Archive for the 'Business' Category

Stuart Schneiderman linked an article by Robert Samuelson on the 1846 British repeal of the tariffs on food imports, which further linked an Economist article arguing that:

With the repeal of the tariffs, instituted to protect British corn farmers, liberal economic policies ascended. Free trade, free enterprise, free markets and limited government became the rule. And the world has not been the same since.  (Schneiderman’s summary)

To me, it is highly questionable how much the elimination of tariffs had to do with limited government and internal free enterprise. The view that the British 1846 action was economically a very good thing for almost everybody is, however, generally accepted.  From the Economist article:

The case for getting rid of British tariffs on imported grain was not a dry argument about economic efficiency. It was a mass movement, one in which well-to-do liberal thinkers and progressive businessmen fought alongside the poor against the landowners who, by supporting tariffs on imports, kept up the price of grain…When liberals set up the Anti-Corn Law League to organise protests, petitions and public lectures they did so in the spirit of the Anti-Slavery League, and in the same noble name: freedom. The barriers the league sought to remove did not merely keep people from their cake—bad though such barriers were, and strongly though they were resented. They were barriers that held them back, and which set people against each other. Tearing them down would not just increase the wealth of all. It would bring to an end, James Wilson believed, the “jealousies, animosities and heartburnings between individuals and classes…and…between this country and all others.”

Again, this is all mostly generally-accepted thinking.  But Stuart’s post and the links reminded me of something I read–oddly enough, in a 1910 book on railroad history.  The author (Angus Sinclair) describes the transition to steel rails (from cast iron) and the heavier trains they enabled, and then discusses the political-economic impact of this transition:

The invention of cheap methods of making steel rails has exerted a tremendous effect upon railroad transportation, and has created social revolutions in certain part of the world…It threw many farms in New England and along the Atlantic seaboard out of cultivation; it caused a semi-revolution in farming business in the British Isles, and strongly affected the condition and fortunes of millions of people in other countries.  Irish peasants used to go in thousands to England and Scotland to work in the harvesting of grain crops and thereby earned enough money to pay the rent of their small holdings.  Steel rails and Consolidation locomotives stopped the cultivation of so many wheat fields in the British Isles that the help of the Irish worker was no longer needed…

The woes of Ireland were merely the preliminary manifestations of hardships inflicted through the grim ordeal of competition worked out by our cheapened  methods of land transportation.  (The heavier locomotive enabled by steel rails) is steadily forcing more grain raising farms of Europe out of cultivation and is raising a demand for protection against cheap land, just as our politicians have so long urged the necessity for protection against the cheap labor of Europe.

About 60 years ago Great Britain abolished all duties on grain…By curious reasoning the statesmen believed that this policy would not only make the British Isles the manufacturers of the world, but that it would increase the prosperity of the agricultural communities as well.  The first thirty years’ experience of free corn did not seriously  challenge the correctness of the free trade theory, for more of the American wheat lands were yet unbroken prairie or virgin forests, and our steel rail makers and locomotive builders were merely getting ready…In 1858 the rate per bushel of wheat from Chicago to New York was 38.61 cents.  The rate today is 11.4 cents…

The effect of that cheapening of transportation in the United States has been very disastrous to Great Britain, for during the last thirty years there had been a shrinkage of 3,000,000 acres in wheat and another of 750,000 acres in green crops; an enormous amount of land had reverted to pasturage…and the number of cultivators of the soil  had declined 600,000 in thirty years–1,000,000 in fifty years.

That is a high price to pay for the devotion to a theory which fails to work out as expected.

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Amazon is raising the minimum hourly wage for its workers to $15…this includes Whole Foods, it’s not totally clear whether or not it includes contract employees, though I’d assume it does.  Jeff Bezos has also encouraged his competitors to do the same, and indicated that Amazon will lobby for an increase in the Federal minimum wage.

For discussion:  What will be the impact of this Amazon decision on the retail industry, on American business generally, and on American consumers?

There have been some articles lately, in Financial Times and The Wall Street Journal for example, concerning efforts to give Artificial Intelligence systems something resembling a simulated sense of humor.

