Economics in the Age of Abundance

Some 250 years ago, Georgian England was the richest society that had ever existed, and yet food shortages still afflicted large segments of the population. Adolescents sent to sea by the Marine Society to be officer’s servants were half a foot (15 centimeters) shorter than the sons of the gentry. A century of economic growth later, the working class in the United States was still spending 40 cents of every extra dollar earned on more calories. ... In the US, roughly 1% of the labor force is able to grow enough food to supply the entire population with sufficient calories and essential nutrients, which are transported and distributed by another 1% of the labor force. That does not account for the entire food industry, of course. But most of what is being done by the remaining 14% of the labor force dedicated to delivering food to our mouths involves making what we eat tastier or more convenient – jobs that are more about entertainment or art than about necessity. Read more at https://www.project-syndicate.org/commentary/economic-problems-age-of-abundance-by-j--bradford-delong-2016-01#hW0ucu1GikMS2dxg.99

Students Are Battling to Make Elon Musk’s Hyperloop a Reality - Bloomberg Business

Students Are Battling to Make Elon Musk’s Hyperloop a Reality - Bloomberg Business

Fintech - Institutional Investor (Jan 2016)

http://www.institutionalinvestor.com/blogarticle/3522517/Blog/Fintech-and-the-Fear-of-Froth.html?LS=EMS1243400&utm_medium=email%20alerts&utm_campaign=Asset%20Management%20Daily%20-%20Alternatives%202013&utm_content=2016_01_23&utm_source=ems%20email#.VqOsFPkrJqM

Why an Ex-Google Coder Makes Twice as Much Freelancing - Bloomberg Business

Why an Ex-Google Coder Makes Twice as Much Freelancing - Bloomberg Business



Amid an accelerating war for tech talent, big companies and startups alike are paying top dollar—as much as $1,000 a hour, according to a person who gets coders gigs—for freelancers with the right combination of skills. While companies still recruit many of the best minds, they're turning to independent software developers to get a stalled project moving or to gain a competitive edge. In some cases, the right person can be the difference between a failed and successful product....

...Toptal prides itself on almost Ivy League-level vetting. A virtual company with no home base, it received 15,000 applications in the past two months and accepted fewer than 3 percent of them, according to Taso Du Val, co-founder and chief executive officer. The vetting process has four parts: an interview to screen for personality, technical exam, live coding test and finally a test project that evaluates the candidate in a real-world scenario. 

Helder Silva, a software engineer from Portugal who has worked at Deloitte and other companies, made it past the first two rounds and failed during the live coding exam because he took too much time to solve one problem, even though he was on the right track. "You miss something and you get kicked," Silva says....

... a project that typically would take three years to complete, he says. The 10x team took three months.

Health Care's Continental Divide - Bloomberg View

Health Care's Continental Divide - Bloomberg View



In Washington, where I live, it is already hard to find a primary-care physician because so many are converting to no-insurance "concierge" practices.



Love it or hate it, these forces make our government extremely bad at controlling costs, which shows up not just in our health-care and education systems, but also in the price of building our infrastructure or providing various social services.

Fix Corporate Taxes? Good Luck With That. - Bloomberg View

Fix Corporate Taxes? Good Luck With That. - Bloomberg View



the Tariff Act of 1909. It imposed a “special excise tax with respect to the carrying on of doing business.” It was levied on corporations with net incomes of more than $5,000, and was described by President Howard Taft as “an excise tax upon the privilege of doing business as an artificial entity.”...

...

, in 1936, with the economy still mired in the Great Depression, President Franklin Roosevelt and his congressional allies sought to abolish the corporate income tax, replacing it with a punitive tax on undistributed corporate profits. As the legal scholar Steven Bank recounted, this provoked profound resistance from businesses.

In the end, a settlement was reached: The business community defeated the proposed tax in exchange for allowing “double taxation” -- retaining the corporate income tax as well as a tax on dividends. This “ill-fated compromise,” as Bank described it, formally enshrined the idea that the same income could be taxed more than once. But it also formally divided the corporation from its shareholders when it came to taxation.

China's Own Mind the Gap - Bloomberg Gadfly

China's Own Mind the Gap - Bloomberg Gadfly



...Both before the 2008-09 financial crisis and after it, when China's nominal GDP expanded by 18 percent or more, the country's non-financial corporate sector was able to garner revenue growth that matched or exceeded the pace of value addition in the overall economy. ...

Companies that can't grow faster than the economy are always problematic. But if, like in China, they also happen to be servicing a whole lot of debt, then investors have an even stronger reason to mind the gap.

Davos Veterans Say Stop Worrying About China's Market Meltdown - Bloomberg Business

Davos Veterans Say Stop Worrying About China's Market Meltdown - Bloomberg Business



In the end, China will likely emulate every major economy and muddle through...Though growth is indeed fading, China is on track to expand 6.5 percent this year, according to the median estimate of economists surveyed by Bloomberg.

