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    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?

     

    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.

    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

    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).
    Read the rest of this entry »

    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.

    Read the rest of this entry »

    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).

    Read the rest of this entry »

    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 »

    Mid-Life Crisis and Alternate Universes

    Posted by Carl from Chicago on 25th March 2017 (All posts by )

    One of my favorite Onion jokes of all time is “Alternate-Universe James Hetfield Named Taco Bell Employee of the Month“. This genius post encapsulates the randomness of the world we live in, since the likelihood of James Hetfield being a guy who does odd jobs, plays guitar in a basement, and loves metal is so much infinitely higher than the odds are that he becomes a rich superstar as the singer of Metallica.

    This philosophical view is somewhat similar to Taleb’s theories in “The Black Swan” and his other books where, if you did your life over and over, you would get vastly different results and individuals attribute too much of their luck and good fortune to their specific actions and experience. We are all dealing with the “Survivor’s paradox”, where those who did well get to tell their tale and those who didn’t fare so well are essentially erased from the common consciousness.

    I saw this car down in my garage in Portland and thought to myself “This is the alternate universe for Carl” which is to just keep my prior job and old way of life and buy a shiny new expensive car (this is a Bentley, I would have bought a new BWM 7 Series, but who’s counting) as a distraction. That would have been a fine life, a life I understood, and the car purchase would have been a modest but visible change and distraction from what was otherwise a quite predictable path.

    Instead, however, I changed everything, by moving jobs and careers and physically relocating away from my entire ecosystem of family and friends to the Pacific Northwest. This was a vast change, much larger than cosmetically purchasing a new conspicuous automobile. Starting a new job forced me to change everything, from the way I listened and studied, to the way I interacted with the environment around me. I went from walking to work to commuting by car (like 90% of the world) which is a primary negative, although at least I have been listening to podcasts which turn that driving time which was initially pure frustration into at least a positive learning experience.

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Personal Narrative | 10 Comments »

    Free Trade with a Hostile Mercantilist Empire?

    Posted by Kevin Villani on 14th March 2017 (All posts by )

    2017 marks the 200 year anniversary of David Ricardo’s publication on the theory of comparative advantage that underlies the economic case for free trade. Several years later Frederic Bastiat wrote the satirical Candle Maker’s Petition debunking the arguments in favor of protectionism. This was an ironic choice, as candle makers were politically protected by the Founding Fathers as necessary for the Revolutionary War. These protections lasted several centuries, and in 2016 Senator Chuck Schumer sought it re-instated on grounds of unfair competition from China.

    President Trump’s trade representative economist Peter Navarro is making both the political and economic case against free trade with China, which he considers a mercantilist trader with military ambitions hostile to the U.S.

    Navarro’s political case is an update of that faced by the Founders regarding candle making. China is viewed as pursuing a trading strategy to accumulate wealth and technical know-how to challenge the U.S. militarily in the South China Sea and globally. China’s mercantilist trade practices result in huge export surpluses with the U.S. He argues that China uses this advantage to weaken America’s industrial base and future defensive capability.

    While economists can’t reject this political concern out of hand, it does seem several decades premature given the relative size of the two countries’ navies. At present the US could quickly secure sources of supply for military purposes, and protectionism tends to linger for decades or even centuries.

    The second case against free trade with a mercantilist trader relates mostly to the loss of jobs due to “unfair” competition, i.e., not due to inherent comparative economic advantages as much as political subsidies, in China’s case a purportedly cheapened currency and weak labor and environmental protections. The standard argument is that such trade generally benefits consumers at the expense of high cost producers, resulting in a less political more fair distribution of consumption as well as a higher overall level. Read the rest of this entry »

    Posted in Big Government, Business, China, Economics & Finance, International Affairs, Japan, Markets and Trading, Politics, Public Finance, Trump | 11 Comments »

    US Infrastructure Will Be Broken Forever

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

    Recently I visited Cathedral Park in Portland, which lies beneath the St. Johns Bridge.  The St. Johns Bridge is a magnificent structure, built in 1931, during the height of the depression.

    Portland is a city of bridges.  These bridges were mostly built long ago, when construction projects were feasible in terms of costs and delivery time frames were measured in years, not decades (when approvals, funding, environmental contingencies, etc… are factored in).

