Recently in Business & Economics Category


I sometimes have the opportunity to mentor younger professionals, and they often laugh when I suggest that their number one career goal should be to simply stay employed in a hard-to-automate job. The trends are sobering.

The forecast of an America where robots do all the work while humans live off some yet-to-be-invented welfare program may be a Silicon Valley pipe dream. But automation is changing the nature of work, flushing workers without a college degree out of productive industries, like manufacturing and high-tech services, and into tasks with meager wages and no prospect for advancement.

Automation is splitting the American labor force into two worlds. There is a small island of highly educated professionals making good wages at corporations like Intel or Boeing, which reap hundreds of thousands of dollars in profit per employee. That island sits in the middle of a sea of less educated workers who are stuck at businesses like hotels, restaurants and nursing homes that generate much smaller profits per employee and stay viable primarily by keeping wages low. ...

"Until a few years ago, I didn't think this was a very complicated subject; The Luddites were wrong and the believers in technology and technological progress were right," Lawrence Summers, a former Treasury secretary and presidential economic adviser, said in a lecture at the National Bureau of Economic Research five years ago. "I'm not so completely certain now."

The threat isn't just to jobs that don't require a college degree, that's a vast oversimplification. Here's a graphic by McKinsey from 2016.

And note that the "managing others" category is hard to automate, but also becomes less necessary when there aren't many humans left to manage.


I'm not a huge fan of Elon Musk -- he has fascinating ideas, but his successes are highly dependent on government subsidies. He's right about at least one thing however: traffic sucks. Smith Henderson writes:

Musk tells us later that it all came to him fuming in L.A. traffic. Truth. You can feel yourself dying in L.A. traffic. My tactic is to stay home, stay in my 'hood. I got my coffee places, my Trader Joe's. I will not do Los Angeles things simply because of what havoc traffic does to my mood. I feel Musk's pain.

The problem isn't just the traffic, but how we've conceived it. We live in three dimensions, but we travel in two. It's stupid. And our flying-car fetish has been a bogus panacea all along--every crash would be an air disaster. The mythic draw of flight was maybe too dazzling for us to appreciate another direction: underground. Well, until now.

Traffic is one of the main reasons I left my native land of Los Angeles. Traffic drains your soul.

I'm just not confident that tunnels are the way to go. There's no doubt that cheaper, better tunnels will be fantastic for some applications, but "flying cars" will require much less infrastructure and be far more flexible. There's no reason we can't have both... and I'm not sure that tunnels will win out in earthquake-prone Los Angeles.

I also think Henderson's and my approaches will be parts of the solution to traffic: thanks to telecommunication, people will travel less in cities and be more free to leave them altogether without splitting from the modern information economy.


The Australian government has made a monumentally stupid decision to essentially ban encryption.

The new law, which has been pushed for since at least 2017, requires that companies provide a way to get at encrypted communications and data via a warrant process. It also imposes fines of up to A$10 million for companies that do not comply and A$50,000 for individuals who do not comply. In short, the law thwarts (or at least tries to thwart) strong encryption.

"Strong encryption" is just encryption -- weak encryption is no better than nothing.

Apple has the right take:

Silicon Valley has largely decried Canberra's new law. In particular, Apple, which famously resisted American efforts to break its own encryption during a 2015 terrorism investigation, previously told Australian lawmakers that what they are legislating is impossible.

"Some suggest that exceptions can be made, and access to encrypted data could be created just for only those sworn to uphold the public good," Apple continued. "That is a false premise. Encryption is simply math. Any process that weakens the mathematical models that protect user data for anyone will, by extension, weaken the protections for everyone. It would be wrong to weaken security for millions of law-abiding customers in order to investigate the very few who pose a threat."

Great way to undermine every Australian industry that depends on encryption... which is all of them.


Glenn Reynolds writes that Trump should bust the big tech monopolies and I certainly agree.

Roosevelt built a strong reputation by going after the trusts, huge combinations that placed control of entire industries in the hands of one or a few men. He broke up John D. Rockefeller's Standard Oil, the Google of its day. He shut down J.P. Morgan's Northern Securities Co., which would have monopolized rail transportation in much of the United States. And he pursued numerous other cases (45 in all) that broke up monopolies and returned competition to markets.

Roosevelt operated against a Gilded Age background in which a few companies had, by means both fair and foul, eliminated virtually all competition. This was bad for consumers, as it drove prices up. It was also, surprisingly, bad for shareholders: Wu notes that Standard Oil's value actually increased post-breakup, as it went from inefficient monopoly to a collection of competitive companies. Most of all, it was bad for American society.

Big monopolies aren't just an economic threat: They're a political threat. Because they're largely free of market constraints, they don't have to put all their energy into making a better product for less money. Instead, they put a lot of their energy into political manipulation to protect their monopoly.

Even though these tech companies tend to lean far to the political left, both leftists and rightists should be able to agree that we'd all be better off if these behemoths were broken up. Given the populist surge in America right now it's hard to imagine our next President, whether from the left or right, will be an elitist technocrat in the mold of Obama or Bush. These monopolies are living on borrowed time.


