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    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 »

    Freezing in the Dark

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

    There has been much concern about possible hacking of the power grid by Russia, China, and others.  Here we have a segment from Rachel Maddow, inspired by a threat analysis from the US Intelligence Community.  From the analysis:

    China has the ability to launch cyber attacks that cause localized, temporary disruptive effects on critical infrastructure–such as disruption of a natural gas pipeline for days to weeks–in the United States. Russia has the ability to execute cyber attacks in the United States that generate localized, temporary disruptive effects on critical infrastructure.

    Maddow:  It’s like negative 50 degrees in the Dakotas right now. What would happen if Russia killed the power today?  What would happen if all the natural gas lines that service Sioux Falls just poof on the coldest day in recent memories?

    What would happen?  Nothing good.  These are serious threats, and I doubt that Russia and China are or will continue to be the only entities able to conduct such cyberattacks.  And there is also plenty of risk for non-cyber attacks…physical-world sabotage…which could have similarly malign impact on energy infrastructure.

    But we don’t need to wait for a foreign adversary or domestic terrorist organization to cripple our energy infrastructure.  We can quite effectively do it to ourselves.

    In late January, it was very cold in Minnesota.  And there wasn’t a lot of wind.  Natural gas, also, was in short supply, as a result of pipeline capacity constraints.  Xcel Energy urged its gas customers to turn down thermostats and water heaters, and to use electric heaters as necessary.  The electricity was coming from primarily coal plants (40 GW) and natural gas plants (about 23 GW)–the gas plants, of course, are also dependent on pipeline capacity.

    Also in Minnesota, here’s a large solar farm covered with snow.  Wonder if it’s melted or been swept off yet?  And here’s a cautionary story from Germany, where long, still, and dim winters do not mix well with wind and solar power generation.

    Solar and wind in most parts of the US are now small enough in proportion to overall grid capacity that shortfalls can be made up by the other sources.  What happens if they come to represent the majority of the grid’s power capacity–not to mention the exclusive source of capacity, as demanded by some?

    It may be feasible to store a few hours of electricity without driving costs out of sight…but what about the situation in which wind and solar are underperforming for several days in a row?  Interconnection of sources and demands over a wide area (geographical diversity) can help, but is by no means a comprehensive solution. So far, the gas, coal, and hydro plants have been there to kick in where necessary.

    Almost every day, there are assertions that new solar is cheaper than its fossil-fuel equivalents.  This may be true in some areas if you ignore the need to match supply and demand on an instantaneous basis.  But if the fossil-fuel plants are there to handle only those periods when wind, solar, and limited battery storage aren’t sufficient to meet demand, then the total energy production against which their capital cost is charged will be much lower, and hence, the cost per unit will go up. (See the California Duck Must Die for a nice visual portrayal of how widespread solar adoption has changed the load curve for the other sources.)  In some states with net metering, a home or business owner can sell excess power to the grid when loads are low and buy it back at the same unit price when loads are at their maximum. This becomes especially problematic when “renewables” become a major part of the mix.  Unless incentives are intelligently crafted–unlikely, given politics–“renewable” sources will effectively be subsidized by conventional sources and potentially make the construction and maintenance of those conventional sources impossible.  See If Solar and Wind Are So Cheap, Why Do They Make Electricity So Expensive?

    Read the rest of this entry »

    Posted in Big Government, Business, Crony Capitalism, Current Events, Energy & Power Generation, Environment, Europe, Germany, Russia, Tech | 41 Comments »

    Peak Stupid

    Posted by Sgt. Mom on 25th February 2019 (All posts by )

