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  • Archive for the 'Economics & Finance' Category

    Disruption – The Weed Market in Oregon

    Posted by Carl from Chicago on 20th April 2018 (All posts by )

    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

    Posted in Business, Economics & Finance, Oregonia | 22 Comments »

    More and Better Disclosures!

    Posted by David Foster on 29th March 2018 (All posts by )

    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.

    Posted in Academia, Business, Capitalism, Economics & Finance, Leftism, Sports, USA | 10 Comments »

    Worthwhile Reading & Viewing

    Posted by David Foster on 4th March 2018 (All posts by )

    Bioluminescence at American Digest

    Some thoughts on storytelling

    Peer influence among adolescents as a driver of transgenderism

    Sarah Hoyt: “Have most institutions, stores and corporations, most large human organizations, gone stone stupid?”

    3-D printing in the manufacture of GE’s new turboprop engine

    Jim Grant, the well-known observer and analyst of interest rates, asks “what will futurity make of the (so-called) PhD standard that runs our world?” and suggests that, after a major market crash, explanations will include “My generation gave former tenured economics professors discretionary authority to fabricate money and fix interest rates.”

    Reminds me:  Danielle DiMartino Booth, who took a job at the Fed following a successful career on Wall Street, remarked that she did not experience discrimination on account of her sex…but she did face serious prejudice against her on account of not having a PhD.

    Posted in Economics & Finance, Human Behavior, Management, Organizational Analysis, Science, USA | 22 Comments »

    Attack of the Job-Killing Robots, Part 3

    Posted by David Foster on 13th February 2018 (All posts by )

    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.

    Read the rest of this entry »

    Posted in Business, Economics & Finance, History, Tech | 10 Comments »

    The Details of Work and the Realities of Automation

    Posted by David Foster on 5th February 2018 (All posts by )

    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.

    Posted in Business, Economics & Finance, Tech, Transportation | 7 Comments »

    Are Those Robots Slacking Off on the Job?

    Posted by David Foster on 23rd January 2018 (All posts by )

    Much concern is being expressed these days about technological unemployment driven by robotics, artificial intelligence, etc.  But labor productivity numbers have been more in the direction of stagnation than in the direction of a sharp break upwards…see for example this BLS analysis.  Note especially Chart 5, which compares productivity growth in three periods:  1947-2007, 2001-2007, and 2009-2016.

    See also this piece, which looks at total factor productivity across continents.

    So, what is going on here?  Why have the remarkable innovations and heavy corporate and government investments in technology not had more of a positive effect on productivity?  I have my own ideas, but am curious about what others think.

    Posted in Business, Economics & Finance, Management, Tech, USA | 6 Comments »

    Disruption – MoviePass

    Posted by Carl from Chicago on 7th January 2018 (All posts by )

    MoviePass is a service that has gained a lot of new users lately – it allows you to see unlimited movies (only one a day) each month for $9.95, which is essentially the price of a single ticket. How it works is that they give you a Mastercard that is connected to your mobile phone – when you get to the theater, you connect with them at that time and they authorize the card specifically for the amount needed to pay for the movie and then you pay and go inside. The process is set up so that theaters can’t deny MoviePass at the box office because it is basically just another Mastercard and the only way to disable it would be to disable accept MasterCard, which is impractical or likely impossible for a host of reasons. The movie theaters receive the full price of the ticket through MoviePass, even if it is more than the $9.95 subscription fee (movies can cost almost $20 in Manhattan, for instance). In the short term, this is a “boon” for movie theaters because Wall Street investors are subsidizing their full price tickets.

    Here is a NYT article on the growth of MoviePass. Per the article, they are adding 1 million subscribers a month. The ostensible play (what they say) is that they plan to “break even” on the cost of the service (if you see roughly one movie / month) but then they will make their money on using data from customers in an aggregated fashion to sell to the movie studios for marketing and targeting. They believe that this data and targeting consumers can add 5-7% to the box office gross. Note that the guy who helped found MoviePass was an executive at Netflix and RedBox named Mitch Lowe and he is very sophisticated financially and connected so he is a serious rival to the movie industry in general.
    Read the rest of this entry »

    Posted in Economics & Finance, Tech | 6 Comments »

    2017 Reading, continued

    Posted by David Foster on 30th December 2017 (All posts by )

    Fed Up, by Danielle DiMartino Booth. Following a successful career on Wall Street, the author in 2008 took a job as an analyst with the Federal Reserve Bank of Dallas.  In this primarily-male organization, she did not experience discrimination on account of her sex…but she did face serious prejudice against her on account of not having a PhD.  Her take on the Fed is that is is far too theoretical in its approach and too limited in the backgrounds of its staff:

    Grasping the modus operandi of the Federal Reserve requires first anchoring in your mind two words: hubris and myopia.  We know better than you.  Only our models can decipher and predict the economy.