Interesting research, perhaps, but at this juncture I’m less concerned above providing a sense of humor for AI systems than maintaining a sense of humor for human beings.  Several professional comedians have commented about the increasing difficulty of doing comedy in an environment of hysterical political correctness.  But even more important is the degree to which fear of denunciation and mobbing seems to be affecting personal life and workplace behavior.

Effective organizations, at least in this country, have tended to involve a certain level of easy interaction–including kidding around–among people.  What happens when we lose this?

I suspect that the productivity impact, although hard to measure directly, will be quite significant.  As will the impact on the happiness and mental health of individual humans.

“Of course they make a ton of money, they’re a non profit.”

(Said by a friend who used to work for a nonprofit organization.)

The indy-author scene is not the only thing which has radically changed over the last decade; just the one that I know the best, through having the great good fortune to start as an indy author just when it was economically and technologically possible. It used to be that there were two means of being a published author. There was the traditional and most-respected way, through submission to a publishing house – which, if you were fortunate enough to catch the eye and favor of an editor, meant a contract and an advance, maybe a spot on the much-vaunted New York Times best-seller list. This was a method which – according to the old-timers – worked fairly well, up until a certain point. Some writers who have been around in the game for a long time say that when publishing houses began viewing books as commodities like cereal brands and ‘pushing’ certain brands with favored places on the aisles and endcaps, and treating authors as interchangeable widgets – that’s when the traditional model began to falter. Other experts say that it began when tax law changed to make it expensive to retain inventory in a warehouse. It was no longer profitable to maintain a goodly stock of mid-list authors with regular, if modest sales. Mainstream publishing shifted to pretty much the mindset of Hollywood movie producers, putting all their bets on a straight diet of blockbusters and nothing but blockbusters.
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Trump’s proposed tariff increase on Chinese imports would affect Apple products including the Apple Watch, though apparently not the iPhone itself.  Here is Apple’s response.

And from President Trump:

Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting!

There has been much discussion for some time about the economic feasibility of building Apple products–especially the iPhone–in the United States, and considerable new commentary in the wake of the tariff controversy.  In 2011, then-President Obama asked Steve Jobs what it would take to make iPhones in the US.  Steve’s response was that, basically, the problems were more about skill levels and cultural factors–in particular, he is said to have mentioned a need for 30,000 manufacturing engineers.

This strikes me as a very improbable requirement.  Manufacturing engineers are the people who design and improve manufacturing processes:  I can’t imagine why you would need 30,000 of them for all of Apple’s product lines combined, let alone for the iPhone alone.  (It’s possible that the term “manufacturing engineers” was a misquote of what Jobs actually said, or the Jobs was speaking very loosely–indeed, he apparently went on to say that the people in question could be educated in trade schools.  Maybe he meant toolmakers…although also, 30,000 toolmakers sounds like an awful lot for iPhone or indeed all of Apple…or shift supervisors, or something of the sort.

There was a Quora discussion in 2016 on the topic:  How much would an iPhone cost if Apple were forced to make it in America?  Out of all the responses, which were of various quality, Forbes chose in January of this year to reprint one that seems to me to be rather extreme:  In the $30,000 to $100,000 range…assuming it could be made at all.

The author quotes Apple CEO Tim Cook on the skills gap between China and the US:

… the reason is because of the skill … and the quantity of skill in one location … and the type of skill it is. The products we do require really advanced tooling. And the precision that you have to have in tooling and working with the materials that we do are state-of-the-art. And the tooling skill is very deep here.

In the U.S. you could have a meeting of tooling engineers and I’m not sure we could fill the room. In China you could fill multiple football fields.

The author says:

Tooling engineering is a highly skilled position that requires years of training and experience. It is an “analog” type skill that combines artisanal craftsmanship with precision engineering skills. And as Mr. Cook alludes to later in the talk, the Chinese have developed and scaled these skills over the last three decades while the U.S. and other countries have gone the other direction and de-emphasized them.

(The author also talks about the fact that the iPhone supply chain is now largely centered in the Far East, which is true–but “moving iPhone manufacturing to the US” does not imply that every single component or subcomponent or raw-material element in the periodic table would need to come from the US.)