    No, I don’t think will ever reach Peak Stupid; just as we will probably never reach Peak Oil, either – since there appears to be an inexhaustible supply of the former, and more of the latter than the gloom’n’doom crowd apparently thought. But Deity on a Trisket, the farrago of Stupid on display just this past week is just plain mind-blowing. And I read a lot of history, so it’s not a total surprise to me that individually and en masse, humans are capable of the spectacularly moronic; things like Tulip Mania in 17th century Holland, pursuance of the Flat Earth theory after trips into space, and the Billy Jack movie series, not to mention the whole disco era in general.
    So the Jussie Smallett supposed hate-crime on the below-freezing streets of Chicago on the coldest day of the year thus far (hey, it’s only February, I am confident that the remaining ten months of 2019 will bring us ever more bountiful levels of stupidity) has fallen completely apart – much as the intelligent and logical portion of the blogosphere had predicted upon being made aware of the specifics. Yes, a planned – with an astounding level of stupidity even for an actor – hate crime, intended to leverage a pay raise, and garner oodles of that sweet, sweet milk of sympathy for a victim. And the National Establishment Mainstream fell for it, hook, line, sinker and whatever else in an appealing sob story, not to mention quantities of gullible media celebrities, and gullible political celebrities. Oopsie. The most decent of them appear to have the nous to be resoundingly pissed with Mr. Smolett over how their sympathies were exploited. The indecent are lying low and doubtless waiting for the next shiny, flashy supposed hate crime to bubble up to the top of that pond of scum which appears to be our national thought leaders. Live and learn, people – there exists a long, long, long history of faked hate crimes. The most recent of which happened not two weeks previously, with the Covington Catholic students. Memories are short in the National Establishment Media gene pool; measured in hours, I would guess. Possibly this is a variety of genetic defect. Read the rest of this entry »

    Posted in Architecture, Business, Chicagoania, Conservatism, Crime and Punishment, Current Events, History, Human Behavior, Just Unbelievable, Leftism, Media, Military Affairs, The Press | 6 Comments »

    A Robot of the Week, Revisited

    Posted by David Foster on 20th February 2019 (All posts by )

    In a robots of the week post a while back, I mentioned two companies that are attempting to automate the apparel-production process. Recently, one of these companies, Softwear Automation, announced that its Sewbot product is now also available on a rental basis under the banner Sewbot as a Service.  (SaaS, playing off the acronym for the currently-hot field of Software as a Service.)  From the SaaS announcement:

    From 1994 to 2005, the United States lost more than 900,000 textile and apparel jobs to offshoring.

    Fast-forward to 2018. The pendulum is swinging back and textiles are returning as lean, highly automated, environmentally conscious production facilities. Within the last six years, there have been significant announcements by foreign-owned textile companies investing in the United States, with site selection choices clustered in the Southeast including the first Chinese owned Cut Make Trim factory in Arkansas.

    Despite this industry reversal, the seamstresses are not returning. While the knowledge can be shared to upskill workers, people don’t have the  desire to work in a traditional textile factory.

    To solve this and accelerate the growth of US based textile manufacturing, Softwear Automation is announcing SEWBOTS-as-a-Service, a rental lease service to allow manufacturers, brands, and retailers to source and manufacture here in the US at a lower cost than outsourcing and with greater predictability and quality. While we understand the benefits of “Made in America”, the focus of this program is to offer US textile manufacturing more control, greater margin, faster turn times and less inventory.

    The rental rate for Sewbot is quoted as starting at $5000/month, which comes to $55/shift for a three-shift operation.Softwear is also now offering production-rate estimates for various kinds of textile products. For microfiber towels, a single operator supervising 6 robots can make 2880 towels in an 8-hour shift, compared with 223 towels for a single operator performing traditional manual activities.   Other product types which the company sees as suitable for Sewbot automation include mattress covers, pillows, automotive floormats, t-shirts, and shoes (uppers).

    Most aspects of the apparel supply chain have long been highly automated: indeed, the mechanization of spinning and weaving was the hallmark of the Industrial Revolution.  The sewing process, however, has remained stubbornly labor-intensive, largely because the flexible nature of fabric makes it hard to handle mechanically.  Softwear Automation’s solution involves the use of machine vision for precise fabric positioning.  This article at IEEE Spectrum explains a little bit about how it works.