The Global Monetary Non-System, RAGHURAM RAJAN

Read more at https://www.project-syndicate.org/commentary/unconventional-monetary-policy-weak-growth-by-raghuram-rajan-2016-01#MjeZzEyLwOW5GEHT.99

Raghuram Rajan

Raghuram Rajan is Governor of the Reserve Bank of India.

• NEW DELHI – As 2015 ended, the world boasted few areas of robust growth. At a time when both developed and emerging-market countries need rapid growth to maintain domestic stability, this is a dangerous situation. It reflects a variety of factors, including low productivity growth in industrial countries, the debt overhang from the Great Recession, and the need to rework emerging markets’ export-led growth model.
  So how does one offset weak demand? In theory, low interest rates should boost investment and create jobs. In practice, if the debt overhang means continuing weak consumer demand, the real return on new investment may collapse. The neutral real rate identified by Knut Wicksell a century ago – loosely speaking, the interest rate required to bring the economy back to full employment with stable inflation – may even be negative. This explains central banks’ attraction to unconventional monetary policy, such as quantitative easing. The evidence that these policies boost domestic investment and consumption is mixed, at best.

  SupportProject Syndicate’smission

  Project Syndicate needs your help to provide readers everywhere equal access to the ideas and debates shaping their lives.

  LEARN MORE
  Another tempting way to stimulate demand is to increase government infrastructure spending. In developed countries, however, most of the obvious investments have already been made. And while everyone can see the need to repair or replace existing infrastructure (bridges in the United States are a good example), badly allocated spending would heighten public anxiety about the prospect of tax hikes, possibly increase household savings, and reduce corporate investment.
  Arguably, industrial countries’ growth potential had fallen even before the Great Recession. Former US Treasury Secretary Larry Summers popularized the phrase “secular stagnation” to describe weak aggregate demand caused by aging populations that want to consume less and the increasing income share of the very rich, who are unlikely to increase their already-large consumption.
  Such structural reasons for slow growth suggest the need for structural reforms: measures that would increase growth potential by spurring greater competition, participation, and innovation. But structural reforms run up against vested interests. As Jean-Claude Juncker, then Luxembourg’s prime minister, said at the height of the euro crisis, “We all know what to do; we just don’t know how to get re-elected after we’ve done it!”
  If growth is so hard to achieve in developed countries, why not settle for lower growth? After all, per capita income already is high.
  One reason to press on is to fulfill past commitments. In the 1960s, industrial economies made enormous promises of social security to the wider public, later augmented by fiscally unsound commitments to public-sector workers. Moreover, growth is necessary for social harmony, because the young – who can always take to the streets in protest – have to work to pay for those commitments to older generations. And if technological change and globalization mean fewer good middle-class jobs for a certain level of growth, more growth is needed to keep inequality from widening.
  Finally, there is the fear of deflation, the canonical example being Japan, where policymakers supposedly allowed a vicious cycle of falling prices, depressed demand, and stagnant growth to take hold.
  In fact, this conventional wisdom may be mistaken. After Japan’s asset bubble burst in the early 1990s, the authorities prolonged the slowdown by not cleaning up the banking system or restructuring over-indebted corporations. But once Japan took decisive action in the late 1990s and early 2000s, per capita growth was comparable to that in other industrial countries. Moreover, the unemployment rate averaged 4.5% from 2000 to 2014, compared with 6.4% in the US and 9.4% in the eurozone.
  True, deflation does increase the real burden of existing debt. But if debt is excessive, a targeted restructuring is better than inflating it away across the board.
  Regardless of these arguments, the specter of deflation haunts governments and central bankers. Hence the dilemma in industrial economies: how to reconcile the political imperative for growth with the reality that stimulus measures have proved ineffective, debt write-offs are politically unacceptable, and structural reforms frontload too much pain for governments to adopt them easily.
  Developed countries have just one other channel for growth: boosting exports by depreciating the exchange rate through aggressive monetary policy. Ideally, emerging-market countries, funded by the developed economies, would absorb these exports while investing for their future, thereby bolstering global aggregate demand. But these countries’ lesson from the emerging-market crises of the 1990s was that reliance on foreign capital to fund the imports needed for investment is dangerous. In response, several of them cut investment in the late 1990s and began running current-account surpluses, preferring to accumulate foreign-exchange reserves to preserve their exchange-rate competitiveness.
  By 2005, Ben Bernanke, then a governor at the Federal Reserve, coined the term “global savings glut” to describe the external surpluses, especially in emerging markets, that were finding their way into the US. Bernanke pointed to their adverse consequences, notably the misallocation of resources that led to the US housing bubble.
  In other words, before the 2008 global financial crisis, emerging and developed countries were locked in a dangerous symbiosis of capital flows and demand that reversed the equally dangerous pattern set before the emerging-market crises of the late 1990s. In the aftermath of the 2008 crisis, the pattern reversed itself once again, as capital flowed to emerging markets from developed countries, setting up fragilities that will come fully to light as developed-country monetary policy tightens.
  In an ideal world, the political imperative for growth would not outstrip an economy’s potential. In the real world, where social-security commitments, over-indebtedness, and poverty will not disappear, we need ways to achieve sustainable growth. Above all, we need to avoid beggar-thy-neighbor policies, such as unconventional monetary policy or sustained exchange-rate intervention, that primarily induce capital outflows and competitive currency devaluations.
  The bottom line is that multilateral institutions like the International Monetary Fund should exercise their responsibility for maintaining the stability of the global system by analyzing and passing careful judgment on each unconventional monetary policy (including sustained exchange-rate intervention). The current non-system is pushing the world toward competitive monetary easing, to no one’s ultimate benefit. Developing a consensus for free trade and responsible global citizenship – and thus resisting parochial pressures – would set the stage for the sustainable growth the world desperately needs.
  