It is certainly true that the US over the past couple of decades has deemphasized manufacturing-related skill sets:  but I doubt seriously that the problem is so severe as to make the US manufacturing of a product like iPhone infeasible.  After all, cars and trucks are made in the US, and they involve quite a lot of production engineering and tooling.  Airplanes and jet engines, too, are made here, and I’d expect that the production engineering challenges for a GE or P&W jet engine equal or exceed anything involved with making an iPhone.  And there are plenty of other products and components manufactured in the US as well.

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A CFTC report explains that open interest in long-dated NYMEX West Texas Intermediate crude oil futures continues a long-term decline.

Jessica Summers on Bloomberg:

That’s because oil extraction has become more efficient in tight oil fields compared to conventional wells and producers have more flexibility in turning on and off the taps in response to oil prices.
 
The increasing amount of crude coming in from tight oil in portfolios of production firms has left them with less crude to sell five or more years forward, reducing their need for long-dated futures contracts, according to the study. U.S. weekly production has skyrocketed to 11 million barrels a day, the highest level on record, according to Energy Information Administration data.

China has been making many investments in third-world countries, often in exchange for resource concessions.  There is growing concern that some of these projects leave the host country with too much debt–indeed, last December, Sri Lanka sold control of its port of Hambantota to a Chinese state-owned company after falling behind in repaying $1.5 billion in loans from Beijing.  Further such situations seem likely.  (See interesting article about Chinese investment in Malaysia here.)

China has also been accused of using aid and investment funds to influence other countries’ policies toward Taiwan, an accusation that they unsurprisingly deny…and Taiwan is now down to only one diplomatic ally in Africa, the kingdom of eSwatini  (prevously known as Swaziland.)  El Salvador, too, has recently dropped diplomatic ties with Taiwan.

See also my recent post about Chinese influence efforts targeted at other nations, including the limiting of US film content and the firing of an American employee of Marriott for liking a tweet which offended the regime.

The Wall Street Journal, on its editorial page, writes about a company called Standard Textile, whose economic viability is apparently being threatened by the 25% tariffs on imports of its main production input:  a type of fabric sourced from China and known as greige, which I believe is basically the fabric as it comes off the loom, unfinished and un-dyed.  The company is especially concerned because finished products from China which compete with its own products are tariffed at only 6.7%.   WSJ uses this example to argue that Trump is all wrong on tariffs, and does so in the rather superior manner (the title of the piece is ‘a looming trade lesson’) which is common among those who ascribe any objections to absolutely free trade as based on nothing but economic ignorance or political demagoguery.

I will stipulate that it seems rather dumb to tariff raw materials and intermediate goods at a higher level than finished products made from these inputs.  But..is it really true that greige fabrics are available only from China?  A few minutes of searching suggests that they are available from India, and from at least some US suppliers.  Maybe there is some particular variant of the products that is only made by a specific Chinese supplier, or maybe Standard has negotiated such a great deal with their supplier that no one else will match the price–it would be interesting to know.

The big question that the WSJ didn’t ask is:  Why is this fabric (if it is truly unavailable in the US) not manufactured here?  Textile manufacturing is not generally a labor-intensive activity, it is very different on this measure from the transformation of the textiles into apparel and other finished products.  It was one of the first industrial activities to be mechanized, and automation in this field has advanced steadily over a couple of centuries.  Moreover, textile manufacturing uses significant amounts of power, and I’ve read about Chinese firms that moved to the US specifically because the electricity was cheaper and more reliable.  So the usual arguments about why a particular item needs to be made in China or other non-US setting…labor costs, less-stringent environmental restrictions…don’t seem to really apply here.

Most likely, greige manufacturers tend to locate in Asia and other non-US locations because that is where their customers are…’customers’ here referring not to end consumers but to apparel manufacturers and others who buy the material as an input to their own processes…and geographical proximity is of value in being able to fill orders rapidly and without excessive shipping costs.  So this is an example of how supply chains are interconnected, and how losing one industry in a chain tends to pull other industries away also.  The same point has also been demonstrated in consumer electronics manufacturing, where the supply chain is now so centered in Asia, especially China, as to make it difficult for a company to produce these products in the US even if they want to.  (And ‘supply chain’ in this sense does not include physical products, it also includes certain services.  I have been told by the CEO of a medical electronics startup that she would find it difficult to manufacture in the US due to absence of certain specialized services; I believe she mentioned RF test facilities)

A serious analysis of America’s trade situation should involve more than quoting David Ricardo and lecturing people about their supposed economic ignorance.  The WSJ article would have been more intellectually-honest and more useful had it also given examples of American manufacturers who are benefitting from the modified tariffs; these examples certainly exist.

