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    Business Stories

    Posted by David Foster on 8th December 2019 (All posts by )

    We’ve talked before here about the point that most fiction seems to be about people who are lawyers, policemen, criminals, soldiers, spies, students, politicians, and noble but struggling writers. But there are indeed some works of fiction, and some vivid personal memoirs, in which business plays a central role without being portrayed simplistically or as stereotypically evil. Here are some that I like…please add your own favorites in the comments.  (I posted this at Ricochet, in slightly different form, about a week ago)

    The Current War, a recent movie about the late-1800s power struggle to determine which technology…AC or DC…will dominate America’s electrical distribution system. Edison, Westinghouse, and Tesla are the key characters, played by Benedict Cumberbatch, Michael Shannon, and Nicholas Hoult respectively. My review is here.

    The Big Short, a 2015 film about the 2007-2008 financial crisis, based on Michael Lewis’s book. A hedge fund manager concludes that the subprime-loan market is not sustainable, and makes a billion-dollar bet against the relevant mortgage-backed securities. Based on real events. I thought it was very well done.

    God is an Englishman, R F Delderfield. Following his return to England from the Crimean War, Adam Swann identifies a business opportunity: although railroads are being built throughout the country, there will always be sources and destinations of freight which are not on the tracks. Hence, the potential for a nationwide gap-filling road haulage business based on the systematic use of horse-drawn wagons. (This is the first book of a three-book series called the Swann Family Saga.)  Reviewed here.

    Oil for the Lamps of China, Alice Tisdale Hobart. This 1933 novel is about a young American working as a sales rep in China, focused on selling oil for his employer (unnamed, but clearly based on Standard Oil) and increasing volumes by promoting the kerosene lamp as a better alternative to traditional lighting methods. The book was the basis for a 1935 movie of the same name…the film has its moments, but overall is not worthy of the book.

    Father, Son, and Company, by Thomas Watson Jr. This is the best business autobiography I’ve read. It’s about Watson Jr (the long-time CEO of IBM), his difficult relationship with his father, the company they built, and the emergence of the computing industry. It is an emotional, reflective, and self-critical book, without the kind of “here’s how brilliant I was” tone that afflicts too many executive autobiographies. I reviewed it here.

    A Man in Full, by Tom Wolfe. The central character of this 1988 novel is Charlie Croker, an Atlanta real-estate developer who has gotten himself into way too much debt. Other characters include Charlie’s current and former wives, the Black mayor of Atlanta, the bankers who must deal with the debt problem, and a warehouse worker at one of the Croker enterprises. The book also casts a not-very-complimentary light on the Atlanta society/arts scene.

    Trial by Fire, Stephen Buck. The adventures of a Honeywell field engineer in the early days of process-control computing. The book’s title reflects the point that the industrial processes being controlled frequently involved combustion, sometimes in scary circumstances. Much of the author’s work took place outside the US, in countries ranging from Poland to Brazil.

    Read the rest of this entry »

    Posted in Academia, Arts & Letters, Aviation, Biography, Book Notes, Britain, Business, Economics & Finance, Film, Tech, Transportation, War and Peace | 7 Comments »

    What Future for the Global Auto Industry?

    Posted by David Foster on 7th December 2019 (All posts by )

    **An upcoming Chicago Boyz group discussion**

    There is much media and analyst discussion lately concerning possible sea changes in the auto industry..which would, of course, likely have major impacts throughout the economy and on society as a whole.  Some of the driving factors worth considering include:

    –The government incentives put in place in many countries…in some cases not just incentives but absolute requirements…in favor of electric cars

    –The emergence and growth of ride-sharing services such as Uber and Lyft

    –The development of partial ‘autopilot’ functions for cars, and the anticipated development of full automatic driving at some future point

    –The apparent reduction of interest among young adults and older children in driving and automobile ownership

    –Technological factors, including the continued improvements in battery energy storage capacity–but still very limited in comparison to liquid fuels…the continued incremental improvements in internal-combustion engines…and the emergence of new manufacturing technologies, including 3-D printing aka ‘additive manufacturing’.

    I’d like to have a group discussion of the possible future direction and shape of the industry…let’s do this sometime next week.  If you’re interested in participating, here are some links that are worthwhile thought-starters.

    Vitaliy Katsenslson is a fund manager; his blog is Contrarian Edge–I generally like the way he thinks.  Concerning electric cars in general and Tesla in particular, he says:

    You don’t really know the company until you buy the stock. It has happened to mea few times. We did hundreds of hours of research, bought a stock, and that act of buying activated new senses. I started seeing new angles. Something similar happened to me with Tesla, except I didn’t buy the stock, I bought a car.

    His ownership experience, and the thoughts triggered by the “activated new senses”, are captured in an 11-part series of posts.  You can get it emailed to you by signing up here.

    https://contrarianedge.com/signup-for-tesla-article/

    Concerning self-driving cars, here are three articles reflecting various degrees of enthusiasm versus caution:  from Forbes, from Investor’s Business Daily, and from Road/Show.  Also this Financial Times article, which is about the difficulties involved in the interaction of automated systems with humans in other cars or with human pedestrians.

    An interesting general discussion of AI misinformation and hype…not primarily focused on driverless cars although it does touch on that subject.

    Concerning battery technology, here’s a link on the trends in $/kWh and the future possibilities.  See also my 2017 post on battery materials constraints.

    Homework:  Please take a look at the above articles, at least the ones that aren’t behind paywalls..  I’ll put up a post as a place for discussion sometime next week.

    Posted in Business, Energy & Power Generation, Tech, Transportation | 20 Comments »

    Diseconomies and Dysfunctions of Scale

    Posted by David Foster on 24th November 2019 (All posts by )

    Why are short-line railroads able to survive, and sometimes thrive, in an industry dominated by a few giant companies?  An article at Railway Age suggests some answers. These points are relevant, I believe, in other industries as well.  To excerpt summarize the points in the article:

    –Short lines are formed with a much lower manpower cost structure that includes more-flexible work rules.

    Short lines are very effective at negotiating service and shared capital project business deals with their face-to-face local customers. That was always a hurdle when the corporate headquarters of a railroad like Conrail was hundreds of miles away in Philadelphia compared to sites like Cairo, Ill., or Kewaunee, Wisc. 

    –Short lines are focused directly upon industrial development along their limited geography service tracks. They are not distracted by competitive locations that want their location to be the next job creation site.

    –Short lines have a simple way to calculate customer profitability as a guide for managing their service responsiveness.

    –There is an ease of doing business with short lines. The difficulty of transacting business has long been an internally acknowledged Class I issue. Local small railroads have successfully addressed this with local managers dealing one-on-one with local customers.

    –The short line railroads have worked to grab growth opportunities. They developed local community and state railroad DOT programs that gave them access to development and rehabilitation capital.