    The Fed’s battalion of economists–from the top down–believe that their training in the world’s top universities and their unique schooling in analysis gives them wisdom and insight, when in fact their training often blinds them to reality…Virtually no one I met at the bank had ever worked on Wall Street, managed a business, or handled their own investments.

    Indeed, her negative view of the Fed pretty much extends to the economics profession as a whole   Referring to a letter signed by 364 prominent economists in March 1981, which predicted disaster as a result of Margaret Thatcher’s fiscal policies, she approvingly quotes Geoffrey Howe, chancellor of the exchequer, to the effect that an economist was like “a man who knows 364 ways of making love, but doesn’t know any women.” She also cites a 1991 report by the American Economics Association which concluded that university economics programs “may be turning out a generation with two many idiot savants, skilled in technique but innocent of real economic issues.”

    One Fed official that she does speak of very highly is Richard Fisher, who was president of the Dallas Fed when she was there and was a noted critic of the way the quantitative easing program was carried out.  (He is now an advisor to Barclays and a member of the PepsiCo board.)

    Forgotten Victory, by Gary Sheffield.  This is basically a revisionist history of the First World War.  The author argues that–contrary to common opinions–the war, although tragic, was not futile, and that the British Army was not the incompetent organization as which it has often been portrayed, but rather was an institution which developed the ability to learn and to adapt:

    The (British Expeditionary Force) did not simply gape at the trenches with incomprehension in the winter of 1914-15.  Instead, British soldiers at all levels began a process of innovation and experimentation as the BEF rapidly began to adjust to the new conditions of warfare.

    If a unit bethought itself of some useful improvisation, such as a new method of firing rifle grenades, carrying rations or making ingenious loopholes combining a better field of fire with greater safety, details were collected and circulated by Army Headquarters. 

    One area of technical innovation cited by the author was in the artillery.  ‘Predicted’ bombardments, using improved calculation methods which accounted for variation in individual guns as well as such factors as wind speed, allow the preliminary ‘registration’ fires to be dispensed with or at least shortened, thereby increasing the element of surprise.  The instantaneous fuse, which triggered the burst before the shell buried itself in the ground, greatly improved the artillery’s effectiveness at cutting barbed-wire entanglements.  And sound ranging, which has been described as ‘the Manhattan Project of the Great War’, employed some first-class scientific minds and resulted in the ability to locate and destroy enemy artillery positions more effectively.

    More important than the technical and tactical points, of course, is the question of whether the war was really necessary at all.  The author argues that, at least from Britain’s standpoint, it was.

    This book probably deserves a stand-alone review and discussion thread.

    The Green Glass Sea, by Ellen Klages.  I picked this up at a book sale…it is actually a children’s book, recommended for grades 5-8, but makes it good adult reading as well.  Dewey Kerrigan, a 10-year-old aspiring inventor, sets off on a cross-country train trip to be with her father, who is engaged in war work.  She is engaged in designing a radio when a fellow passenger, Dick Feynman, offers to help her.  They are both bound for the same destinations, Los Alamos.

    There is also a sequel, White Sands, Red Menace.

    Posted in Book Notes, Britain, Economics & Finance, History, War and Peace | Comments Off on 2017 Reading, continued

    Disruption – Delivery

    Posted by Carl from Chicago on 28th December 2017 (All posts by )

    Traditionally the big companies that handle “last mile” package delivery are Fed Ex (ticker: FDX), UPS (ticker: UPS), and of course the US postal service. These companies have hundreds of thousands of employees (often unionized) and billions of dollars of planes and trucks and other transportation assets.

    Amazon (ticker: AMZN) recently began expanding their transportation capabilities, both in the form of their own airplanes and leveraging an “Uber-like” workforce of contractors leveraging an app to deliver packages in their own cars with a program called “Amazon Flex“.