Best of luck to Standard Textile.  Hopefully, (a) the tariffs, if they remain in place, will be adjusted to level the rate between imported fabric and imported finished goods, and (b) US manufacturers of this fabric will come into being.

Thirty-five states and the District of Columbia currently impose certificate-of-need (CON) restrictions on the provision of healthcare. These rules require providers to first seek permission before they may open or expand their practices or purchase certain devices or new technologies. The applicant must prove that the community “needs” the new or expanded service, and existing providers are invited to challenge a would-be competitor’s application.

…from a Mercatus article on healthcare “Certificates of Need”, linked by The Advice Goddess.

In most other industries, collusion of providers in order to keep supply down–and, hence, prices up–is considered an antitrust violation and can carry heavy civil and criminal penalties.

Does anyone see any legitimate public-policy rationale for the requirement for the CONs in healthcare?

The title of this post is the punchline to an old, old story about the limits of advertising; a story which may or may not be based on fact. The story goes that a big food-manufacturing conglomerate came up with a brand new formulation for dog food, and advertised it with a huge, costly campaign: print ads, TV commercials, product placement in movies, TV shows, county fairs, giveaways and sponsorships; the whole ball of wax … and the product cratered. The CEO of the company is irate and demands answers from anyone who can give him a reason why. Didn’t they do everything possible to make their dog food brand the market leader? Image everyone at that meeting looking nervously at each other at this point – because they have done everything possible … except for one small thing. Finally, someone gets up sufficient nerve to answer. “But the dogs don’t like it.” Read the rest of this entry »

Nice Work by David Lodge

What happens when an expert on 19th-century British industrial novels—who is a professor, a feminist, and a deconstructionist–finds herself in an actual factory?

This not being a time-travel novel, the factory is a contemporary one for the book’s setting in mid-1980s Britain.  It is a metalworking plant called Pringle’s, run by managing director Vic Wilcox.  Vic is not thrilled when his boss  (Pringle’s is owned by a conglomerate) suggests that he participate in something called the “shadow” program, designed to make academics and businesspeople better-acquainted with one another, but he goes along with the request.

Robyn Penrose, literature professor at a nearby university, is also not thrilled about her nomination to participate in the program, but she is concerned about her job in an era of reduced university funding, and also thinks she had better do as asked.  The way the program works is that Robyn will be Vic’s “shadow,”  joining him at the plant every Wednesday, sitting in on his regular activities, and learning just a bit about what is involved in managing a business.

Vic is a self-made man, not well-educated and with few interests outside work.  He is acutely aware of the danger that faces Pringle’s under the current economic climate, and is resolved that his factory will not join the long list of those that have been tossed on the scrapheap.

There is nothing quite so forlorn as a closed factory–Vic Wilcox knows, having supervised a shutdown himself in his time.  A factory is sustained by the energy of its own functioning, the throb and whine of machinery, the unceasing motion of assembly lines, the ebb and flow of workers changing shifts, the hiss of airbrakes and the growl of diesel engines from wagons delivering raw materials at one gate, taking away finished goods at the other.  When you put a stop to all that, when the place is silent and empty, all that is left is a large, ramshackle shed–cold, filthy and depressing.  Well, that won’t happen at Pringle’s, hopefully, as they say.  Hopefully.

Robyn and Vic dislike each other on first meeting:  Vic sees Robyn’s profession as useless, which Robyn sees Vic’s managerial role as brutal and greedy.  She is appalled by what she sees in her first tour of the factory..especially the foundry:

They crossed another yard, where hulks of obsolete machinery crouched, bleeding rust into their blankets of snow, and entered a large building with a high vaulted roof hidden in gloom.  This space rang with the most barbaric noise Robyn had ever experienced…The floor was covered with a black substance that looked like soot, but grated under the soles of her boots like sand.  The air reeked with a sulphurous, resinous smell, and a fine drizzle of black dust fell on their heads from the roof.  Here and there the open doors of furnaces glowed a dangerous red, and in the far corner of the building what looked like a stream of molten lave trickled down a curved channel from roof to floor…It was the most terrible place she had ever been in her life.  To say that to herself restored the original meaning of the word “terrible”:  it provoked terror, even a kind of awe.  To think of being that man, wrestling with the heavy awkward lumps of metal in that maelstrom of heat, dust and stench, deafened by the unspeakable noise of the vibrating grid, working like that for hour after hour, day after day….That he was black seemed the final indignity:  her heart swelled with the recognition of the spectacle’s powerful symbolism.