    Most of these advantages could, in principal, be achieved by the large railroads through improved organization design and better internal measurements/incentives. And similarly in other industries…but it rarely seems to actually work out that way.  Re the profitability-measurements point, the article notes that Class I’s have tried for decades to calculate and then share with their remote train crews information about branch line financials. The Class I’s even tried to create regional cluster profit centers that would better focus attention on local branch line customers and new business development.  The results were at best a mixed success.

    and hence

    Selling off or otherwise leasing “troubled lines” to a smaller company typically became the favored big railroad divestiture business process.

    Any thoughts on similar factors at work in other industries?

    Posted in Business, Management, Transportation | 17 Comments »

    Suburban Sophistication

    Posted by Sgt. Mom on 17th November 2019 (All posts by )

    (Another of my long-ago archive posts, from 2005 – the California that once was, and that I remember when I think of growing up there.)

    When JP and Pip and Sander and I were all growing up, the contiguous suburb of Sunland and Tujunga, untouched by the 210 Freeway was a terribly blue-collar, gloriously low-rent sort of rural suburb. It was if anything, an extension of the San Fernando Valley, and not the wealthier part of it either. It was particularly unscathed by any sort of higher cultural offerings, and the main drag of Foothill Boulevard was attended on either side by a straggle of small storefront businesses, a drive-in theater, a discouraged local grocery store, a used car lot, the usual fast food burger or pizza places, a place with an enormous concrete chicken in front which advertised something called “broast” chicken, Laundromats, and a great variety of very drab little bars. There were no bookstores, unless you counted the little Christian bookstore across from the library and fire station.
    Read the rest of this entry »

    Posted in Business, Culture, Deep Thoughts, Miscellaneous, Personal Narrative, Reruns | 9 Comments »

    Robot Gets Hired, Tries Hard, But Can’t Do the Job

    Posted by David Foster on 16th November 2019 (All posts by )

    At Boeing.

    Those fearing imminent mass unemployment driven by robots and AI should be following stories like this.  They also should be looking at the actual productivity numbers.

    See also the details of work and the realities of automation.

    Posted in Aviation, Business, Economics & Finance, Tech | 21 Comments »

    Movie Review: The Current War

    Posted by David Foster on 1st November 2019 (All posts by )

    This movie is focused on the interaction among Thomas Edison, George Westinghouse, and Nikola Tesla in the competition to create and build out America’s…and the world’s…electrical infrastructure.  It has gotten mixed and generally not-very-enthusiastic reviews; I thought it was well-done and definitely worth seeing.  Visually, it is striking and sometimes even beautiful, thus worth seeing on the big screen.

    The movie gets the outline of the history right; also, I think, the essence of the characters.  Edison is a brilliant inventor and self-promoter who is committed to his DC-based distribution system and will do some more-than-questionable things to get it universally adopted.  Westinghouse, who had invented the railroad air brake (among other things) and already built a large company, sees the value of alternating current, which can be stepped up and down in voltage via transformers and hence can be economically transmitted over long distances.  Tesla, a Serbian immigrant and brilliant inventor, provides the missing link in the form of a practical motor that can run on AC power.  The relationships of Edison and Westinghouse with their respective wives are highlighted, and the future utility mogul Samuel Insull appears as Edison’s young secretary.

    I was happy to see the movie’s positive portrayal of Westinghouse, a great man who has tended to be overshadowed by the more-glamorous figures of Edison and Tesla.  (The legions of Tesla fans may be unhappy that Tesla did not get a more central role in the film.)

    If this movie sounds interesting to you, better see it soon; I don’t think it’s going to be in the theaters for very long.

    Posted in Business, Energy & Power Generation, Film, History, Tech | 20 Comments »

    This Has Gone Too Far!

    Posted by Sgt. Mom on 21st October 2019 (All posts by )

    This pumpkin spice thing has just about gone too far!
    Pictorial evidence below the fold. And this is for real – I spotted them this morning at the Bulverde HEB grocery store. Read the rest of this entry »

    Posted in Advertising, Americas, Business, Dogs, Humor, Photos | 8 Comments »

    Chinese Chequers and Other Spectator Games

    Posted by Sgt. Mom on 17th October 2019 (All posts by )

    The irony of very well-recompensed nominally-American basketball players of color reacting with wild indignation to American criticism of China with regard to heavy-handed treatment of citizens of Tibet and residents of Hong Kong is of a density so thick and heavy that it threatens to drop through the core of the earth and come out the other side. This of course, after months of rather public displays by professional athletes of color making a big thing of knee-taking and demonstrations of disapproval during the playing of the American national anthem at the start of various games. This cheap display of woke-virtue sporting world division may already have sunk the National Football League, in the minds and hearts of those fans of football in Flyoverlandia-America. I suppose now we can look forward to seeing the same fatal holed-below-the-waterline-and-sinking-fast pattern in the round-bouncy-ball franchise; honestly, it’s as if the NBA is basically saying, “Hold my beer and watch this!” Read the rest of this entry »

    Posted in Arts & Letters, Business, China, Current Events, Customer Service, Film, Media | 16 Comments »

    What, Exactly, Is CNN?

    Posted by David Foster on 16th October 2019 (All posts by )

    …and what are NBC and ABC?

    When referencing these networks…for example, when talking about CNN’s increasingly-extreme political bias, ABC’s running of a video supposedly from Syria which was actually from Kentucky, or the reports about widespread abuse of women at  NBC, people tend to simply refer to them as “CNN”, “ABC”, or “NBC”, as if they were independent entities.  But they’re not.

    CNN is owned by AT&T.  NBC is owned by Comcast, and ABC is owned by Disney.

    The history is that CNN was part of Turner Broadcasting, which merged with Time-Warner in 1996.  Following a whole host of acquisition and divestiture transactions (which included a very expensive experience with AOL), Warner Media was acquired by AT&T in 2018.  NBC was acquired by GE in 1986 as part of its reacquisition of RCA; the networks was put into a joint venture with Comcast in 2009, and the GE share of the venture was bought out by Comcast in 2013. Disney acquired ABC in 1996 as part of its acquisition of Capital Cities/ABC Inc.

    Given how these entities have been shuffled around, it may be understandable that people refer to them simply by the names of the networks; still, I think the proper way to refer to CNN would be “CNN, a subsidiary of telecommunications giant AT&T” and similarly for the others.

    Posted in Business, Media, Miscellaneous, Tech | 15 Comments »

    So, Really Want to Talk About Foreign Intervention? (updated)

    Posted by David Foster on 7th October 2019 (All posts by )

    Much ink and many photons have been spent discussing Russia’s attempts to influence (or at least disrupt) the American 2016 Presidential campaign.  Meanwhile…

    Daryl Morey, general manager of the Houston Rockets, sent out a tweet which said “Fight for Freedom, Stand with Hong Kong.”  Tencent, the NBA’s exclusive digital partner in China, reacted by suspending business relations with the Rockets, and is offering fans who purchased a year-long pass to watch Rockets games the chance to switch it to a different team. A number of other Chinese companies have pulled sponsorship deals with the Rockets as well.  Morey issued an apology which said in part ” was merely voicing one thought, based on one interpretation, of one complicated event. I have had a lot of opportunity since that tweet to hear and consider other perspectives.”