    Read the rest of this entry »

    Posted in Economics & Finance, Tech | 17 Comments »

    Technology, Work, and Society – The Age of Transition

    Posted by David Foster on 15th December 2017 (All posts by )

    I recently read an intriguing book concerned with the exponential advances in technology and the impact thereof on human society.  The author believes that the displacement of human labor by technology is in its very early stages, and sees little limit to the process.  He is concerned with how this will affect–indeed, has already affected–the relationship between the sexes and of parents and children, as well as the ability of ordinary people to earn a decent living.  It’s a thoughtful analysis by someone who clearly cares a great deal about the well-being of his fellow citizens.

    Read the rest of this entry »

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    Posted in Book Notes, Britain, Business, Capitalism, Civil Society, Deep Thoughts, Economics & Finance, History, Society, Tech | 14 Comments »

    Worthwhile Reading

    Posted by David Foster on 15th November 2017 (All posts by )

    A law professor writes about undoing the dis-education of Millenials.

    Small liberal arts colleges:  self-destruction via runaway administration.

    Ammo Grrrll doesn’t share the obsession about ‘people who look like me’.

    Are we living in the dystopia that Young Adult fiction warns us about?

    The Assistant Village Idiot has some thoughts about local aristocracy and the nationalization of culture.

    Bolshevism and Militant Islam.  Some thoughts about historical parallels from Niall Ferguson, with comments by Stuart Schneiderman.

    The current Senate tax bill draft contains some very bad ideas about taxation of employee stock options and restricted stock grants.

    Posted in Business, Economics & Finance, Education, History, Islam, Leftism, Russia, Society | 3 Comments »

    Apple Pay for Better Security

    Posted by Carl from Chicago on 11th October 2017 (All posts by )

    Over the last year I’ve had several opportunities to drive to remote parts of Oregon. Often we stop by a local grocery / convenience store to pick up groceries or a snack. These stores are small and often with a single check out lane and a very quaint atmosphere of old-time store goods.

    A bit of fun for me is to walk up to the credit card reader which usually has the icon for near field connectivity (NFC) and I surreptitiously use my Apple Watch with Apple Pay enabled to quickly pay for groceries without taking out my credit card. The cashier gets flummoxed and wonders what happened, and I show them my Apple Watch with my card image and they laugh.

    What is sad is that Apple Pay works “out of the box” at most of these remote grocery stores but it doesn’t work at many of the large retailers in the city. Instead of encouraging Apple Pay or similar google technologies, the retailers want to control the experience and the data and so they turn off this feature. You have the unfortunate alternative of putting your credit card in the chip reader and waiting for 5-10 seconds which slows the line for the whole process. Worse than the inconvenience is the fact that Apple Pay is much more secure than any card reader – Apple Pay doesn’t provide your “real” credit card to the store, instead it uses a “token” for the transaction.
    Read the rest of this entry »

    Posted in Business, Economics & Finance, Oregonia, Tech | 11 Comments »

    Robot Emeritus

    Posted by David Foster on 24th September 2017 (All posts by )

    Prior to WWII, only a small minority of Americans had checking accounts. With the postwar economic boom and with some promotion (here’s an ABA video intended to educate Americans about the virtues of the check), the number of checking-account-holders grew sharply, and the problem of processing all the checks became an increasingly large absorber of clerical workers.

    Attempting to dig itself out of the paperwork flood, Bank of America hired Stanford Research Institute to develop an automated solution.  The prototype system, called ERMA, was operational in early 1956.  The now-familiar MICR characters, printed in magnetic ink, were introduced to provide automatic account identification, so that only the amount of the check needed to be entered manually.  An ERMA system maintained account data (for up to 32000 customers) on a magnetic drum, so that overdrafts and stop-check requests could be identified in real time.  An automated check-sorting machine was included in the system.

    EMRA employed 8000 vacuum tubes and drew 80KW of power….it was not a stored-program computer but was wired for its specific function.  Development of follow-on production machines, which were solid-state and stored-program, was accomplished by NCR and GE.

    It still seems remarkable that checks…flimsy paper documents that are often treated pretty roughly…can be processed and sorted at 10 per second (in the case of ERMA) or even faster in the case of follow-on systems.  I read somewhere that when the ERMA system was being demonstrated to GE CEO Ralph Cordiner, he took one of his own checks, folded it in half, dropped in on the floor and stepped on it a couple of times, and then requested that it be included in the processing run.  Apparently the system handled it just fine.