    Depending on how well these systems turn out to work in practice, and how the technology evolves, they may turn out to be not only the robots of the week, but the robots of the year or even the decade.  Apparel-making is a vast industry, concentrated in nations which are not-so-well-off economically, and employs a large number of people. A high level of automation would likely result in much of this production being relocated closer to the markets, thus saving transportation costs and shortening supply cycles.  The consequences for countries like China, Bangladesh, and Sri Lanka could be pretty unpleasant.  For the US, the onshoring of the work would seem clearly to be beneficial.

    I don’t know enough about the industry to analyze the economics of Sewbot vs low-wage-country production in any depth, but back-of-the envelope for one product type (the towels) suggests that on a pure direct labor cost per unit basis, a US-based Sewbot can still be undercut by human labor rates below about $4/hour.  (Calculated using the rental rate:  for many companies, purchase may offer better economics.)  But production isn’t the only factor in the product cost equation, of course, and in many situations proximity to end markets will be of considerable value: especially simpler inventory control and faster response to style changes. And a Made in the USA label is surely worth at least something.  Also, the economics may be different for some of the other product types…for the t-shirts, the company is citing a unit cost of $.33 for US-based production using  Sewbot…this compares with something around $.22 for a country such as Bangladesh, and is probably cheaper than China at the current wage rates.

    Read the rest of this entry »

    Posted in Business, China, India, International Affairs, Tech, USA, Vietnam | 6 Comments »

    Even Smart People Get It Wrong Sometimes

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

    Economist Art Laffer:

    “China is a huge plus to the U.S. because without China there is no Walmart, and without Walmart there is no middle class or lower class prosperity in America.”

    Actually, the US was known for broad-based prosperity long before either Walmart or China was a significant factor.  It was really only in the 1980s that Walmart’s expansion really took off…and it was then by no means as China-dependent as it has more recently become.  Indeed, starting in 1984 and extending at least through the early 1990s, Walmart was a strong supporter of the Crafted with Pride in the USA campaign, which was launched by textile entrepreneur Roger Milliken, among others.

    China’s presence in the global marketplace was greatly expanded by the Permanent Normal Trade Relations bill, which was signed by President Clinton in October 2000, as well as by China’s own economic-liberalization policies.  (Some data on the growth of Chinese exports over time, here)

    Real mean US household income, which is effectively a measure of price levels as well as wages/salaries, grew from $71773 in 1985 to $93887 in 2000.  Fifteen years later, in 2015, it had risen to only $95887.  (2017 dollars)

    Real median household income  grew from $51455 in 1985 to $59938 in fifteen years later, in 2000. In 2015, this indicator had actually declined to $58476.  (It grew to $61372 by 2017)

    There are a lot of factors that affect an economy, of course, and it would be unfair to conclude that the slowdown in American household income growth was caused by the vast expansion of trade with China.  Maybe it would have been even worse without Chinese imports and exports?

    National Review writer Robet VerBruggen cites “research” suggesting that “consumers save hundreds of billions of dollars per year thanks to expanded trade with China, and six-figure sums for every manufacturing job lost.  (Tucker) Carlson may be right that cheap junk from China doesn’t make us happy in any fundamental way, but it would put serious strains on family budgets if all that junk got expensive again.”

    Maybe. But I doubt if the strains would really be all that serious over time. If manufacturers did not have vast reservoirs of low-wage labor available for production of a particular product, then the incentives to improve productivity when making that product with high-wage labor would be greatly increased. Capital investment that makes no sense when you are paying workers $1.50/hour may make great sense when you have to pay $15/hour.  Furthermore, product designs themselves can often be changed in minor ways to make them more manufacturable; again, this would help reduce the cost impact of domestic or other high-wage-country manufacturing.