    And from last year:  here’s an appalling story about how anger from the Chinese government led Marriott Corporation to fire an employee who had ‘liked’ a tweet which congratulated the company for listing Tibet as a country, along with Hong Kong and Taiwan….of course, the Chinese regime considers Tibet to be a part of China, not a separate country.

    China forced Marriott to suspend all online booking for a week at its nearly 300 Chinese hotels. A Chinese leader also demanded the company publicly apologize and “seriously deal with the people responsible,” the Journal reported.

    And boy, did Marriott ever apologize. Craig Smith, president of the hotel chain’s Asian division, told the China Daily that Marriott had committed two significant mistakes — presumably the survey listing Tibet and the liked tweet — that “appeared to undermine Marriott’s long-held respect for China’s sovereignty and territorial integrity.”

    He announced an “eight-point rectification plan” that included education for hotel employees across the globe and stricter supervision.

    And the Marriott executive said this to China’s most-read English-language newspaper: “This is a huge mistake, probably one of the biggest in my career.”

    (More here…according to this article, the Chinese suppression of Marriott bookings was in response to the initial listing of Tibet as a country rather than to the tweet approving of this listing)

    The Chinese economy is, shall we say, a little more dynamic than that of Russia, so the government of China has much more ability to strong-arm American corporations (in general) than does the Putin regime.

    Turning now from the hotel industry to the movie industry, Richard Gere says that Chinese pressure due to his stand on Tibetan independence has led to his being dropped from big Hollywood movies.  Also:

    Gere’s activities have not just made Hollywood apparently reluctant to cast him in big films, he says they once resulted in him being banished from an independently financed, non-studio film which was not even intended for a Chinese release.

    “There was something I was going to do with a Chinese director, and two weeks before we were going to shoot, he called saying, ‘Sorry, I can’t do it,’” Gere recalled. “We had a secret phone call on a protected line. If I had worked with this director, he, his family would never have been allowed to leave the country ever again, and he would never work.”

    See also How China’s Censors Influence Hollywood.  Because the Chinese market is so large…(Fast and Furious 7 pulled in $388 million in China, more than it made in the US)…the influence of the Chinese regime on US film production and distribution has become immense.

    In recent years, foreign filmmakers have also gone out of their way not to provoke the Communist Party. For instance, the 2012 remake of the Cold War action movie, Red Dawn, originally featured Chinese soldiers invading an American town. After filming was complete, though, the moviemakers went back and turned the attacking army into North Koreans, which seemed a safer target, at least until last year’s hack of Sony Pictures.

    and

    Ying Zhu, a professor of media culture at the College of Staten Island at the City University of New York, worries China’s growing market power is giving the Communist Party too much leverage over Hollywood.

    “The Chinese censors can act as world film police on how China can be depicted, how China’s government can be depicted, in Hollywood films,” she says. “Therefore, films critical of the Chinese government will be absolutely taboo.”

    In the late 1990s, when China’s box office was still small, Hollywood did make movies that angered the Communist Party, such as Seven Years In Tibet, about the life of the Dalai Lama, and Red Corner, a Richard Gere thriller that criticized China’s legal system. Given the importance of the China market now, Zhu says those movies wouldn’t get financing today.

    Plus, Chinese companies have snapped up Hollywood studios, theaters and production companies.

    Read the rest of this entry »

    Posted in Academia, Business, China, Civil Liberties, Civil Society, Environment, Film, Media, Science, Tech, USA | 28 Comments »

    Labor Day Rerun: Attack of the Job-Killing Robots

    Posted by David Foster on 2nd September 2019 (All posts by )

    (This is a 3-part series, link to next post is at the end)

    Here’s a new factory for making automobile frames, specifically designed to minimize the need for human labor.  The CEO of the company that built it actually said, “We set out to build automobile frames without people.”

    At the start of the process, rough steel plates are inspected by electronic sensors, automatically pushing aside any that deviate from tolerances.  Conveyors take the plates through punching, pressing, assembling, and nailing machines, as well as a machine that can insert 60 rivets simultaneously in each frame.  A set of finishing machines then rinse, dry, spray-paint, and cool the frames.  Aside from a few men moving frames between conveyor belts, the floor routine of the plant requires almost no hand labor.

    And today’s robotics and artificial-intelligence advances go far beyond automating routine manufacturing labor and take over the kind of cognitive functions once thought to be exclusive to human beings. Here, for example, is a new AI-based system that displaces much of the thought-work which has been required of the people operating railway switch and signal installations:

    The NX control machine is in effect the “brain” of the system. It automatically selects the best optional route if the preferred route is occupied.  It will allow no conflicting routes to be set up. It eliminates individual lever control of each switch and signal.

    Pretty scary from the standpoint of maintaining anything like full employment, don’t you think?

    Read the rest of this entry »

    Posted in Book Notes, Business, Economics & Finance, Tech | 24 Comments »

    Summer Rerun — Book Review: Life in a Soviet Factory

    Posted by David Foster on 3rd August 2019 (All posts by )

    Bitter Waters: Life And Work In Stalin’s Russia by Gennady Andreev-Khomiakov

    A fascinating look at the Soviet economic system in the 1930s, as viewed from the front lines of that system.

    Gennady Andreev-Khomiakov was released from a labor camp in 1935, and was fortunate to find a job as a book-keeper in a sawmill. When the factory manager, Grigory Neposedov (a pseudonym) was assigned to run a larger and more modern factory (also a sawmill), he took Gennady with him.

    Although he had almost no formal education, Neposedov was an excellent plant manager. As Gennady describes him:

    He was unable to move quietly. Skinny and short, he moved around the plant so quickly that he seemed to be running, not walking. Keeping pace with the director, the fat chief mechanic would be steeped in perspiration…He rarely sat in his office, and if he needed to sign some paper or other, you had to look for him in the mechanic’s office, in the shops, or in the basement under the shops, where the transmission belts and motors that powered the work stations were located…This enthusiasm of his, this ability to lose himself completely in a genuine creative exertion, to give his all selflessly, was contagious. It was impossible to be around Neposedov without being infected by his energy; he roused everyone, set them on fire. And if he did not succeed in shaking someone up, it could unmistakely be said that such a person was dead or a complete blob.

    With his enthusiasm and dedication to his factory, Neposedov comes across almost as a Soviet version of Hank Reardon (the steel mill owner in Ayn Rand’s Atlas Shrugged), with this difference–Nepodesov could throw himself as enthusiastically into bureaucratic manipulation as into his technical and leadership work. All of his skills would be needed to make this factory a success.

    Although the sawmill had modern equipment, it was producing at only a fraction of its design capacity. One of the problems was energy: the plant was powered by a 200HP steam engine, and whoever had built the place had spent almost all of the budget on other equipment, leaving very little for the boiler. The original boiler that came with the plant turned out to be useless, and was replaced with a salvaged boiler..this worked, but was not in good shape and produced only about half the steam needed to run the engine–and the plant–at full power.