But still:

The situation was so bizarre, so totally unlike her usual environment, that there was a kind of exhilaration to be found in it…She thought of what her colleagues and students might be doing this Wednesday morning–earnestly discussing the poetry of John Donne or the novels of Jane Austen or the nature of modernism, in centrally heated, carpeted rooms…Penny Black would be feeding more statistics on wife-beating in the West Midlands into her data-base, and Robyn’s mother would be giving a coffee morning for some charitable cause…What would they all think if they could see her now?

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A thoughtful post about walls and freedom:

A city without walls was not a city. Anyone could march in and take over, give commands, and force the residents to obey. Without being able to defend yourself, you could not be counted among the free peoples. You were dependent on the good graces of someone else, be it a noble, a bishop, or hired soldiers. Walls meant the ability to defend your rights and liberties, to keep out unwanted people and protect what was good and valuable.

Sultan Knish writes about Cybersecurity and Russia:

“Why the hell are we standing down?”  That was the question that the White House’s cybersecurity coordinator was asked after Susan Rice, Obama’s national security adviser, issued a stand down order on Russia.

Tolerance for ambiguity as a key factor in career success:

Too many recent graduates, however, approach their job descriptions the way they did a syllabus in college—as a recipe for winning in a career. They want concrete, well-defined tasks, as if they were preparing for an exam in college. “Excelling at any job is about doing the things you weren’t asked to do,” said Mary Egan, founder of Gathered Table, a Seattle-based start-up and former senior vice president for strategy and corporate development at Starbucks. “This generation is not as comfortable with figuring out what to do.”

Information and Gossip:

Now, it so happens that at no point in history, except during the postwar period, did people receive news without being conveyors of news. That nuclear family, where people — pop, mom, 2.2 kids, one dog — are watching TV, receiving information and not transmitting.

Is loneliness fueling the rise of political polarization?

Many individuals no longer have the communal and social connections they once had, such as religion, ethnic culture, and family. The only connection many have left is their political party, and that forms their identity. And because of the closeness this has to their identity, they become more tribal and defensive when that party is attacked.

The lifecycles of large corporations

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I’ve been aware for some time of a company called Avalara, which is in the cloud-based tax-compliance business.  In the US, Avalara keeps track of the vast array of sales tax rates, which are imposed not only at the state level but often also at municipal and county levels.  Avalara integrates with a number of electronic commerce platforms, which can pass destination address info to the system and thereby obtain the appropriate tax rate in real time and include it in the end customer’s charges at checkout.

The company did its Initial Public Offering on June 13, and AVLR quickly jumped from its IPO price of $24 to about $45 , putting its market capitalization at about $2.9 billion.  Yesterday, the Supreme Court issued a decision that has great implications for Avalara’s business…as well as for the businesses of hundreds of thousands if not millions of on-line retailers and the consumers who buy from them–and as of this moment AVLR is trading at $52.16, with a market cap of $3.32 billion.

What the Court apparently ruled is that states can impose sales taxes on on-line transactions (and, I would presume, classical mail-order transactions as well) even when the seller does not have a physical “nexus” (such as a warehouse, and office or a factory) in that state. (And you can be sure that most of them will take advantage of this opportunity.)   This is really “just” a cost problem for very large on-line merchants such as Amazon, but the compliance issues for smaller businesses are going to be considerable.  Avalara seems well-positioned to help with this problem, but the ruling is still going to be far more burdensome to the smaller on-line merchants than to the large ones.

See discussion of the sales tax issue at the Instapundit post.

Regarding Avlara, I have not analyzed this company as a potential investment and am not giving an opinion on it for that purpose either pro or con, certainly not giving investment advice here.