    I doubt if the strains on family budgets resulting from such changes in production-labor costs would have anywhere near the impact that has resulted from dysfunctional public schools (resulting in a need to pay for private schooling or move to a pricier neighborhood), unreasonable constraints on home-building, and out-of-control administrative and facilities spending by universities, coupled with irresponsible marketing of degree programs and student loans by same.

    One thing that has definitely been beneficial about China’s export trade is the drastic reduction in poverty in that country; this reduction is indeed something that we should all celebrate.  I suspect, however, that given economic liberalization, China could probably be doing just as well or almost as well with an economic approach that is not so extreme in its trade orientation but more focused on satisfying domestic demand…and this would probably be much more sustainable for them in the long run.

    Also, here are some additional links on US wage trends for anyone who’s interested:

    Read the rest of this entry »

    Posted in Business, China, Economics & Finance, Tech, USA | 29 Comments »

    Financial Markets Commentary

    Posted by David Foster on 30th January 2019 (All posts by )

    John Hussman on valuations

    The saga of Broker Joe, from 2007

    Posted in Business, Economics & Finance, Markets and Trading | 7 Comments »

    Worthwhile Reading

    Posted by David Foster on 27th January 2019 (All posts by )

    Why do journalists love twitter and hate blogging?

    The legacy of China’s Confucian bureaucracy.  Related:  my previous post on the costs of formalism and credentialism.

    Stroking egos does nothing for students — raising expectation does.

    Magic and Politics.

    Related to the above:  Witches: the new woke heroines.

    Legos, marketing, and gender.  “In 1981,” says a woman who as a child was pictured in a Legos ad back then, “LEGOs were ‘Universal Building Sets’ and that’s exactly what they were…for boys and girls. Toys are supposed to foster creativity. But nowadays, it seems that a lot more toys already have messages built into them before a child even opens the pink or blue package.”

    What will be the economic impact of China’s increasing emphasis on economic control and preferential treatment for state-run enterprises?

    What is the fastest the US economy can grow?

    Midnight at the Gemba. Kevin Meyer visits the night shift at the medical-device molding plant he was running.

    Posted in Blogging, Business, Capitalism, China, Culture, Economics & Finance, Management, Media, Religion | 12 Comments »

    2018 Reading

    Posted by David Foster on 14th January 2019 (All posts by )

    Some books that I read and liked over the last year…

    The Future is History, Masha Gessen.  Russia during the last days of Communism, during the transitional age, and under Putinism, viewed through the personal stories of numerous individuals.

    On Tangled Paths, Theodor Fontane.  The author has been called “The Jane Austen of Germany.”  In this novel,  it is the *male* protagonist who is under pressure to marry into money to save his family from financial disaster.  Good character development and a vivid portrayal of Berlin in the 1870s

    The Bounty:  The True Story of the Mutiny on the Bounty, Caroline Alexander.  The famous mutiny, the events leading up to it, and its aftermath.  A much more favorable interpretation of Captain Bligh’s character than the usual view.

    Red Star Under the Baltic, Victor Korzh.  Memoirs of a Soviet submarine commander who served in a little-known theater of WWII.  The author writes largely from an engineering perspective, and in addition to combat episodes he describes the remarkable efforts that were necessary to keep the submarine in operating condition–including such things as repurposing the bow thruster drives, while at sea, to replace the failed stern thruster drive system.

    A Pocketful of Stars and other books in the Applied Topology series by Margaret Ball, which I reviewed here.  Don’t let the Applied Topology tag scare you off; no math is required to read and enjoy.

    Born Fighting:  How the Scotts-Irish shaped America, James Webb.  Some interesting history and perspectives.  It’s worthwhile to read this book in conjunction with Thomas Sowell’s Black Rednecks and White Liberals.

    A Vagabond Journey Around the World, Harry Franck.  In 1904, this recent college graduate decided to travel around the world starting with no money at all.  (He modified this plan to carry enough cash to pay for photographic supples.)  Very interesting, though long.  Franck made and wrote about numerous other trips, including a 1930s visit to the Soviet Union which he documented in A Vagabond in Sovietland.