    At this point in history, and in this particular corner of the Soviet economy, the amount that was available to be paid to workers was strongly related to the output of a plant. And workers at this sawmill were becoming increasingly desperate, on the point of actual starvation. Neposedov, aided by Gennady, pusued a three-part program of improvement: (1)fix the boiler, (2)improve the workflow (as we would now call it) within the plant, and (3)put in place an incentive system for the workers.

    New “pipes” for the boiler were somehow obtained (I think “pipes” in this context refers to boiler flues) and the workflow was continuously analyzed and improved. The most interesting part of the story, though, deals with the incentive program. The plant manager apparently had discretion to put such programs in place as long as he could pay for them out of increased output. (As the book describes it, there were extensive accounting systems in place throughout the Soviet economy–indeed, Lenin had once gone so far as to say “Socialism is accounting.” The accounting seems a bit similar to what you would find in a multidivisional American company with extensive intracompany transactions.) The incentive system that Gennady designed for this sawmill was based on very sharp pay increases for the workers when production exceeded target–so that, for example, you could double your pay by producing only 25% over target. (Actually, the plan paid collectively by group and by shift, rather than on an individual basis.)

    The incentive plan, together with the repaired steam boiler, resulted in very high production–140%, then 160% of target–and correspondingly high pay for the workers. Gennady had some nervous moments when he feared he had made a mistake in the calculations and the cost of the additional wages would exceed the amount generated by the new production….a mistake like this could easily have landed him back in Siberia, or worse. But it turned out that the new system was indeed sustainable.

    The local Communist Party leadership, while pleased with the increased production, was disturbed that the propaganda buzzwords of the day were not being implemented. “Socialist competition” was hot at the time, and the Party organizer insisted on competition at the individual worker levels, not just the group and shift level.

    Read the rest of this entry »

    Posted in Big Government, Book Notes, Business, Economics & Finance, Leftism, Management, Russia | 4 Comments »

    Well, That’s Interesting

    Posted by David Foster on 25th July 2019 (All posts by )

    Tulsi Gabbard is suing Google for $50MM and also seeking injunctive relief.

    Link

    The article at the link includes the complaint.

    Posted in Advertising, Business, Civil Liberties, Tech | 21 Comments »

    Re-Privatizing Fannie and Freddie: It’s Déjà Vu All Over Again

    Posted by Kevin Villani on 19th July 2019 (All posts by )

    Privatization reform of Fannie Mae and Freddie Mac, a hot topic on and off since their founding eight and five decades ago respectively, is heating up once again after more than a decade of temporary conservatorship. All past reform efforts have failed. What should we have learned?

    • Private markets operate on one set of incentives and accountability, government on an entirely different set. Each has its problems and imperfect solutions.
    • Private markets may inappropriately discriminate against qualified borrowers, for example, whereas public programs may fail to adequately discriminate.
    • Public enterprises created to jump-start or complement private markets often miss the mark, with unintended consequences.
    • Politicians much prefer to deliver subsidies through taxes (in this case tax exempt debt substituting for taxable equity) rather than expenditures – especially since the Budget Control Act of 1974 – and implicit off-budget credit guarantees that delay the reckoning.
    • In spite of good intentions and design to get the best of both, privatized hybrid public-private systems inevitably embody the worst: public risk for private profit. Lacking both market and public discipline, they cause systemic failure that “nobody could have seen coming.”
    • Political reform reflexively blames private market failure, doubling down on unaccountable and ineffective bureaucratic methods while providing opaque bailouts through greater tax and credit subsidies.
    • Political reform starts with what is, not what should be, repeating the cycle.

    U.S. secondary markets evolved entirely in response to anachronistic political forces. FHA was created in 1936 to stimulate new construction jobs subsequent to a huge housing construction boom. Fannie Mae was created two years later to prop up flagging demand for FHA mortgages. Ginnie Mae was created in 1968 to liquidate Fannie Mae after prior privatization attempts failed to reduce official government debt, but the residual $1 billion secondary market facility with minimal shares outstanding as a result of a mandatory user purchase program was instead privatized. When that entity turned down tax exempt pass-through securitization to circumvent the myriad laws and regulations preventing the development of a national securities market, Ginnie Mae stepped in. Rather than liquidate, the privatized Fannie turned to funding conventional mortgages for their mortgage banker clients. To protect their turf, portfolio lending savings and loans then demanded their own secondary market facility, Freddie Mac. It later privatized mainly to provide management incentives comparable to Fannie, particularly stock options.

    They then morphed into massive public directed credit institutions, with profits from government subsidies privatized but otherwise lacking the benefits of market efficiency and discipline. About half of F&F subsidies were captured by shareholders, managers and politicians (my estimates), an invitation to affordable housing proponents to share in this booty. Several 2018 Democratic presidential candidates have proposed upping these goals.

    U.S. mortgage markets were characterized by cut-throat competition decades before the advent of government sponsored enterprises (GSEs): the indiscriminant lending and private market securitization during the sub-prime lending bubble of 2004 to 2007 suggests that is still the case.

    What the private market can’t deliver are the tax and credit subsidies – worth tens of billions annually – that result from federal backing to support fixed rate mortgage interest rate and affordable housing credit risks. Any re-privatized hybrid system that promises to mimic the market, e.g., by requiring that it actuarially price a government credit guarantee as the market oriented Milken Institute and others recommend and to impose market capital requirements and risk regulations directly conflicts with these goals and is doomed to failure. Regulatory restrictions will remain malleable because politics has and will continue to trump bureaucracy. Nor will the market discipline this regulated too-big-to-fail public mission duopoly, having correctly inferred an implicit guarantee in the past for the GSEs, disclosures, regulations and legislation notwithstanding.

    There is a better “public/private” policy option to deliver these subsidies. Long term fixed rate FHA insured mortgage loans have since 1970 been funded almost exclusively with Ginnie Mae securities. Investors take the interest rate risk, HUD takes the credit risks and all ancillary functions are delegated to a competitive private marketplace. FHA, a government sponsored mutual insurance fund with de facto public backing since incorporated into and regulated by HUD insures each mortgage. The un-capitalized Ginnie Mae de jure security guarantee covers only timeliness of FHA payments, but de facto acts as a guarantor of FHA mortgage securities.

    While FHA has failed actuarially – in part due to overly ambitious political goals and its focus on borrowers who may not have qualified for a conventional loan – bailouts have been opaque with minimal or no budget transfers, investor losses or market disruption. It survived the sub-prime lending debacle relatively unscathed. This system hasn’t failed systemically because it separates the private and public functions into different entities, minimizing public risk for private profit incentive conflicts.

    A federal guarantor for conventional mortgage securities modeled after Ginnie Mae (something Ginnie Mae proposed in the late 1970s but I opposed on grounds that it would displace the private savings and loan system of the time) should replace F&F, with the existing infrastructure auctioned to the highest bidder .

    Properly designed, a federal guarantor wouldn’t experience any loss except in catastrophic circumstances. The original Fannie Mae and particularly Freddie Mac secondary market system that left credit risk primarily with multiple state regulated private mortgage insurer’s (pmi’s), experienced negligible credit losses until the market collapse of 2008, after which F&F credit losses of about $300 billion were ten times total pmi industry losses, due to loss severity far exceeding insurance limits. A federal guarantor should be limited to pools of fixed rate mortgages with deeper pmi coverage to reduce exposure, and ideally partially re-insured with private mortgage pool insurers to further capitalize and diversify risk.