    Today the Portland metropolitan area, which includes large Washington communities north of the city, faces severe constraints on traffic and there is widespread local agreement that commute times are growing longer and in some instances intolerable.  I know individuals in Chicago, LA or NYC that would laugh at commute times that aren’t 2+ hours but that is little consolation to the locals who previously had been able to drive around the metro area with relative ease.

    Many of these bridges need to be replaced for multiple reasons – the Pacific Northwest is an earthquake zone and most of these bridges are not built to survive a quake, traffic on the bridges is soaring and causing delays throughout the system because they function as bottlenecks, and frankly bridges cannot last forever without collapsing.

    And yet… it will never happen.  I am confident that we won’t be able to raise the billions that it will take to build these bridges and lawsuits and environmentalists would create innumerable roadblocks (with accompanying cost increases and delays) so that even difficult projects will become impossible. There is an utter breakdown in funding, public will, solid execution, and all the fundamental components that make infrastructure possible.  While China has built giant, soaring cities, we can’t even replace bridges and roads built 100 years ago.
    Read the rest of this entry »

    Posted in Economics & Finance, Oregonia, Transportation | 54 Comments »

    Dodd-Frank, Obamacare grew out of same faulty reasoning

    Posted by Kevin Villani on 6th March 2017 (All posts by )

    The current partisan war over the Dodd-Frank Act is just one dispute in a broader ideological divide about the government’s role in industry. This dispute, which has deep historical roots, includes a similar battle over Obamacare. The common disagreement at issue with both laws — now in the cross hairs of a GOP-controlled Washington — is the extent to which politicians should subsidize their constituents indirectly through regulation of private companies.

    The Affordable Care Act governing health insurers was about 1,000 pages, and Dodd-Frank governing most other financial institutions was more than twice that. Both stopped short of nationalizing their respective industry, instead generating more than 10 pages of regulation for every one page of legislation, although many view nationalization as an eventual but inevitable consequence, particularly for health care.

    The distinction between public control and public ownership is the primary distinction between the competing mid-20th-century ideologies of fascism and communism. In contemporary terminology, this distinction is between crony capitalism and nationalization, neither of which can be reconciled with competition and freedom of choice.
    Read the rest of this entry »

    Posted in Big Government, Business, Capitalism, Crony Capitalism, Economics & Finance, Health Care, Obama, Political Philosophy, Public Finance, Systems Analysis | 10 Comments »

    Worthwhile Reading

    Posted by David Foster on 4th March 2017 (All posts by )

    Simulating a microprocessor with techniques similar to those used in neuroscience raises some cautionary thoughts about conclusions being drawn in the later work.

    Don Sensing links his 2014 post:  America is adopting the Middle East model, and he’s not talking about Islam but rather about the   fact that “At an increasing pace, politics in the West, especially in America, is the surest way to wealth, a 180-out from the West’s history”…but consistent with the way things have worked for millennia in the Middle East.

    Anthony Esolen:  We are a people now illiterate in a way that is unprecedented for the human race. We can decipher linguistic signs on a page, but we have no songs and immemorial stories in our hearts.

    Wendy McElroy on “social justice warriors” and the persecution of heretics.

    Despite about all the automation innovations and the concerns about robots taking all the jobs, manufacturing productivity may really not be showing much in the way of an upward trend.

    Management and meaningful work, studied via Legos

    Posted in Civil Society, Deep Thoughts, Economics & Finance, Human Behavior, Leftism, Management, Medicine, Middle East, Science, Tech | 1 Comment »

    Some Thoughts on Trump, Free Trade, and Horses

    Posted by Lexington Green on 28th February 2017 (All posts by )

    A friend sent a link to a leaked, recorded conversation between Trump and Wilbur Ross, his nominee for Commerce Secretary. There is nothing particularly troubling in the conversation. Trump is talking like Trump. He is the same person in public and in private, which is nice.

    I responded:

    Sounds good to me.  A tariff is a consumption tax collected at the port of entry.  The American founders expected to fund the operations of the national government with revenue from a tariff, and it worked.  He is also right that the Japanese and other countries use safety regulations as non-tariff import barriers.  There is nothing bad on here at all.  