    A World on Edge:  The End of the Great War and the Dawn of a New Age, Daniel Schoenpflug.  The author paints the environment in the immediate aftermath of the War by telling the stories of individuals ranging from Harry Truman, Ferdinand Foch, Crown Prince Willhelm of Prussia, Arnold Schönberg, Kathe Kollwitz, Walter Gropius, and Ho Chi Min to many lesser-known individuals such as a former sailor of the German Navy and a Cossack woman named Marina Yurlova.

    Tragedy & Challenge:  An Inside View of UK Engineering’s Decline, Tom Brown.  The problems and fate of British manufacturing companies, as seen by an individual with extensive experience as an executive and board member.  There’s a review here.

    The Tyrant’s Daughter, J C Carleson.  Fifteen-year-old Laila lived a privileged life in her unnamed Middle Eastern country, where her father was absolute ruler.  Then he was killed in a coup, and she escapes with her mother and brother to a suburb of Washington DC…where she faces both the problems of fitting in at her new school and the haunting question of whether her father was indeed the monster that he is portrayed by the American news media.  This is positioned as a YA (teenager)  book, but is IMO also good reading for adults.  The author is a former CIA agent.

    The Theme is Freedom, John Dos Passos.  A collection of essays by this “Lost Generation” writer.  I quoted his observations about some of his Leftist comrades of the 1920s, here.

    Several more, which I may review individually and/or in a future batch.

    I’m currently reading a novel of the American Revolution called Celia Garth, which I learned about from a discussion at Bookworm.  It was highly recommended by Sgt Mom, among others.  I’m really liking it so far.

    Posted in Arts & Letters, Book Notes, Business, Civil Liberties, Europe, History, Management, Russia, War and Peace | 29 Comments »

    Sneaky Robots and Robotic Bureaucrats

    Posted by David Foster on 10th January 2019 (All posts by )

    An artificial intelligence program was assigned the task of turning satellite images into street maps.  It was graded by comparing reconstructed images (reconstructed from the map) and comparing them with the original; also, by the clarity of the street map.  The grades were used by the program to continually improved its performance.

    But what the program sneakily learned to do was to encode details of the original image into the street map, in a manner invisible to humans, thereby optimizing its grade on the reconstructed image…independently of how well the street map…which was the actual desired product…actually reflected the original image.

    Humans, also, often respond to incentives in ways very different from those expected by the designers of those incentives…as many creators of sales commission plans and manufacturing bonus plans have discovered.  Bureaucracies, especially, tend to respond to the measurements placed on them in ways that are not consistent with the interests of the larger organization or society that they are supposed to be serving.  See Stupidity, Communist-Style and Capitalist-Style and The Reductio ad Absurdum of Bureaucratic Liberalism.

    Posted in Big Government, Business, Deep Thoughts, Management, Russia, Tech | 1 Comment »

    Quote of the Day

    Posted by Jonathan on 10th December 2018 (All posts by )

    Rush Limbaugh on Dec. 7:

    Donald Trump arrived, the way I hear this Tillerson sound bite, Trump arrives knowing what he wants to do. He doesn’t arrive unsure and he’s not gonna admit that who doesn’t know what to do because he’s not from this world. He’s there, and he has a specific agenda that everybody that elected him knows what it is: Make America Great Again.
     
    Sadly, he hasn’t done a lot on that agenda. He hasn’t built the wall yet. We haven’t repealed and replaced Obamacare. There’s a lot of things in the Trump agenda that have not happened yet. But that’s not what Tillerson’s talking about. Tillerson’s talking about some guy comes in and says, “This is what I want to happen.” And your typical Washington bureaucrat or CEO bureaucrat will say, “Well, where’s the memo? Where’s the plan? Where’s the blueprint?”
     