  

A Fallen Russia Oligarch Sends Warning to Rest of Putin Insiders - Bloomberg Business

A Fallen Russia Oligarch Sends Warning to Rest of Putin Insiders - Bloomberg Business

African Sunshine Can Now Be Bought and Sold on the Bond Market - Bloomberg Business

African Sunshine Can Now Be Bought and Sold on the Bond Market - Bloomberg Business

Africa’s off-grid solar industry has been turned into an asset class for the first time, bundling contracts for thousands of the sun-powered rooftop electricity systems to sell as bonds.

Dutch investor Oikocredit International and Persistent Energy Capital LLC, a New York-based merchant bank, jointly decided to try to replicate the U.S. model of securitizing residential solar panels. They are working with the London-based developer BBOXX Ltd.

Reality Check Reins In $20 Billion Dubai Mall Development - Bloomberg Business

Reality Check Reins In $20 Billion Dubai Mall Development - Bloomberg Business

EHANG184, world's first Autonomous Aerial Vehicle - YouTube

EHANG184, world's first Autonomous Aerial Vehicle - YouTube

Into Africa - Bloomberg QuickTake

Into Africa - Bloomberg QuickTake

China Heightens the Contradictions - Bloomberg View

China Heightens the Contradictions - Bloomberg View



...underscored the inherent contradiction China faces -- between the leadership’s desire for the certainty of state control and the benefits of free markets.

China’s Managed Markets

This contradiction has been part of the Chinese economic system since pro-market reform began in the early 1980s. The government’s model encouraged private enterprise, foreign investment and international trade while keeping the “commanding heights” of the economy -- the financial sector, critical industries -- firmly in state hands. ...

... this tension between state and market becomes more dangerous as an economy advances. We know this is true from the experiences of Japan and South Korea, which both used systems similar to China’s, produced similar results and then suffered similar problems. ... The only way to solve it is for the state to allow the market to hold more and more sway over the economy. ...

...The way China’s policy makers can restore confidence in their markets, their economy and their competence is to eliminate the state-market contradiction they’ve created. This means allowing the stock market to find its own footing, the yuan to discover its real value and state-owned enterprises to compete fairly with the private sector. 

German Police Are Too Soft, Really - Bloomberg View

German Police Are Too Soft, Really - Bloomberg View

Private Equity KeyTrends – Record Distributions in 2015 Mask a Complex Reality - btbirkett@gmail.com - Gmail

Private Equity KeyTrends – Record Distributions in 2015 Mask a Complex Reality - btbirkett@gmail.com - Gmail



AN OLD VENTURE CAPITAL ADAGE IS DEBUNKED. “The widely held belief that 90 percent of venture industry performance is generated by just the top ten firms” is no longer true, according to a Cambridge Associates study. The study found that “in the post-1999 (i.e. post-bubble) period, the majority of value creation” has been “generated by deals outside the top 10.” Moreover, since 2005, “new and emerging firms have consistently” accounted “for 40 percent to 70 percent” of “value creation.” Writing in Business Insider, Alan Patricof and and Ian Sigalow, both co-founders of Greycroft Partners, call this “the new normal.” They add that since 2005, “managers with less than $500 million have accounted for a majority” of VC returns, “despite investing less money on average than the larger funds.” Cambridge concludes that if investors don’t take account of the democratization of venture capital, “they may miss attractive opportunities” to significantly boost returns.

