs a comprehensive surveillance model in order to collect these taxes. It is difficult to avoid taxes that are broadly assessed on fast food, for instance, because each corporate location will set up cash registers and controls to remit these taxes onto the state. The same types of processes can be installed in liquor stores, formal bars and nightclubs, grocery stores, and restaurants.

    In a less-homogeneous society such as the USA, we already have major problems with tax evasion on cigarettes and likely liquor, and these are in responses to our sales taxes. The problems would be compounded if we placed value added taxes on all goods at a higher level and on services such as restaurants, hair care, etc… Smuggling would become rampant and informal or barter methodologies would increase in size and scope. These sorts of costs would have to be applied across the USA or some areas would become uncompetitive and see an out-migration of economic activity, starting with incremental additions (no one has opened a new manufacturing plant in Illinois in years, for instance) and eventually leading to the lock, stock and barrel out migration of existing industries (such as the exodus of car manufacturing out of the Midwest and California to the American South).

    Read the rest of this entry »

    Posted in Big Government, Economics & Finance, Public Finance, Taxes | 33 Comments »

    Emmanuel Todd, Speaking in English, on Why the Euro is a Failure

    Posted by Lexington Green on 9th July 2014 (All posts by )

    Todd applies his family structure analytic model to explain why the Euro is doomed to fail. He notes that the French and the Germans, for example, have little in common. He expressly says that the French individualism is much closer to the Anglo-American individualistic culture, distinct from the German authoritarian style. He says that the French elite caused the problem and they cannot admit their mistake or the entire foundation of the French political structure would collapse.

    The European idea of a union of free and equal states has been destroyed by the Euro, and it is now an economic hierarchy, with the Germans at the top. Further, democracy itself is incompatible with the Euro.

    Todd notes that the very low birth rates in Europe have a positive benefit: There will be no open or violent conflict to resolve the current political conflicts. Rather, contentious issues are kicked up to the “European level” — which means nothing whatsoever will happen.

    He sympathizes with the British position. Britain is dependent on a dying content, Europe. “It is committing suicide under German leadership.” But Britain is part of a much larger Anglo-American world, which in ten years, on current trends, will have more people than all of Europe.

    Of course, America 3.0 is based in large part on a “Toddean” understanding of American culture, and this talk is consistent with our understanding.

    A fascinating talk.

    H/t Brian Micklethwait

    Posted in America 3.0, Anglosphere, Economics & Finance, Europe, France, Public Finance, Video | 3 Comments »

    “Beware of Populist Economics”

    Posted by Jonathan on 9th July 2014 (All posts by )

    Think Like a Freak: The Authors of Freakonomics Offer to Retrain Your Brain by Steven D. Levitt and Stephen J. Dubner

    John R. Lott’s review of the latest Freakonomics book by Steven D. Levitt and Stephen J. Dubner. Lott seems to have an ongoing personal quarrel with Levitt and Dubner. However, his critiques of their arguments seem reasonable. His review is worth reading.

    Posted in Book Notes, Economics & Finance, Human Behavior | 4 Comments »

    Is the Stock Market a Leading Indicator of Growth or Inflation?

    Posted by Jonathan on 1st July 2014 (All posts by )

    John Cochrane on Larry Summers on economic stagnation.

    It’s a good post and there are many good comments in response.

    What it comes down to is that no one yet knows the extent to which current economic weakness results from tech-driven structural changes in the economy, and demographic changes, as opposed to bad govt policies.

    The stock market keeps going up. Is this mainly a result of easy money or is the market telling us something about future growth? My hunch is that the longer it keeps going up, the more likely it’s discounting future growth. The fact that this is an unpopular idea makes me more confident that it’s valid.

    Maybe it’s a combo of structural change and anticipation of the lifting of Obama’s boot from the economy’s neck. Time will tell. It may yet turn out to be mostly an inflationary bubble.

    Disclaimer: The above is not investment advice. Your cat may understand this stuff better than I do.

    UPDATE: Here’s a good presentation of the alternative case.

    Posted in Economics & Finance, Predictions | 13 Comments »

    Picketty’s Introduction

    Posted by TM Lutas on 9th June 2014 (All posts by )

    Thomas Piketty has written a monster of a book, Capital in the Twenty-First Century. I find myself in strange agreement with Brad DeLong, that the collective conservative response is weak. I had a patch of time that left me twiddling my thumbs waiting for some pretty long database operations to finish over the past four days. So I went and decided to fisk the book. I just finished the introduction. It took four posts, Part I, Part II, Part III, Part IV and overran the spare time I had available from a database import and indexing task by about 12 hours.

    Now I know why the criticism is so weak. Piketty is a target rich environment and doing a line by line analysis is simply exhausting. But it’s the only way to be sure.

    Posted in Book Notes, Business, Economics & Finance, Public Finance, Society, Taxes, USA | 18 Comments »

    “Government Employee” is Not a Synonym for “Saint”

    Posted by David Foster on 4th June 2014 (All posts by )

    A good piece by Glenn Reynolds at USA Today: Greedy Socialism.

    The reality, of course, is that government employees, be they cabinet officials or low-level clerks, are motivated by the same kinds of desires that motivate people in other walks of life: money, security, power over others, creativity, status, ego-feeding and public adulation, in addition to the satisfactions of doing good work and providing value to others…with the individuals weights of these factors of course varying from person to person. The principal-agent problem does not disappear just because the agent works for the government.