    Read the rest of this entry »

    Posted in Culture, Economics & Finance, History, Politics, Public Finance, Taxes, Trump | 20 Comments »

    The Boom/Bust Cycle Isn’t about Emotion

    Posted by Kevin Villani on 27th February 2017 (All posts by )

    My first experience with manias was in the 1950’s. As a pre-schooler, I was dragged along to the Filene’s Basement annual designer dress sale. Thousands of women of all types and sizes pressed against the glass doors opening into the subway station. Within minutes of the doors opening, these “maniacs” cleared all the racks and, holding armfuls of dresses, began stripping to their slips. That’s when I panicked.

    Looking back, those women acted rationally. There was a limited supply of deeply discounted dresses available on a first come basis. They traded among themselves to get the right size and their most desired dress. Buyer’s remorse was cushioned by Filene’s liberal return policy.

    The premise of U.S. financial regulation is that actors within private markets are irrational, but the evidence shows that it’s not maniacal, illogical behavior that sends markets into freefall.

    Great Depression and Recession

    Now in its seventh edition, Manias, Panics and Crashes: A History of Financial Crises, Charles Kindleberger’s seminal work provides the narrative that underlies virtually all public financial protection and regulation: First, the irrational exuberance of individuals transforms into “mob psychology” and fuels an asset bubble. Then, when the exuberance of a few turns to fear, the mob panics and overreacts, causing a crash that brings down both solvent and insolvent financial institutions.

    In his memoir, the former Federal Reserve Bank President and Treasury Secretary Timothy Geithner, who was at the epicenter of the last crisis, concluded, “It began with a mania — the widespread belief that devastating financial crises were a thing of the past, that future recessions would be mild, that gravity-defying home prices would never crash to earth.”  

    Most U.S. federal financial regulation originates from the Great Depression and the subsequent introduction of federal deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC), which was established in 1933 to protect “small” savers. All prior state attempts to provide insurance failed. Because there were no effective, non-politicized regulations that could prevent the moral hazard of insured banks and savings institutions taking on excessive risks, an extensive regulatory infrastructure was put in place.

    Rational Actors

    Now, the U.S. has about 100 financial regulators, including those in the U.S. Treasury and the Securities and Exchange Commission (SEC), the FDIC, and the Fed. With near-universal deposit insurance, bank runs have become a rarity, but systemic crises have occurred more frequently. It is incontestable that big bubbles eventually burst, asset prices crash, and financial crises ensue. What causes the bubbles to inflate to systemic proportions, and to ultimately burst, is more contentious.

    At the time of Kindleberger’s analysis, individuals were assumed to be rational. The latest edition of his book, written after the 2008 financial crisis, postulates numerous theories about mob psychology (mania) that could lead rational individuals to produce irrational markets, but these ideas are all rather lame.

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    Posted in Big Government, Business, Capitalism, Economics & Finance, Human Behavior, Markets and Trading, Public Finance, Real Estate, Systems Analysis, Tradeoffs | 9 Comments »

    Robots and Jobs – the Bet

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

    Keith Ablow, a Fox News analyst, asked Should Trump stop robots from stealing jobs?

    Economist Don Boudreaux responded:

    It’s true that the pace of introducing new labor-saving techniques has magnificently quickened in the past two hundred years.  This fast pace continues today.  Yet still we encounter no evidence that labor-saving techniques permanently increase unemployment.

    You’ll reply “This time is different!”  Perhaps, but I doubt it.  And I’m so confident in my prediction that I’ll put $10,000 of my own my money where my mouth is.

    Terms of the wager are at the Boudreaux link. I’m not sure if the bet has been accepted or not.

    Meanwhile, here is Bill Gates, suggesting that robots should be taxed.  Left undefined, at least in this interview, is a question of Exactly What is a Robot?  Is a CNC machine tool a robot?  I’d say it absolutely is, as was the case with earlier numerically-controlled machine tools that became pretty common in the 1970s and 1980s.  How about an automated teller machine in a bank?  And what about “robots” that have no direct physical incarnation but are purely software, such as the office productivity software that accounted for a huge portion of Microsoft’s success?  It was largely Microsoft Word and similar software that made secretaries an endangered species in most organizations.  (Can you imaging the lobbying, litigation, and regulatory struggles that would surround this definitional issue if politicians were to take Bill’s proposal seriously?)

    The proposal also ignores that fact that the United States is not the entire world–taxing robots here would harm our competitiveness vis-a-vis those countries pursuing no such policy.  (Which would clearly include China.)  The only way to make a US-only anti-robot policy ‘work’ would be to establish very high tariff barriers.