The Refragmentation - computing power was a precondition for the rise of startups

The Refragmentation



clips



war, conformity, lack of choice, apparent security



The effects of World War II were both economic and social. Economically, it decreased variation in income. Like all modern armed forces, America's were socialist economically. From each according to his ability, to each according to his need. More or less. Higher ranking members of the military got more (as higher ranking members of socialist societies always do), but what they got was fixed according to their rank. And the flattening effect wasn't limited to those under arms, because the US economy was conscripted too. Between 1942 and 1945 all wages were set by the National War Labor Board. Like the military, they defaulted to flatness. And this national standardization of wages was so pervasive that its effects could still be seen years after the war ended. [1]

Business owners weren't supposed to be making money either. FDR said "not a single war millionaire" would be permitted.



...Along with giant national corporations, we got giant national labor unions. And in the mid 20th century the corporations cut deals with the unions where they paid over market price for labor. Partly because the unions were monopolies. [10] Partly because, as components of oligopolies themselves, the corporations knew they could safely pass the cost on to their customers, because their competitors would have to as well. ...



... Within companies there were powerful forces pushing people toward a single model of how to look and act. IBM was particularly notorious for this,...



...There was no market; the expectation was that you'd work for the same company for decades if not your whole career. [13]...



changes



...But change was coming soon. And when the Duplo economy started to disintegrate, it disintegrated in several different ways at once. Vertically integrated companies literally dis-integrated because it was more efficient to. Incumbents faced new competitors as (a) markets went global and (b) technical innovation started to trump economies of scale, turning size from an asset into a liability. Smaller companies were increasingly able to survive as formerly narrow channels to consumers broadened. Markets themselves started to change faster, as whole new categories of products appeared. And last but not least, the federal government, which had previously smiled upon J. P. Morgan's world as the natural state of things, began to realize it wasn't the last word after all...



computers - supply chain options



Why didn't Henry Ford realize that networks of cooperating companies work better than a single big company? One reason is that supplier networks take a while to evolve. ... And the second reason is that if you want to solve a problem using a network of cooperating companies, you have to be able to coordinate their efforts, and you can do that much better with computers. Computers reduce the transaction costs that Coase argued are the raison d'etre of corporations. That is a fundamental change.

In the early 20th century, big companies were synonymous with efficiency. In the late 20th century they were synonymous with inefficiency.



...The companies in the S&P 500 in 1958 had been there an average of 61 years. By 2012 that number was 18 years. [18]


The breakup of the Duplo economy happened simultaneously with the spread of computing power. To what extent were computers a precondition? It would take a book to answer that. Obviously the spread of computing power was a precondition for the rise of startups....driven by computers in the way the industrial revolution was driven by steam engine...

pay - Yuppies started it

CEOs of big companies make more now than they used to, and I think much of the reason is prestige. In 1960, corporate CEOs had immense prestige. They were the winners of the only economic game in town. But if they made as little now as they did then, in real dollar terms, they'd seem like small fry compared to professional athletes and whiz kids making millions from startups and hedge funds...

...a similar fragmentation was happening at the other end of the economic scale. As big companies' oligopolies became less secure, they were less able to pass costs on to customers and thus less willing to overpay for labor...harder for unions to enforce their monopolies. As a result workers' wages also tended toward market price...

cohesion vs. fragmentation

...And just as the mid-century model induced social as well as economic cohesion, its breakup brought social as well as economic fragmentation. People started to dress and act differently....

income inequality, fragmentation + technology - increasing

...The form of fragmentation people worry most about lately is economic inequality, and if you want to eliminate that you're up against a truly formidable headwind—one that has been in operation since the stone age: technology. Technology is a lever. It magnifies work. And the lever not only grows increasingly long, but the rate at which it grows is itself increasing.

Which in turn means the variation in the amount of wealth people can create has not only been increasing, but accelerating....

...as long as it's possible to get rich by creating wealth, the default tendency will be for economic inequality to increase... but unless taxes are high enough to discourage people from creating wealth, you're always going to be fighting a losing battle against increasing variation in productivity. [24]

conclusions

...the tendency toward fragmentation should be more forever than most things, precisely because it's not due to any particular cause. It's simply a reversion to the mean. ...we'd be better off thinking about how to mitigate its consequences

The Morning Ledger: Lured Out of Retirement, a CFO Returns to the Trenches - btbirkett@gmail.com - Gmail

The Morning Ledger: Lured Out of Retirement, a CFO Returns to the Trenches - btbirkett@gmail.com - Gmail

Freeport-McMoRan's Cerro Verde copper mi! ne in Peru is spread over 150,000 acres and will eventually produce a billion pounds of copper a year, 3% of the world’s production. John W. Miller/The Wall Street Journal

Supermines feed vicious metals circle. Giant mines, begun when prices were high, are adding to the oversupply of copper, iron ore and other metals, compounding the woes of the depressed mining sector. The big mines cost so much to build and extract minerals so efficiently that mothballing them is unthinkable—running them generates cash to pay down debts, and huge mines are expensive to simply maintain while idle. But as a result, their scale means they are helping miners dig thems! elves even deeper into the price trough by adding to a glut.