    The tax and credit subsidies all go to uniformly lower rates. Deeper affordability subsidies in pursuit of federal home ownership affordability goals were previously provided by HUD’s Section 235 homeowner program targeted to individual FHA mortgage borrower needs, the right approach for achieving this goal. But after years of default losses, Congress shut it down in 1989 rather than increase the budget to reflect the true cost. Following the law of unintended consequences, the affordable housing goals were then dramatically expanded in the Federal Housing Enterprises Regulatory Reform Act of 1992, a precursor to their subsequent failure.

    The debate over the desirability and magnitude of homeownership subsidies remains unresolved. This proposal shifts it to the political arena.

    Kevin Villani

    —-

    Kevin Villani, chief economist of HUD during the Carter and Reagan Administrations and Freddie Mac from 1982 to 1985, is the author of Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

    Posted in Big Government, Business, Economics & Finance, Politics, Public Finance | 3 Comments »

    The First Trip to the Moon, as Envisaged by Robert Heinlein

    Posted by David Foster on 19th July 2019 (All posts by )

    … in his 1950 story, The Man Who Sold the Moon.  Given the upcoming anniversary of the actual first moon landing, I thought it would be fun to go back and take a look at this fictional version of the first trip.

    In Heinlein’s story, the first manned lunar landing is not government-driven. Rather, it is the achievement of entrepreneur/industrialist Delos D Harriman, known to his friends and associates as ‘D.D.”  Having long dreamed of going to the moon, he finally decides that the time is right.

    Harriman-known as “our bad boy” to his fellow Directors of the power cartel–finds his colleagues reluctant to invest in a venture whose costs are so high and whose returns are uncertain.  Even his long-time partner, George Strong, fails to see either financial return or emotional appeal in the effort:

    George, isn’t there anything in your soul but discounts and dividends? Didn’t you ever sit with a girl on a soft summer night and stare up at the Moon and wonder what was there?

    Yeah, I did once.  I caught a cold.

    Nevertheless, Strong supports the project out of loyalty, and some tycoons support it because supersalesman Harriman is able to convince them that there is money for them in the project–or loss, if they decline to participate.  Much of the story is devoted to Harriman’s strategies for fund-raising, some of which skirt–or go over–the lines of legality and ethics. He implies to the Moka-Coka company, for example, that another soft drink maker plans to turn the Moon into a massive billboard (using a rocket to scatter black dust on the surface in patterns), and suggests that the public-spirited Moka company might like to invest in the project to preclude such use of the moon by their rival.

    As an old real-estate operator, Harriman is very focused on the question:  who owns the moon?…he argues that the question is indeed meaningful, based on real-estate doctrine that a property owner owns a wedge going down to the center of the earth and extending up to infinity. He doesn’t want lunar ownership vested in any country, even the US, because he thinks it would result in world war (given the moon’s value as a rocket-bomb base), and he does want it vested in his operation, for reasons of profitability as well as protection from bad uses.  His legal maneuvering, involving the UN as well as all countries over which the path of the moon passes–and a mix of non-profit, for-profit, and anonymous corporations–is intricately described.

    For the technology of the moon trip, Harriman had hoped to use a nuclear fuel which has been applied to power generation, but it proves too unstable for use in a rocket–so well-known chemical rocket technology must be employed instead (rockets are commonly used for long-distance transportation in the era where this story is set).  On the advice of Harriman’s chief engineer, Andrew Ferguson, the most technically-qualified man in rocketry, Bob Coster, is hired to run the project…but he evidently lacks sufficient management experience and is soon overwhelmed.  Harriman tries to help him out:

    “Top administration ain’t engineering, and maybe I can show you a few tricks there, if you’ll let me….Top bossing is like sex; until you’ve had it, you don’t know about it.”  Harriman had the mental reservation that if the boy would not take advice, he would suddenly be out of a job, whether Ferguson liked it or not.

    Although the story does deal with the technical aspects of the moon trip, that is not its primary focus…it is really a “business romance”, as Colby Cosh called it. “The Man Who Sold The Moon” emphasizes the financial difficulties, deals, the marketing, and the interpersonal stresses involved in the project–even Harriman’s wife is strongly opposed to his pursuit of his dream.   There are endless angles for the raising of money developed by Harriman and his friends, even soliciting contributions from children.

    The “man who sold the moon” tag becomes literal when, inspired by stories of the Florida land boom–“sometimes a parcel would change hands a dozen time before anyone got around to finding out that the stuff was ten-foot deep in water”–Harriman suggests selling lots on the moon itself:

    “We can offer bargains better than that–an acre, a guaranteed dry acre, for maybe ten dollars–or a thousand acres at a dollar an acre.  Who’s going to turn down a bargain like that?  Particularly after the rumor gets around that the Moon is believed to be loaded with uranium?”

    “Is it?”

    “How should I know?  When the boom sags a little we will announce the selected location of Luna City–and it will just happen to work out that the land around the site is still available for sale.  Don’t worry, Saul, if it’s real estate, George and I can sell it.  Why, down in the Ozarks, wheter the land stands on edge, we used to sell both sides of the same acre.”

    Comparisons between Harriman and Elon Musk come readily to mind–see the Colby Cosh article–though I don’t think Musk has been credibly accused of anything as far over the line as several of Harriman’s maneuvers.  It has also been suggested that Harriman’s name, and some aspects of his character, are owed to the railroad builder Edward Henry Harriman.

    I don’t think the date of the first lunar landing is mentioned in the story itself, but it has been placed–based on Heinlein’s future history timeline and on other stories–in 1978.  So real life beat out science fiction, at least from a date standpoint, by nine years.

    Could it have really happened that way–the first moon trip not via a gigantic government/corporate program piggybacking off of military missile technology, but rather by a private/corporate venture?  Given the vast amounts of money spent on the Apollo program and its predecessors–certainly much more than the fictional Harriman and his tycoon friends could have raised–it may seem impossible.  But would it really have been?

    Posted in Book Notes, Business, Capitalism, Civil Society, Space, Tech, USA | 30 Comments »

    Heat and the Movies

    Posted by David Foster on 5th July 2019 (All posts by )

    Hot weather encourages feelings of gratitude for the existence of air conditioning, the primary inventor of which (at least as far as a practical system goes) was Willis Carrier.  His original motivation was not the improvement of human comfort, but rather solving air quality problems affecting the operations of a printing company.  But A/C was quickly applied to the dehumidification and cooling of human was well as industrial environments.

    Initially, systems were large and expensive and hence better-fitted to businesses and other environments serving a lot of people than to individual homes.  One of the first industries that adopted air conditioning was the motion-picture theater industry, starting with an installation at Sid Grauman’s Metropolitan Theater in 1922.

    It makes sense to believe, and seems to be generally accepted, that the introduction of A/C had much to do with the great success of the movie industry…if the theater was one of the few places in town where you could be cool, then it would be nice to have enough new movies constantly coming out to justify going the the theater as often as possible.