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Leon Cooperman: Two changes that could help fix what is wrong with our regulatory process:

It seems logically manifest to me that something transpired between September 2016 and March 2017 that led to the Commission’s dramatically downwardly-revised settlement offer. Despite numerous attempts to ferret it out, I have been unsuccessful in getting a response, either from the current chairman or from his predecessor who oversaw my case (and who told me, when I saw her at a conference after she left office, that even innocent people often find settling with the government preferable to hazarding the system). As an American taxpayer, I believe that I deserve an answer to my question. And as an analytical person, it is hard for me to reconcile the significant, blood-sport destruction of my business that this matter has occasioned without understanding the dynamics behind the resolution from the Commission’s perspective.

“Something transpired between September 2016 and March 2017” that led the SEC to dial back the brutality of its regulatory attack on Mr. Cooperman’s firm. I wonder what that something could have been?

Elections have consequences. The Obama administration was so openly hostile to business, and so casually willing to use its power to reward allies and punish critics, that prominent business people were reluctant to criticize the Administration publicly, especially in the early days before the 2010 elections. If I recall, Mr. Cooperman was more courageous than most of his contemporaries in expressing public concern about Mr. Obama’s policies.

As the man said, this is how you get more Trump.

Here’s an interesting analysis

An MBA student who was raised in Communist China reads Hayek.

Has Silicon Valley hit peak arrogance?

Is high testosterone inversely correlated with hedge-fund performance?

Anti-Semitism and the Democratic Party.

A manufacturing engineer looks at Tesla manufacturing.  Related:  Elon Musk now thinks his use of robots to build the Model 3 was excessive.

(I wonder if Musk was aware of the history of Roger Smith and the robots at GM when he established his manufacturing strategy.)

15 facts about Renoir’s Luncheon of the Boating Party.

While there has not been a recent major earthquake in the Pacific Northwest, research has proven that the area is seismically active. Building codes were established to withstand earthquake damage and new buildings have been held to this higher standard. However, there is a substantial portion of the commercial and residential buildings which have not been retrofitted to date. This cool interactive map shows earthquake risk in Portland based on the age of construction… and the pervasive color “red” is bad.

While wood frame houses may fare reasonably well in an earthquake, the highest risk buildings are large structures made of brick. The term for these sorts of buildings in Portland is “unreinforced masonry” or URM for short. They are the buildings that give Portland all of its “character” like classic old apartment buildings and multi-use commercial and residential structures. Many schools, churches and community centers also fit in this classification. This article estimates that it would cost $4.6B to retrofit the remaining URM buildings in Portland. They also note that at the current rate of upgrades, it would take 100 years to complete the effort.

I read a different local article and an engineer put it most pithily

The value of an URM building is zero

I do see some building owners “biting the bullet” and doing a seismic upgrade. When I look out the window of my building I can see many of the older buildings that gabapentinoral have been upgraded in this manner, and many that have not. Here is a construction notification for a nearby 5 story masonry building that is being retrofitted.

There are two threads here that are most interesting to me:

1. How do owners of apartment buildings, where residents will most certainly be at higher risk of death during an earthquake, sleep at night? They talk about the costs of retrofitting as if it is an abstract event; but not doing so creates an economic externality of human misery that apparently they value very little if at all

2. Any mandate the city or region employs on URM will almost certainly drive gentrification because owners will have to invest in higher cost apartments and in turn raise rents; ironically, the city’s mandates on re-use and burden of oversight rules will make the future rent increases even more burdensome

The likeliest solution is some sort of “muddling along” in the near term. For valuable commercial and high rise residential locations, the inevitable commercial upgrades will drive the URM upgrades. For apartment buildings, the future is much dimmer, because if you are a landlord owning an URM building, you can’t raise and invest the money if your local competitors are just going to “accept” the URM risk (on behalf of their residents, ironically). In fact, it makes no sense at all to invest anything more than the cosmetic minimum in these URM buildings, which will move them down the road of being slums at some point in the future.

Cross posted at LITGM

Oregon allows recreational marijuana. Originally, there were laws limiting growers to local Oregon companies (when it was a medical marijuana industry) which were effectively eliminated when the transition was made to recreational usage (allowing out of state funding). There was also a relatively small local market for growing cannabis.