    I particularly like this passage from Glenn’s article:

    The absence of a bottom line doesn’t reduce greed and self-dealing — it removes a constraint on greed and self-dealing. And when that happens, ordinary people pay the price. Keep that in mind, when people suggest that free-market systems are somehow morally inferior to socialism.

    Posted in Economics & Finance, Human Behavior, Leftism, Political Philosophy | 2 Comments »

    Gary Becker ז״ל

    Posted by Jonathan on 4th May 2014 (All posts by )

    Gary Becker, one of the greatest living economists and a longstanding member of the University of Chicago faculty, has died. עליו השלום.

    Gary Becker

    (Photo courtesy Nobelprize.org.)

    UPDATE: Gary Becker links follow.

    James J. Heckman (pdf)

    The Godfather of Freakonomics Has Died — Here Are His Most Groundbreaking Theories

    Chicago Tribune

    The Wall Street Journal

    The New York Times

    Chicago Sun-Times

    The New Yorker

    UPDATE 2: University of Chicago Gary Becker Obituary

    (Links via Lex and Joseph Morris.)

    Posted in Chicagoania, Economics & Finance, Obits | 3 Comments »

    Income inequality: Social justice or crony capitalism?

    Posted by Kevin Villani on 26th April 2014 (All posts by )

    The political movement Occupy Wall Street has shaped the tax and spending proposals of the Obama administration’s budget and political debate on the premise that our capitalist economic system is rigged to favor the top-earning “one percenters.” But income inequality can result either from capitalism or politics, each for better or worse.

    Historically, political elites focused on enriching themselves at the expense of the general public: In 1773 patriots threw the tea into Boston Harbor of the East India Tea Company, granted a “royal charter” in 1600. The U.S. system was founded not just on the principles of democracy but on limited government complementing private market capitalism that encouraged individuals to “pursue happiness” — accumulate wealth — on merit rather than political connections. Support for the less fortunate was provided by family members, religious and other charitable organizations.

    Believing (wrongly) that class envy against the new economic elites — innovative entrepreneurs — would cause revolution, Karl Marx offered the socialist alternative “from each according to his ability, to each according to his need” with politics supplanting merit. Despite totalitarian methods universally employed by governments seriously pursuing the socialist model leading to the murder of tens of millions, one historian recently concluded that communism reduced workers “to shiftless, work-shy alcoholics.”

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    Posted in Big Government, Crony Capitalism, Economics & Finance, History, Political Philosophy, Public Finance, Taxes | 15 Comments »

    On the Internet

    Posted by Carl from Chicago on 18th April 2014 (All posts by )

    Recently a few loose threads have come together on the Internet and some “old school” high tech companies.

    Yahoo! – Yahoo! (I guess I need the exclamation mark) has a value that is less than the sum of its component parts. The market capitalization of Yahoo! comes in the fact that it owns a significant portion of two Asian internet companies. Per this pithily titled article “How Is Yahoo So Worthless“:

    Yahoo is huge. It is the fourth-biggest Internet domain in the United States. It is the fourth-biggest seller of online ads in the country. It is the most popular destination for fantasy sports, controls one the most-trafficked home pages in news, and owns the eighth-most popular email client. In the last three months, it collected more than $1 billion in revenue. It’s very rich.

    It’s also totally worthless.

    Technically, it’s worse than worthless. Worthless means without worth. Worthless means $0.00. But Yahoo’s core business—mostly search and display advertising—is worth more like negative-$10 billion, according to Bloomberg View’s Matthew C. Klein.

    The math: Yahoo’s total market cap is $37 billion. Its 24 percent stake in Alibaba, the eBay of China, is worth an estimated $37 billion (Alibaba hasn’t IPO’d yet, so this figure will vary), and its 35 percent stake in Yahoo Japan is worth about $10 billion. That means its core business is valued around negative-$10 billion.

    This isn’t just a random business article; there is some actual financial science behind this analysis. At my trust fund site Yahoo! is one of the stocks I selected since I believe that their new CEO Marissa Meyer is a badass but according to the math she is still losing the battle.

    At one point in my career I worked for a public company that had $300M in cash on hand and a market value of $200M. Your business plan could be to fire everyone and drink in a bar all day and you’d be much closer to $300M than $200M (after all, how much can you drink). The market is anticipating that bad things are going to happen or that Yahoo! won’t be able to successfully sell and repatriate the cash for these investments. It is like that famous postcard my relatives in Montana had that said “If I won a million dollars I’d just keep ranching until it was all gone.” That is what the market today thinks of Yahoo! – even if they successfully extracted the cash from these investments, they’d invest it into something of less value (by $10B or so, apparently).
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    Posted in Business, Economics & Finance, Tech | 16 Comments »

    2014 Midwest Business & Markets Conference

    Posted by Zenpundit on 9th March 2014 (All posts by )

    cross-posted to zenpundit.com

    The Union League Club of Chicago Building

    Yesterday, I attended the 2014 Midwest Business & Markets Conference at the historic Union League Club of Chicago. While business conferences are far afield from my usual interests, the main draw for me was seeing Lexington Green speak about the book he co-authored with James C. Bennett, America 3.0

     

    Michael J. Lotus (“Lex”)                       His book

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    Posted in Anglosphere, Business, Chicagoania, Civil Society, Deep Thoughts, Diversions, Economics & Finance, Education, Entrepreneurship, Illinois Politics, Internet, Political Philosophy, Politics, Society, The Press, USA | 9 Comments »