    The same phenomenon applied with department stores…starting with a Hudson’s in Detroit in 1926…though I would think A/C was not quite as impactful in that case as in the case of the movies.

    BUT, with the introduction and constant improvement of home air conditioners, the process would have likely gone into reverse: if you can be cool at home, there is less incentive to “go to the movies” unless there is something showing that you really want to see. Similarly with retail..although until the introduction of the consumer Internet, you still needed to go to a store for most things.

    It is pretty common that a technology that helps a particular industry at one point will, later and with further development of that industry, harm that industry.  Another example is the newspaper industry:  one of the great enablers of the growth of the newspaper industry was the telegraph (along with the high-speed printing press and the Linotype machine.)  But as digital communications (of which the telegraph was an early example) developed into data networks and ultimately the Internet, the ability to conveniently extend the information flow into the home was devastatingly harmful to that industry.

    Returning to the air conditioner, another impact of this technology has been geographical: making areas that were previously not-so-desirable for reasons of climate much more generally inhabitable…as in the cases of the US south and southwest.

    A/C is a significant consumer of energy in the form of electricity, and as it is more widely adopted in places such India, it will have a major impact on electricity consumption in those countries.

    Thoughts?  Other industry examples?

    Posted in Business, Energy & Power Generation, History, Human Behavior, Internet, Tech | 35 Comments »

    The Compleat Spy Requires AI

    Posted by David Foster on 18th June 2019 (All posts by )

    China’s intelligence services appear to be using LinkedIn, with profile pictures generated artificially, for the recruitment of agents.

    Chinese intrusion into US affairs has not generally gotten anywhere near the attention that Russian intrusion…real, attempted, or imagined…has gotten, but it needs more visibility.  See my related post So, Really Want to Talk About Foreign Intervention?

    Posted in Business, China, Internet, Russia, Tech | 3 Comments »

    Adventures in the Indy Author Trade

    Posted by Sgt. Mom on 11th June 2019 (All posts by )

    The Daughter Unit and I spent most of Saturday morning in the lovely little town of Wimberley, Texas. Wimberley is situated on a particularly scenic stretch of the Blanco River, in the hills to the west of San Marcos. It’s closer to Austin than to San Antonio and seems to have become even more of a weekend tourist draw, since we first visited it in the late 1990ies. Then there were just a handful of little shops catering to tourists, and one restaurant with had memorable hamburgers and an outside deck which overlooked the riverbank, all grown with cypress trees, great and green. There were a fair number of hippie artisan types; potters, glass-blowers, metal-fabricators and the like, plus the usual number of antique shops, which tended more towards the ‘quaint old country junk’ side of the scale. On the first Saturday of the month, Wimberley stages a mammoth open-air market – something we’ve been to a number of times. It’s supposed to be the oldest and biggest one in Texas.
    Read the rest of this entry »

    Posted in Arts & Letters, Book Notes, Business, Miscellaneous, Texas | 4 Comments »

    Manufacturing in the USA

    Posted by David Foster on 9th June 2019 (All posts by )

    A website devoted to that topic:  Reshoring Manufacturing

    Posted in Business, International Affairs, Management, USA | 13 Comments »

    Dissolving the Audience

    Posted by Sgt. Mom on 31st May 2019 (All posts by )

    So, I’ve been following, in a desultory fashion, the kerfuffle over various movie projects suddenly discovering that filming in a state where the local voters and their legislature prefer putting limits on the availability of abortion is … OMG! The Handmaids’ Tale is upon us! Flee, Flee for your lives, those TV series and movies choosing to shoot in lower-cost states than California (where about every scenic local has been seen in the background many a time. It was, once a upon a time, my private amusement, in spotting familiar locations in and around Los Angeles appearing in popular TV series.) Geeze, it’s almost as if among the Hollywood glitterati the need for abortion services occurs at least once a month and twice on Sundays. Given the various reports of disgusting rapey-sexual conduct among producers and directors (mostly male) perpetuated upon (mostly but not exclusively) female performers, perhaps on-command abortion services might be required at that. Funny old thing that – these are the same producers and organizations who have no problem filming in foreign countries with even stricter limits on abortion. Read the rest of this entry »

    Posted in Arts & Letters, Business, Civil Society, Conservatism, Current Events, Film, Leftism, Media | 18 Comments »

    Telemigration

    Posted by David Foster on 26th May 2019 (All posts by )

    It has often been asserted that the US doesn’t need to worry overmuch about our position in Manufacturing, because Services are the future and that is where we will have the most competitive advantage.  And, indeed, the balance of trade in services is more favorable than that in the goods-producing industries: for 2018, exports of services totaled $821 billion, whereas imports of services were only $557 billion.

    However, while imports of services are today small compared with imports of goods, which for 2018 were almost $2.7 trillion, it would be a mistake to conclude that services businesses and services jobs are immune to offshoring.  Indeed, for many types of services, offshoring/exporting is easier than the offshoring/importing of goods:  there are no transportation issues, and, in the case of imports to the US, there are no tariffs at all.

    Telemigration…the term was introduced by Richard Baldwin in his book The Globotics Upheaval…is the ability to have remote workers doing things that previously would have required their physical presence.  Obviously, the ability to do this has been greatly enhanced by the availability of the Internet and other forms of high-bandwidth low-cost communications.  Today, medical images and legal documents are being reviewed in low-cost-of-labor countries.  Software is being developed for American companies in countries around the world.  Offshoring of clerical operations has been practiced by US firms for a couple of decades, and, of course, the offshoring of customer service is common.

    Baldwin also argues that telemigration will be greatly enhanced by the availability of machine translation technology, especially Google Translate.  I think he may be overstating the case here–from what I’ve seen, the quality of GT translations is highly variable.  Not sure how well this approach would work in facilitating the interaction that is often required among team members to create something or solve a problem, and I am sure I wouldn’t want to trust it exclusively for something like, say, translating the functional specifications for a life-critical avionics system to be programmed by non-English speakers.

    But there are a lot of English-speakers in the world, and a lot of activities in which fluency in a common language is not essential.

    One area in which a lot of telemigration seems to be occurring is in software development and maintenance.  Here for example, is a company which acquires application software companies and offshores much of the ongoing work (which presumably includes incremental product enhancements as well as problem-fixing) to contract programmers: company’s chief recruiter asserts that the current cloud wage for a C++ programmer is $15 an hour. As the Forbes article notes, that’s what Amazon pays its warehouse workers.  (Well, at least in the US–and $15/hour for a programmer in, say, India is surely worth a lot more than $15/hour in this country.)  What makes this story particularly interesting is that the founder/CEO of the company was noted, in his earlier incarnation in a different software business, for paying software people very well indeed and going to great lengths to recruit them.