Dispensaries cropped up everywhere, even in seemingly small, out of the way tourist towns with only a few hundred souls. It seems that you can’t go far without seeing the “green cross” that symbolizes a marijuana dispensary. Unlike other states, Oregon apparently allowed anyone who met basic criteria to open a “weed store”.

While it surprised many of the locals who curated their wares and made custom strains of local cannabis, the free market reared its head and drove down prices on effectively undifferentiated product and storefronts. From the local WWeek newspaper:

A gram of weed was selling for less than the price of a glass of wine… we have standard grams on the shelf at $4… before we didn’t see a gram below $8… Wholesale sun-grown weed fell from $1500 a pound last summer to as low as $700 by mid-October.

As a result of this, there is significant consolidation in the market as smaller growers either bow out or are bought up and dispensaries are being purchased by large groups (often vertically integrated with growers) at fire-sale prices.

(the) Oregon cannabis industry is a bleak scene: small businesses laying off employees and shrinking operations. Farms shuttering.

One farm profiled in the article went into growing weed with the expectation of selling at $1500 a pound; when they finally had to liquidate most of their crop at a weed auction, they only received $100 a pound.

The entire Oregon recreational cannabis industry has played out exactly as you would expect in a market with few barriers to entry and a relatively undifferentiated commodity:

1. Suppliers rush in to take advantage of high prices for crops, turning what was originally a weed shortage (and resulting scarce supply) into a huge spike in supply which in turn drove down wholesale prices to almost nothing on the margin

2. Retailers who have little or no differentiation are being driven out of business by low profits or being forced to run at a loss

For me the interesting part of this is not the plain execution of basic market economics (in an industry with low barriers to entry, prices will drive down to near marginal cost of the most efficient operator), but in what that means to “adjacent” industries. For example, if a gram of (high quality) weed is the price of a single glass of wine (actually a lot less at $4… that is probably 1/3 of the price of a glass of decent wine at a standard restaurant), will customers switch from beer or wine to cannabis? From an economic perspective (cost / buzz) this would be a relatively clear-cut choice. Over time economists should chart the impact of low cannabis prices on both prices and consumption in adjacent alcohol industries.

Cross posted at LITGM

A thoughtful post about the impact of automation in aviation, and how some of the problems occurring in this field are also relevant to potential problems with automation in business:

Since the 1980s, automating various flight management operations has contributed to a profound improvement in air transport safety and effectiveness. But a related human issue — automation dependency — has emerged as a significant challenge to further improvements in safety levels. Automation can contribute to diminishing manual flying skills and increasing complacency, as pilots avail themselves of automatic flight management and navigation systems to aid much of their decision-making.

In some cases, pilots don’t fully understand the automatic processes controlling their sophisticated aircraft. The ironic enquiry “What’s it doing now?” is sometimes heard in the cockpit, as pilots struggle to figure out the actions of the “automatics”, as these systems are referred to on the flight deck.

Crucial as this is in the cockpit, automation dependency is equally problematic in many businesses today, whenever there is a disconnect between what managers think is going on and what is actually happening. The automation in question is not just technological, but also pervades the processes, algorithms, and reporting on which managers rely to inform their decision-making.

Aviation is addressing this phenomenon as a major problem and is seeking solutions. We suggest that many companies should do the same before their “business automatics” put them at risk of losing control.

RTWT

Reminds me of this aviation classic, a 1997 talk by an American Airlines pilot:  The Children of Magenta.

See also: Automation is Fragile, People are ‘Antifragile’ and my posts When Humans and Robots Communicate and Blood on the Tracks

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

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.

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.

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B&H Photo - Video - Pro Audio

It’s now required for publicly-traded companies to publish the ratio between the CEO’s annual compensation and that of the median employee.  That ratio is, for example,  367:1 at Disney (Robert Iger), 124:1 at Deere & Co (Samuel Allen), and 50:1 for Whirlpool (Jeff Fettig). Link

These numbers (which, it should be clarified, include seasonal and part-time employees) have caused much alarm in many quarters, and even referred to as heralding a “crisis of capitalism.”