    Some ERMA history

    A GE computer at work in a Chicago bank, in 1960

    I post items like this because they provide needed perspective in our present “age of automation” when there is so much media focus of robotics, artificial intelligence, and ‘the Internet of Things,’ but not a whole lot of understanding for how these fit on the historical technology growth trajectory.

    Previous Robot Emeritus posts:

    Railroad Centralized Traffic Control, 1927

    Manufacturing Automation, 1960

    Posted in Business, Economics & Finance, History, Tech | 1 Comment »

    Summer Rerun: Stupidity – Communist-Style and Capitalist-Style

    Posted by David Foster on 22nd September 2017 (All posts by )

    There’s an old story about a Soviet-era factory that made bathtubs. Plant management was measured on the total tonnage of output produced–and valves & faucets don’t add much to the weight, certainly not compared with the difficulty of manufacturing them. So the factory simply made and shipped thousands of bathtubs, without valves or faucets.

    The above story may be apocryphal, but the writer “Viktor Suvorov” tells an even worse one, based on his personal experience. At the time, he was working on a communal farm in Russia:

    The General Secretary of the Party set a task: there must be a sharp rise in agricultural output. So the whole country reflected on how best to achieve this magnificent aim.

    The fertilizer plant serving the communes in Suvorov’s area resolved to do its part:

    A vast meeting, thousands strong, complete with brass bands, speeches, placards, and banners, was urgently called at the local Chemical Combine. To a man, they shouted slogans, applauded, chanted patriotic songs. After that meeting, a competitive economy drive was launched at the Chemical Combine to harvest raw materials and energy resources.

    The drive lasted all winter, and in the spring, on Lenin’s birthday, all the workers came in and worked without pay, making extra fertilizer from the materials that had been saved…several thousand tons of liquid nitrogen fertilizer, which they patriotically decided to hand over, free of charge, to the Region’s collective farms.

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Management, Russia | 16 Comments »

    Summer Rerun – Book Review: Wolf Among Wolves

    Posted by David Foster on 31st August 2017 (All posts by )

    Little Man, What Now?, which I reviewed here, impressed me enough to look up some of the other works by author Hans Fallada. I was also impressed with his Wolf Among Wolves, published later than LMWN, but set in an earlier period: 1923, the time of the great Weimar inflation. It tells the story of a collapsing society through the intertwined lives of many characters, who include:

    Petra Ledig, a sweet-natured girl from a rough background in Berlin, driven into prostitution by financial desperation. On impulse, she asks one of her clients to take her home with him, and he does. That man is…

    Wolfgang Pagel, son of a fairly-well-off but overprotective and controlling mother–the mother being less than thrilled about his relationship with Petra. Wolf supports himself and Petra, in a very marginal way, by working as a professional gambler. One day in Berlin, Wolf meets up again with an old Army acquaintance…

    Joachim von Prackwitz, who everyone calls the Rittmeister (cavalry captain). The Rittmeister married the daughter of a major landowner in East Prussia and is now managing a large farm at Neulohe under lease from his father-in-law, who cannot stand him…indeed, the father-in-law does everything he can to make the Rittmeister’s life miserable, including for example scheming to increase his portion of the electric bill from the estate’s shared diesel generator. (This is surely the only novel I’ve read in which depreciation and cost-allocation calculations come into play.) The Rittmeister was known in the Army as a brave if not terribly bright officer and a good comrade, but he is having great difficulty in dealing with the pressures of his civilian life.

    Eva, the Rittmeister’s well-balanced and long-suffering wife, is losing confidence in her husband and is very worried about the erratic and mysterious behavior of her daughter Violet, an attractive 15-year-old who has developed a passionate and secret crush on…

    The Lieutenant, agent for a group of former military men who are plotting a putsch against the Weimar government

    Mr Studmann, another Army friend of Wolf’s, who has been working as front-desk manager for a hotel. He and Wolf are both invited by the Rittmeister to leave Berlin and come help with the running of the farm. Despite his total lack of agricultural experience, Studmann turns out to be a very effective manager, using the skills he developed at the hotel. Eva is drawn to Studmann, seeing in him the stability and rationality that are absent in her husband–and he is VERY attracted to her.