    Read the rest of this entry »

    Posted in Aviation, Business, Deep Thoughts, Immigration, International Affairs, Internet, Tech, Transportation, USA | 36 Comments »

    Our ‘Xanatos Gambit’ President’s Energy Export Strategy Tree

    Posted by Trent Telenko on 5th May 2019 (All posts by )

    In my last post — President Trump’s ‘Xanatos Gambit’ Trade Policy — I spoke to how President Trump has set up his political strategy on trade policy to make any outcome on the USMCA Trade agreement that he negotiated to replace the NAFTA agreement would be to his advantage over House Democrats and the “purchased by the multi-national corporation China Lobby” GOP Senators.  In this post I am going to lay out President Trump’s “Global  Energy Dominance” export policy’s “Xanatos Gambit” strategy tree vis-à-vis the 2020 presidential elections.

    To start with, I’m going to refer you back to this passage from my last post on how the Trump Administration is “gaming” economic growth measurements:

    This is where Pres. Trump’s ‘Xanatos Gambit’ strategy tree kicks in via a macroeconomic and trade policy manipulation of the very simple economic equation of gross domestic product:

    GDP = US ECONOMIC ACTIVITY + EXPORTS + FOREIGN INVESTMENT – IMPORTS – EXTERNAL INVESTMENT

    The American economy just grew 3.2% in the 1st quarter of 2019.  It would have grown another 0.3% but for the 30-odd day federal government shut down.  The “markets” were expecting 2.5% GDP growth.  The huge half-percent GDP “miss” boiled down to:

    1. The USA exported more.

    2. The USA imported less and

    3. There was more external foreign investment than expected.

    All three were the result of a combination of Trump administration policies on oil/LNG fracking, tax & regulatory cuts and trade/tariffs.

    The Trump Administration upon coming into office in January 2017 had a huge windfall of energy projects that the Obama Administration had held up approval of in the Federal Energy Regulatory Commission.   This windfall neither began nor ended with the  Keystone XL oil pipeline There was a whole cornucopia of oil and natural gas energy infrastructure projects that Democratic Party interests, only some of them environmental, that the Obama Administration was using the FERC to sit on for a whole lot of reasons that I refer to as “The Economic Cold Civil War.

    While the media was spending a great deal of time talking about things like the Congressional votes to open the Arctic Wildlife Refuge in the early days of the Trump Administration’s energy policy implementation.  President Trump spent a great deal of his early political capital on getting his earliest political appointments through the Senate to the FERC to get those projects turned loose as a part of President Trump’s “Global  Energy Dominance” export policy.  The first fruit of this export infrastructure energy policy focus started paying off with the  Louisiana Offshore Oil Port (LOOP) coming on-line in 2018.  See this Apr 16, 2019 article by Julianne Geiger at Oilprice.com:

    U.S. Doubles Oil Exports In 2018

    The United States nearly doubled its oil exports in 2018, the Energy Information Administration reporting on Monday, from 1.2 million barrels per day in 2017.

    The 2.0 million barrels of oil per day exported in 2018 was in line with increased oil production, which averaged 10.9 million barrels per day last year, and was made possible by changes to the Louisiana Offshore Oil Port (LOOP) which allowed it to load VLCCs (Trent Note: Very Large Crude Carriers) .

    The changes to LOOP and to the sheer volume of exports were not the only changes for the US crude oil industry. The destination of this oil shifted in 2018 as well, and even shifted within the year as the trade row between China and the United States took hold.

    Overall, Canada remained the largest buyer of US oil in 2018, at 19% of all oil exports, according to EIA data. During the first half of 2018, the largest buyer of US crude oil was China, averaging 376,000 barrels per day. Due to the trade row, however, US oil exports to China fell to an average of just 83,000 barrels per day in the second half, after seeing zero exports to China in the months of August, September, and October.**

    [**Please note above the nice thing about energy exports is how futile a energy user embargo is against it.  China’s economic embargo of US crude products only hurt itself.]

    The impact of the Trump Administration’s energy export policies from those early days of his administration in terms of liquefied natural gas (LNG) export facilities are now impacting the American economy. A large part of the extra 0.7% GDP growth achieved over the 2.5% Wall Street forecasts in the first quarter of 2019 came from the Corpus Christ 1 and Sabine 5 LNG export facilities coming on-line in late 2018 and making their first full export capacity quarter in Jan – Mar 2019.  The Cameroon 1 and Elba Island 1-6 LNG export facilities were also scheduled to come on-line in Late Feb-Early March 2019, and were very likely large contributors to LNG export surge.

    This is how CNBC described 2019’s 1st quarter:

    Robust demand for Texas oil and gas in the first two months of 2019 pushed the state’s export activity into high gear, strongly outpacing the national rate and contrasting with a slight decline by California.

    Texas represented nearly 20% of all U.S. exports in the January-February period while California accounted for roughly an 11% share.

    California has seen its share of total U.S. exports fall in recent years while Texas has been growing its share due mainly to the new oil boom.

    And this is only the beginning for the US economy in 2019. See the following text and LNG export facility graphic from a Dec 10, 2018 report by the US Federal government’s Energy Information Administration:

    U.S. liquefied natural gas export capacity to more than double by the end of 2019

    U.S. LNG exports continue to increase with the growing export capacity. EIA’s latest Short-Term Energy Outlook forecasts U.S. LNG exports to average 2.9 Bcf/d in 2018 and 5.2 Bcf/d in 2019 as the new liquefaction trains are gradually commissioned and ramp up LNG production to operate at full capacity. The latest information on the status of U.S. liquefaction facilities, including expected online dates and capacities, is available in EIA’s database of U.S. LNG export facilities.

    EIA projection of Liquefied Natural Gas Export Capacity from 2016 - 2021. Date of projection Dec 2018

    EIA projection of U.S. Liquefied Natural Gas Export Capacity from 2016 – 2021. Date of projection, Dec 2018.

    Given the above information, barring a war or serious election year intervention to kill the economy by the Federal Reserve, the cascade of LNG export infrastructure coming on-line in the 2nd and 4th quarters of 2019  will mean something on the order of a full percentage increase in GDP growth (in a range of 4.0% to 4.5%) in Jan – Mar 2020 over Jan – Mar 2019.  That is what going from 3.6 billion cubic feet per day (Bcf/d) of natural gas export capacity to to 8.9  Bcf/d in Dec 2019 does for you.

    This extra 1% GDP will be happening just in time for the Iowa caucuses and New Hampshire primary.

    Read the rest of this entry »

    Posted in America 3.0, Big Government, Business, Capitalism, Culture, Current Events, Economics & Finance, Energy & Power Generation, Immigration, Markets and Trading, Miscellaneous, Politics, Predictions, Taxes | 34 Comments »

    President Trump’s ‘Xanatos Gambit’ Trade Policy

    Posted by Trent Telenko on 27th April 2019 (All posts by )

    I’ve written previously in my column “President Trump’s ‘Xanatos Gambit’ Government Shutdown” of President Trump’s tendency for building political strategy trees were every possible outcome is to his advantage. (See the “Xanatos Gambit” strategy tree example in the figure below)

     

    https://static.tvtropes.org/pmwiki/pub/images/XanatosGambitDiagram_7509.jpg

    This is a decision diagram example of a “Xanatos Gambit. Source: https://tvtropes.org/pmwiki/pmwiki.php/Main/XanatosGambit

    It very much looks like President Trump has done the same thing with the Democrats and “China lobby” GOP Senators with the post-NAFTA US-Canada-Mexico (USMCA AKA “You Smack-A”) trade agreement and the US economy.