But why stop at CEOs and other business executives when requiring this kind of analysis?  My idea is that there are many other fields in which high-visibility disclosures could be interestingly required…

In movies, for example, it should be required that the opening credits include the ratio of the pay of each of the top 5 stars to the median pay of the entire crew that worked on the film–including accounting clerks, boom operators, sweepers, and various ‘assistants to’.

In professional sports, team uniforms should display prominently the total value of the player’s current contract.  This feature would greatly add to the pleasure of fans, who could instantly and continuously compare the player’s financial value to his demonstrated, moment-by-moment playing-field value.

At colleges and universities, a sign out front of the president’s mansion should display the ratio of his compensation to that of the median faculty member, which category of course must include the starvation-paid adjunct professors.  (The compensation number for the president should certainly include the imputed value of his university-provided mansion and any other similar benefits, such as cars and drivers.)

For politicians, the disclosure problem is a little more complicated, since in many cases the main financial payoff for these jobs is in the form of “deferred compensation”, i.e., lobbying positions and consulting contracts offered after the term of office ends, in recognition of services rendered while in office.  About all I can think of for the politician class is that, for all public appearances, they must wear jackets, with the names of their top sponsoring/contributing organizations prominently emblazoned, in a manner similar to the way racecar drivers display the names of their sponsors.

There are probably a lot of additional possibilities for disclosure and transparency, which the ChicagoBoyz and Chicago Grrrlz and Readerz can surely suggest.

Concerning those who support the CEO pay-ratio requirement but would object to these further suggestions…I have to wonder if their primary agenda really concerns ‘inequality’ or is really about something else.

About a week ago, the WSJ ran an article titled Mark Zuckerberg is No James Madison.  The article argues that a constitution is similar to a block of computer code—a valid point, although I would argue it is also true of legislation and contracts in general…both the code, and the constitution/law/contract must be sufficiently clear and unambiguous to be executable without reference to their originators.

Then the article goes on to say that ‘the Constitution understands human nature.  Facebook, dangerously at times does not.  In designing the Constitution, Madison managed to appeal to people’s better angels while at the same time calculating man’s capacity to harm and behave badly. Facebook’s designers, on the other hand, appear to have assumed the best about people. They apparently expected users to connect with friends only in benign ways. While the site features plenty of baby and puppy photos, it has also become a place where ISIS brags about beheadings and Russians peddling misinformation seek to undermine the institutions of a free society.’

The attempt to create a parallel between Zuckerberg and Madison is a strange one, IMO, given the completely different nature of the work the two men were doing. Madison was attempting to create a new model for a self-governing country, Zuckerberg was attempting to make money for himself and his investors, and maybe to provide a little fun and value for his users along the way.

What I find especially problematic is the ‘therefore’ that the author draws:

Facebook insists it is not a media company. Maybe so. But unless it takes on the responsibilities of an editor and publisher by verifying the identities of users, filtering content that runs on its platform, and addressing the incentives to post specious or inflammatory “facts,” Facebook should expect to be policed externally.

But is Facebook really a publisher, or it is it more of a printer?  If someone..Ben Franklin in the mid-1700s or some corporation today…is running a printing shop, running printing jobs for all who will pay, should he or it be held accountable for validating the truth of the material printed and verifying the identities of the customers?

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The final months of World War II included the first-ever battle of robots:  on one side, the German V-1 missile and on the other, an Allied antiaircraft system that automatically tracked the enemy missiles, performed the necessary fire-control computations, and directed the guns accordingly. This and other wartime projects greatly contributed to the understanding of the feedback concept and the development of automatic control technology.  Also developed during the war were the first general-purpose programmable digital computers: the Navy/Harvard/IBM Mark I and the Army/MIT ENIAC…machines that, although incredibly limited by our presented-day, standards were at the time viewed with awe and often referred to as ‘thinking machines.’

These wartime innovations in feedback control and digital computation would soon have enormous impact on the civilian world.

This is one in a continuing series of posts in which I attempt to provide some historical context for today’s discussions of automation and its impact on jobs and society…a context of which people writing about this topic often seem to have little understanding.

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An interesting piece on the automation of trucking, with an extensive comment thread.  Many of the commenters have practical experience in the trucking industry and in automation work in other industries such as sawmills.