    See also my posts Attack of the Job-Killing Robots and Attack of the Job-Killing Robots Part 2.   I hope to soon complete Part 3 of the series, which will focus on automation technologies and their impact in the post-WWII era.

    Posted in Deep Thoughts, Economics & Finance, Tech | 19 Comments »

    The Ballpoint Pen as an Economic Case Study

    Posted by David Foster on 20th January 2017 (All posts by )

    Chinese Premier Li Keqiang has lamented China’s inability to “make ballpoint pens with a smooth writing function.” After five years of research, a state-owned steel company now says it can.

    WSJ notes that 80% of the world’s ballpoint pens are made in China…but that thus far, China has not been making all of the pen’s components.  Specifically:

    The tip of a high-quality ballpoint demands metal work involving high-precision machinery and very hard, ultrathin steel plates. So 90% of pens made in China have imported tips. China’s leaders want “self-sufficiency,” in pens as in semiconductors. Now they claim they’ll have it.

    This little story is interesting from at least three angles.

    First–as the WSJ story points out, China’s desire to control the entire ballpoint pen supply chain indicates that their leaders still value economic autarky, and that Chinese leadership denunciation of President Trump on grounds of his insufficient respect for free trade carry more than a whiff of hypocrisy.

    Second–the ballpoint pen example makes the point that the apparent simplicity of a product does not necessarily reflect the complexity or lack thereof involved in manufacturing it.  American economic commentators often fail to grasp this point when they assert that America’s future must lie in producing “advanced high-technology products.”

    Third–the example should also clarify the point that the highest value in a product supply chain does not necessarily lie in the assembly of the final product.  The final product assembly is usually the most visible part of the supply chain, but very often the creation of components that go into that chain involves more complexity and requires more skill than the final assembly process itself.  It’s considerably more difficult to make integrated circuits, for example, than to assemble those chips onto circuit boards and to assemble the boards into a plastic or metal case.

    Posted in Business, China, Economics & Finance, Tech, USA | 44 Comments »

    The End of Accounting Book Review – Part One

    Posted by Carl from Chicago on 8th January 2017 (All posts by )

    Recently I read an excellent book called “The End of Accounting and the Path Forward for Investors and Managers” by Baruch Lev and Feng Gu. I highly recommend this book for investors, analysts, accountants, and those with a general interest in business. The book is very well written and researched in that it:

    1. Describes the current situation in depth
    2. Aligns the situation across an historical context and with relevant research
    3. Makes specific recommendations about how to improve the situation

    If you’d like to read more about this topic on your own (will help to frame out these posts), here is an excellent Wall Street Journal article titled “The End of Accounting” (if the link doesn’t work because you don’t have a subscription you can probably find it elsewhere on the internet). Here is a link from Accounting Today and an interview with the author from CFO magazine.

    The first post in this series is going to be my personal insights and journey in the area of accounting information, financial and investor relations analysts. This context is relevant because I, too, have seen the problems that the authors outline in the series and come up with my own “hacks” to attempt to gain better information and insights.

    I started out my career as an accountant, and I used to help create the footnotes that you see at the end of the financial reports. This wasn’t creative work per se – you would start with last year’s footnote as a template and insert new numbers, unless it was a new requirement, in which case it was a lot of work and we would turn to specialists. At that time (20+ years ago) there were only a few footnotes and the financial statements themselves weren’t that long; you would be able to read from the Chairman and CEO’s letter all the way through to the last footnote in a couple of hours.

    This was also before the internet; we would go into the company library and look at microfiche sometimes to do research or you’d pull up the hard (printed) copy from the files. At that point an annual report was also somewhat of a marketing document; companies put a lot of thought into the cover, for instance.

    At various points in the history of accounting there has been a focus on the balance sheet (assets and liabilities), the income statement (earnings per share and price / earnings ratio) and on cash flows (cash generated from the business). Each of these views are important and have their merits and their drawbacks. The statements were generally the “GAAP” view which focused on financial statement presentation and used taxes at official rates (many companies pay almost nothing in taxes in actuality by deferring them indefinitely) and held assets at historical costs. Both of these assumptions made the financial statements less useful for certain types of companies and industries.

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    Posted in Book Notes, Business, Capitalism, Economics & Finance | 3 Comments »