    Raeder, a young and deeply weird servant who has an unwholesome sexual attraction toward Violet

    One “character” never absent from the story is the mark, the German unit of currency. In fact, the valuation of the mark is mentioned in the very first page of the book:

    This is Berlin, Georgenkirchstrasse, third courtyard, fourth floor, July 1923, at six o’clock in the morning. The dollar stands for the moment at 414,000 marks.

    (By the end of the period covered in the story, the dollar-to-mark conversion rate was a trillion to one.)

    A few samples of the writing. Here, a description of Violet’s attraction toward the Lieutenant:

    He was quite different from all the men she had yet known. Even if he were an officer, he in no way resembled the officers of the Reichswehr who had asked her to dance at the balls in Ostade and Frankfurt. The latter had always treated her with extreme courtesy; she was always the “young lady” with whom they chatted airily and politely of hunting, horses, and perhaps of the harvest. In Lieutenant Fritz she had as yet discovered no politeness. He had dawdled through the woods with her, chatting away as if she were some ordinary girl; he had taken her arm and held it, and had let it go again, as if this had been no favor…Just because he thought so little of her, because his visits were so short and irregular, just because all his promises were so unreliable…just because he was never polite to her, she had succumbed to him almost without resistance. He was so different. Mystery and adventure hovered around him…Infinite fire, mysterious adventure, a wonderful darkness, in which one may be naked without shame! Poor Mamma, who has never known this! Poor Papa–so old with your white temples! For me ever new paths, ever different adventures!

    Read the rest of this entry »

    Posted in Book Notes, Civil Society, Economics & Finance, Germany, History | 6 Comments »

    Robots Emeritus

    Posted by David Foster on 3rd August 2017 (All posts by )

    An interesting video from 1955 on manufacturing automation.

    How many of the people who are today projecting a technology-driven employment apocalypse have any idea that the industrial automation technology of 62 years ago was as capable as that shown in this video?

     

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    Posted in Business, Economics & Finance, History, Tech | 10 Comments »

    “ObamaCare Fines Nailed The Working Class In 2017 And Other Unpopular Truths”

    Posted by Jonathan on 29th July 2017 (All posts by )

    Investor’s Business Daily:

    Preliminary data from the 2017 tax season are in, and they’re shocking. Not only does it look like the working class bore the brunt of ObamaCare individual mandate penalties this year, but people with relatively modest incomes apparently paid a lot more than the Congressional Budget Office anticipated.
     
    [. . .]
     
    The 2017 tax data offer new evidence that there’s much to be gained by moving away from the individual mandate and much to lose by sticking with it. Tax returns that had been processed as of April 27 included 4 million that paid ObamaCare fines (officially known as individual shared responsibility payments), with an average payment of $708.
     
    What is striking about the data is that the average payment is barely higher than the minimum payment of $695. Since people were required to pay the greater of $695 or 2.5% of taxable income above the filing threshold ($10,350 in 2017), one takeaway is that most of the $2.8 billion in fines paid through April appear to have come from people with modest to moderate incomes. As a frame of reference, CBO’s 2014 analysis implied that the average mandate payment for this tax season would be roughly $1,075 and that the total amount paid by people earning up to three times the poverty level would barely exceed $1 billion.

    There is much more interesting information in the article. Worth reading in full.

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    Posted in Big Government, Economics & Finance, Health Care, Obama, Politics | 19 Comments »

    Summer Rerun: Applied Networking in the Early 1900s

    Posted by David Foster on 23rd June 2017 (All posts by )

    An on-line discussion board in 1907

    Interesting that girls as well as boys were participants in this network.

    Using networking technology for a stock trading edge, 1914-style

    A precursor of today’s high-frequency trading

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    Posted in Economics & Finance, Society, Tech | Comments Off on Summer Rerun: Applied Networking in the Early 1900s

    The Apprentices

    Posted by David Foster on 17th June 2017 (All posts by )

    If anyone would like to discuss President Trump’s proposal for an expanded role for apprenticeship programs in America…and related broader issues of workforce training and skills development…this is the place.  Some useful links:

    Trump’s remarks on signing the executive order

    Text of the executive order

    Comments by Ivanka Trump and Labor Secretary Alex Acosta

    Existing Federal regulations re apprenticeship programs

    (There are also state regulations)

    Thoughts?