    THE US ECONOMY, NAFTA & USMACA

    The key thing you need to understand regards NAFTA and American manufacturing is that NAFTA was geared to allow the “China lobby” of multinational corporations to use Canada and Mexico as an “international arbitrage opportunity” for Chinese slave labor wage manufactured goods to be assembled at Canadian and Mexican production facilities and avoid American tariffs.

    Multinational corporations exploiting this “international arbitrage opportunity” was “The Great Sucking Sound” that Ross Perot talked about which killed the US domestic refined metals industry and hollowed out middle class manufacturing jobs in the American economy.

    President Trump’s USMCA removes that “international arbitrage opportunity” via original 75% North American manufacturing content requirements for metals and intermediate manufacturing goods as well as a Mexican minimum wage rules on the order of $15 an hour for automotive parts assembly.

    In response the “China lobby” has been paying large campaign contributions to both House Democrats and “free trade” GOP Senators to try and keep NAFTA, as well running info-war spots everywhere in the corporate media and “movement conservative” publications/media outlets about the benefits of “free trade.”  This has resulted in public statements by Speaker Pelosi that the House does not intend to vote for USMCA.

    This is where Pres. Trump’s ‘Xanatos Gambit’ strategy tree kicks in via a macroeconomic and trade policy manipulation of the very simple economic equation of gross domestic product:

    GDP = US ECONOMIC ACTIVITY + EXPORTS + FOREIGN INVESTMENT – IMPORTS – EXTERNAL INVESTMENT

    The American economy just grew 3.2% in the 1st quarter of 2019.  It would have grown another 0.3% but for the 30-odd day federal government shut down.  The “markets” were expecting 2.5% GDP growth.  The huge half-percent GDP “miss” boiled down to:

    1. The USA exported more.

    2. The USA imported less and

    3. There was more external foreign investment than expected.

    All three were the result of a combination of Trump administration policies on oil/LNG fracking, tax & regulatory cuts and trade/tariffs.

    First point, the USA will be a net energy exporter — of oil, natural gas & coal combined — in 2020 if it isn’t one already.

    Some rough numbers:  In 2012 US oil production was ~8 million barrels a day, all for domestic consumption, and in 2019 it is 12.6 million with some exports.  Today’s US oil consumption is 20 million barrels a day.  That increase in oil production that has reduced imports of oil by a net of 4.6 million barrels a day has also been accompanied by the displacement of coal and oil in both electrical production and manufacturing by cheaper natural gas, thus freeing both the coal and oil not used to be exported. This combined economic change since 2012 alone is worth a 1% increase in GDP growth a year compared to 2012.

    Second, the Trump administration’s systematic and sustained attack on Obama era federal regulatory growth is reducing business compliance costs particularly in the energy sector for new infrastructure projects.  These are the “anti-green” actions the Democrats accuse the Trump administration of.

    Third, the Trump administration/GOP tax bill, in addition to increasing spending power for the middle class, has had a huge -YUGE- reduction in capital gains taxes and a one-time break in repatriating overseas capital holdings. This has made America a much more attractive place to hold and invest money.  Particularly for energy companies like Exxon, which are dropping this foreign capital inflow into the Permian basin for oil and natural gas fracking and energy export infrastructure from the Permian to the Gulf Coast.

    Finally, in terms of trade and tariffs, President Trump’s tariffs on Chinese steel and aluminum combined with the business implications of USMCA rules have made further investment in Canadian automotive plants a net loss position.  American metal content is now economically competitive for energy sector infrastructure and automobile parts such that US Steel among others are reopening US metal plants.

    Taken together every part of the GDP equation has been directly affected by the Trump administration macroeconomic policies to get that 3.2% GDP number.

    This is where the Xanatos Gambit for USMCA arrives.

    Things will be worse for the China lobby without a vote on USMCA than with one.

    Short form:

    NAFTA is dead regardless of any action or inaction by the House.  All the House and Senate can do is not vote on USMCA.  The legislative branch cannot revive a NAFTA trade agreement the federal executive has withdrawn from.

    This means without a signed USMCA trade deal Pres.Trump can — and will — lay on even more tariffs on the multinational corporations playing price arbitrage in Mexico and Canada between Chinese and American manufacturing.

    While such trade sanctions can reduce the American economy like a tax increase, when we are likely at close to 4% economic growth in late 2019 to early 2020 from the accumulated investment in energy projects bringing defacto energy independence, a 3.5% economic growth rate with tariffs is still pretty good.

    And when the House refuses to vote in USMCA, NAFTA still dies.

    Pres. Trump can and will lay on new massive new anti-Chinese tariffs on Canadian and Mexican front companies for China without USMCA rules.  This will be massively popular in the Midwest in an election year and will hurt the income streams of the multi-nationals supporting the Pelosi Dems and McConnell RINOs.

    From Trump’s point of view, What’s not to like about America’s manufacturing base employing the Midwestern white working class growing while the “international arbitrage opportunity” of China’s slave labor economy contracts?

     

    Posted in America 3.0, Big Government, Business, Capitalism, Civil Society, Economics & Finance, Elections, Energy & Power Generation, Entrepreneurship, Environment | 28 Comments »

    A Truly Courageous Business Decision

    Posted by David Foster on 7th April 2019 (All posts by )

    Today marks the 55th anniversary of IBM’s announcement of the System/360 line…which made obsolete virtually all of its then-existing products.  The 360 line established a common architecture for machines of widely-differing price and performance characteristics, with the individual product implementations of this architecture differing considerably.  The goal was compatibility, so that customers could upgrade without extensive rewriting of programs.  Consolidating IBM’s diverse computer systems into this single system architecture was a bold decision; truly, a bet-the-company decision: in the end, it paid off, with devastating consequences for the ‘Seven Dwarfs’ who were IBM’s competitors at the time…but the implementation was frighteningly stressful.  A good article on the project recently appeared in IEEE Spectrum.

    Tom Watson Jr, who ran IBM during this time period, discusses the 360 project extensively in his superb memoir, Father, Son, and Co.  I reviewed it here–highly recommended.

    Posted in Book Notes, Business, Management, Tech | 21 Comments »

    The Internet Rewards Crazy (Rerun)

    Posted by Jonathan on 25th March 2019 (All posts by )

    (This is a reposting of posts from two and seven years ago. Unhappily, this post’s themes are more relevant than ever. The Internet seems to be changing human social relations, business, politics and civil society in significant ways not all of which are clear. Perhaps the nature of what is happening will be better understood with time.)

    —-

    Crazy, overconfident; the opposite of the judicious, scientific, skeptical temperament.

    Extreme opinions.

    Stubborn.

    Bombastic.

    The opposite of thoughtful.

    Read the rest of this entry »

    Posted in Business, Human Behavior, Internet, Society, Systems Analysis | 5 Comments »