    Trump said, “There’s no blueprint. Just do it! This is what I want to happen. This is what I want.”
     
    “Well, uh, you know, you shouldn’t do it that way.”
     
    “I don’t care what you — just make it happen.” Trump is one of these, this is how he’s worked, “make it happen.” If he’s talking to Jared, if he’s talking to Trump Jr. or Eric or Ivanka, “This is what I want, make it happen.” That’s not how Washington works. Washington works on things not happening. The whole point of bureaucracy is to not do such that it looks like you’re getting things done. There might not be any need for you after you finish. So everything’s never done. Of course Trump’s gonna have compatibility problems with that.

    [emphasis added]

    Posted in Big Government, Business, Politics, Quotations, Systems Analysis, Trump | 14 Comments »

    A Retrotech Adventure

    Posted by David Foster on 2nd December 2018 (All posts by )

    The Essex Steam Train and Riverboat leases 22 miles of railroad track from the state of Connecticut, and owns several steam and diesel locomotives plus various rolling stock. They operate regular passenger excursions plus seasonal specials.  Essex also offers a training and experience program for people who would like to learn a little bit about operating a steam locomotive.  Being interested in steam power, I signed up.

    The program includes some written material to be reviewed at home, a group classroom session of about an hour, and then an individual hour operating a locomotive under the guidance of an experienced engineer.

    On arriving, I was surprised at the scale of the operation.  Although I was there in the off season (early November), judging by the parking lot and the number of railcars the place must be quite busy during prime months.  First was the class, which covers safety rules and basic steam locomotive principles.  It was taught by the railroad’s machinist, who described himself as the “spare parts department.”  Next was a group visit to the locomotive cab to familiarize ourselves with the layout of controls and indicators.

    For our group, the locomotive was #40, a Mikado type built in 1920.  (The name “Mikado” became popular because an early batch of locomotives of this type was sold to the Japanese Railways.)  #40 started its life hauling logs and lumber in the West, then pulled passenger and freight trains in North Carolina until it was retired circa 1950…purchased by the Essex for restoration in 1977.  The locomotive has a rated boiler pressure of 180 psi and can generate a tractive effort of 35,000 pounds.

    On a steam locomotive, the cutoff point of steam admission to the cylinders can be controlled by the engineer.  Early cutoff lets the steam do more of its work expansively, improving fuel economy at the cost of some reduction in power.  The reverser sets the cutoff point as well as controlling the direction of travel–while the reversers on early locomotives were manually-operated and required considerable strength to operate (and sometimes led to broken arms), the reverser on #40 is a fingertip control, using air pressure to do the hard work.

    It was a drizzly and somewhat chilly day, but very comfortable in the locomotive cab. (The boiler backhead is very hot, do not touch!)  Basic controls and indicators include the throttle, the reverser, the boiler pressure gauge, the injectors, the boiler water glass, and the brakes with their associated pressure gauges.

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    Posted in Business, Energy & Power Generation, History, Tech, USA | 4 Comments »

    What Will be the Fate of Brick & Mortar Retail?

    Posted by David Foster on 24th November 2018 (All posts by )

    The traditional retail industry, and the real-estate operations that provide space for it, are not, for the most part, doing too well these days.  Billions of dollars that would once–not long ago–have been purchased in a local physical space are now purchased online and shipped from a warehouse that may be hundreds or thousands of miles away.  Many services, too, that would formerly have been obtained in a local location are now obtained online…travel agencies, for example, have been largely supplanted by online services.

    So, here’s a question to think about:  What kinds of businesses are likely to continue to require local presence, and perhaps even to increase in their local presence needs?

    And what kind of businesses are currently major users of local space, but are likely to need a lot less in the future?

    An example in the first category would surely be restaurants/bars.

    An example in the second category would be, IMO, branch banks.

    Your thoughts?

    Posted in Business, Real Estate, Tech, USA | 72 Comments »