    Posted in Business, Economics & Finance, Trump, USA | 12 Comments »

    USS Jackson at Portland Fleet Week… and Disruption Hits the Navy

    Posted by Carl from Chicago on 10th June 2017 (All posts by )

    Portland, Oregon hosts “fleet week” where navy ships (including from Canada) dock alongside the river right next to downtown and offer tours and set up booths and the like. This year I was excited because USS Jackson, an Independence Class Littoral combat ship was arriving and I would get to see what an advanced combat craft looks like up close. I also found out a key link to “disruption” which has been a theme of my recent analysis and posts.

    The first thing you notice is the unique hull (compared to traditional warship designs). This design is supposed to let it operate in shallow waters near coastlines and also deliver very high speed – up to 50 knots – although the top speed is classified. The navy had a chain link fence up and armed guards with M16 weapons and a sign saying “use of deadly force authorized” so they were not kidding around.

    That same day I received my copy of “Modern War”, a magazine published by Strategy and Tactics Press (and I highly recommend that you subscribe to their publications, they are a solid and interesting publishing house) which just happened to profile the Independence Class ships on p68-70 of their July – August issue. Some highlights:

    They are controversial because of their limited basic armament and expensive construction costs. Senior naval leaders argue the mission flexibility and extensive automation provide a vast array of capabilities with fewer personnel and platforms than traditional designs. Construction and operating costs dominate budget discussions and headlines because they come ‘up front’. Today, however, personnel costs constitute 62% of the annual Department of Defense Budget.

    Read the rest of this entry »

    Posted in Economics & Finance, Military Affairs, Tech | 37 Comments »

    Have American Workers Been Chronically Exploited?

    Posted by Kevin Villani on 17th April 2017 (All posts by )

    For centuries leading up to the Bicentennial in 1976 the American Dream of perpetually rising living standards has been paid for with wages that rose faster than prices. During the post WW II era worker productivity – as measured by output per hour – has continued to rise at a constant rate. Wages rose in lockstep with increasing productivity until the mid 1970s, but have since stagnated, rising only 15% as much (11% as compared to 75%) through 2016, as reported by the think tank EPI. The view from the left is that the wealthy owners and managers of capital have expropriated 85% of the fruits of labor, implicitly reflecting the decline of unionization of the private labor force from about one in three workers in the 1950s to one in twenty today. Their policy proposals reflect this perception of exploitation.

    Politicians promote “Social Justice” through protection and redistribution
    Even Karl Marx never expected capitalists to be this successful at exploiting workers, exceeding even that of 19th century robber barons and pre-Civil War southern plantation owners who at least provided their slaves basic sustenance. Politicians have responded with labor protections and income subsidies.

    For example, the Obama Administration strongly supported (and was generously supported by) public sector unions. It also supported the expansion of private sector unionization through such policies as card check and Davis Bacon “prevailing,” i.e., union, wages for construction. It also supported “living wage” laws and raised the federal minimum wage, with states following and in some cases leading. In addition, restrictive state certification rules have increased five-fold since the 1950s.

    Politicians also responded by supporting a rising standard of living with welfare state income redistribution policies. Obama-Care made health insurance universal and the percentage of the population receiving food stamps rose by 32%. In addition, those receiving disability payments rose about 50% during the last decade, despite the decline in risky manufacturing jobs.

    These labor and subsidy policies all have roots in the response to the Depression of 1929/30, before it became “Great.” FDR – following Hoover – supported private – but strongly opposed public – sector unionization and a high wage policy, successfully keeping wages 40% above their market clearing rate according to a 2009 article. Social Security was introduced by FDR’s Labor Department and food stamps by his Agriculture Department (food perishables were purchased by the government to keep farm prices inflated and taken off the market, then distributed to the poor to save storage costs).
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    Posted in Economics & Finance | 5 Comments »

    Disruption – Liquor

    Posted by Carl from Chicago on 14th April 2017 (All posts by )

    “Disruption” is a word usually reserved for hyped sectors of the economy like technology and “Uber” is the ubiquitous example that even a child would recognize. However, there are other components of the economy ripe for disruption, especially those that are heavily regulated, which generally causes significant distortions, monopolistic behavior, regulatory capture, high prices, and a lack of innovation.

    The liquor industry is a heavily regulated industry, with layers of distributors and obscure rules which enforce local monopolies, entrench incumbents (often with inferior products), and provide many opportunities for the government to extract tax income and solicit donations from favored groups. Typically liquor uses a “three tier” system, where there is a producer, a distributor, and a retail outlet (a store or a bar). This is a system ripe for disruption.

    Alongside this archaic regulated system (which works for the benefits of the government and the local monopolies), there was a multi-decade process of concentration within the liquor industry, as local beer manufacturers were bought up by massive multinationals, culminating in the InBev company which controls a huge chunk (28%) of world-wide beer sales. If it wasn’t for the craft beer counter-revolution (see below), the epic consolidation of the liquor industry would have gone on indefinitely, bringing out “innovations” like Bud Light Lime.

    Some of the components of the disruption of liquor in Oregon include:
    1) Craft breweries or brewpubs which brew their own beer (and cider) and can sell it onsite
    2) Distilleries able to make their own spirits and sell themselves out of their facility
    3) New technologies such as Growlers or Crowlers which enable customers to fill directly from a keg into a re-usable container and take the beer home to drink
    4) This is all in addition to the vast wineries (seemingly everywhere) that can sell directly and even ship to many states

    Craft Breweries:

    Portland and Oregon have been leaders in the craft beer movement, enabled by laws (passed against the political power of the beer distributors) which allowed for the brewpubs to sell their own alcohol.
    This article describes how the modern brewery was instituted in Oregon.The “beer culture” is everywhere, with 116 breweries within an hour of Portland, as evidenced by the cover of this recent magazine I picked up. Here is a link to the magazine online.

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    Posted in Economics & Finance, Oregonia | 11 Comments »

    Worthwhile Reading

    Posted by David Foster on 7th April 2017 (All posts by )

    Jamie Dimon of JP Morgan is, IMO, one of the more thoughtful of the financial industry CEO’s.  In his annual letter to shareholders, he devotes considerable space to the current situation of the United States–our assets, our problems, and potential paths for improvement.  The public policy section of the letter starts on page 32.

    My view of several issues is different from Mr Dimon’s, but I think the letter is well worth reading and thinking about.

    (Disclosure:  I’m a JPM investor)

    Posted in Business, Capitalism, Economics & Finance, Education, Entrepreneurship, Immigration, USA | 13 Comments »

    Our Quasi-Soviet Fiscal Policy

    Posted by Kevin Villani on 5th April 2017 (All posts by )

    “It’s like deja vu all over again.”

    Do Yogi Berra‘s words of wisdom apply to the “new” trillion dollar “public infrastructure” program? The last program, still unpaid, focused on “shovel-ready” projects but somehow missed most potholes. Meanwhile, private companies are prepared to spend $100’s of billions on a new fiber optic internet super highway.

    Is the current proposed public spending program more likely to pay off for taxpayers than the last one?

    Historical Precedent

    When the hammer and sickle flag was lowered for the last time in Moscow on December 25, 1991, the international finance agencies created in Bretton Woods in 1944, led by British economist John Maynard Keynes and the Undersecretary of the U.S. Treasury Harry Dexter White, found a new mission.

    The International Monetary Fund (IMF), which is a “bank” according to Keynes, provided the financial infrastructure for international trade. The World Bank (WB), or a “fund” according to Keynes, was promoted by, known communist and accused Russian spy, Undersecretary White to help reconstruct European infrastructure, but primarily Russia’s infrastructure, in the wake of WW II destruction.

    The IMF lost its raison d’être in 1971 after President Nixon eliminated dollar convertibility into gold, ending the Bretton Woods function. Russia turned down World Bank membership, so the Bank turned to lending for infrastructure projects in the “underdeveloped” nations, which by 1991 faced overwhelming political obstacles.

    Assisting in the conversion of formerly centrally planned economies into capitalist market economies became the finance agencies’ new post-Soviet mission. However, few people had much of an idea of how to accomplish this. It had never been done before, and the IMF and WB were particularly ill-equipped as their charter limited them to lending only to governments. They were essentially statist organizations with little experience with (or sympathy for) competitive private markets (which helps explain why they remain chronically underdeveloped).

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    Posted in Big Government, Economics & Finance, Organizational Analysis, Politics, Public Finance, Russia, Trump | 3 Comments »

    Congestion

    Posted by Jonathan on 27th March 2017 (All posts by )

    June 2017 T-Bond Futures (Daily)

    Multiple choice bond quiz:

    1) The fix is in.

    2) The longer this continues, the higher the odds of a big move, probably lower in price, after one of the next breakouts.

    3) Both 1 and 2.

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