Great job America! It's quite an accomplishment to be both the largest and most competitive economy in the world. Of course competitiveness leads to growth, but growth also leads to size which in many realms leads to stagnation.

The U.S. dethroned Hong Kong to retake first place among the world's most competitive economies, thanks to faster economic growth and a supportive atmosphere for scientific and technological innovation, according to annual rankings by the Switzerland-based IMD World Competitiveness Center.

Hong Kong, scoring first in categories for government and business efficiency, held an edge over regional rival Singapore, which kept its No. 3 spot from 2017. Rounding out the top five were the Netherlands, which jumped one spot, and Switzerland, which tumbled three slots as it endures a slowdown in exports and concerns about its potential relocation of research and development facilities.

The U.S., which reclaimed the No. 1 spot for the first time since 2015, scored especially well in international investment, domestic economy and scientific infrastructure sub-categories while earning below-average marks in public finance and prices.


The article doesn't explain why, but Finland has decided to continue but not expand its experiment with a Universal Basic Income (UBI). In an era of increasing automation and artificial intelligence, many futurists think that mass unemployability and some form of UBI are inevitable.

Currently 2,000 unemployed Finns are receiving a flat monthly payment of €560 (£490; $685) as basic income.

"The eagerness of the government is evaporating. They rejected extra funding [for it]," said Olli Kangas, one of the experiment's designers.

Some see basic income as a way to get unemployed people into temporary jobs.

The argument is that, if paid universally, basic income would provide a guaranteed safety net. That would help to address insecurities associated with the "gig" economy, where workers do not have staff contracts.

Supporters say basic income would boost mobility in the labour market as people would still have an income between jobs.

Find a job that is unlikely to be automated, and stay employed as long as you can. Invest in equity and own the robots.


I'm a staunch capitalist, but I do worry about technological unemployment.

The automation trend clearly makes workers uneasy, but hard facts are unavailable because technological unemployment is not identified and highlighted in economic reports as it should be. This lapse lulls some into disbelief about dire predictions because, after all, unemployment levels are relatively low, (though so is labor force participation), and job creation growth appears respectable. But a glimpse into what's underway was contained in a 2014 study by the U.S. Bureau of Labor Statistics which measured hours of work (whether by self-employed, part-time or full-time workers) and not jobs over a 15-year period from 1998 to 2013.

During that time, economic output in the United States increased by 42 percent (or $3.5 trillion after inflation adjustments). But the number of hours worked remained exactly the same, at 194 billion hours in total. This is technological unemployment: Zero growth in the number of hours needed to create wealth despite a population increase of 40 million people. The study, not replicated since, proves that work itself is shrinking.

"Male jobs" like driving trucks and stocking warehouses are being hit hardest now, but as robots get more capable they will displace traditionally "female" jobs as well.

Maybe it will all work out like after the industrial revolution: workers displaced by machines moved from farms to cities and found new jobs. But... what if it really is different this time? It's hard for any one person to do much about the trends, but you can take some action to protect yourself and your family.

  1. Take urgent action to get a job that is less likely to be automated. Stay employed.
  2. Invest in the stock market. Equities will rise because companies will own the robots.
  3. Save your money. It will be worth a lot more when robots make everything and there aren't any jobs.


Expect to see major changes over the next decade as the center-of-gravity for tech innovation moves away from Silicon Valley.

"If it weren't for my kids, I'd totally move," said Cyan Banister, a partner at Founders Fund. "This could be a really powerful ecosystem."

These investors aren't alone. In recent months, a growing number of tech leaders have been flirting with the idea of leaving Silicon Valley. Some cite the exorbitant cost of living in San Francisco and its suburbs, where even a million-dollar salary can feel middle class. Others complain about local criticism of the tech industry and a left-wing echo chamber that stifles opposing views. And yet others feel that better innovation is happening elsewhere.

"I'm a little over San Francisco," said Patrick McKenna, the founder of High Ridge Venture Partners who was also on the bus tour. "It's so expensive, it's so congested, and frankly, you also see opportunities in other places."

Mr. McKenna, who owns a house in Miami in addition to his home in San Francisco, told me that his travels outside the Bay Area had opened his eyes to a world beyond the tech bubble.

"Every single person in San Francisco is talking about the same things, whether it's 'I hate Trump' or 'I'm going to do blockchain and Bitcoin,'" he said. "It's the worst part of the social network."

This shift will be a benefit to almost everyone: tech shareholders, tech workers, and tech users. The biggest loser will be the state of California.


California is offering to split the federal tax savings with local corporations, but it's hard to see why that's a good deal unless your business needs to be in California.

Trump's plan reduced the federal corporate tax rate from 35 percent to 21 percent, which Republican and business leaders hailed as an incentive for a surge of capital investment and job growth. But Democrats denounced the change as a giveaway to the wealthy that would grow the national debt and require future cuts to welfare programs such as Medicaid.

The proposal from McCarty and Ting creates a new tax for businesses in California, which already has a state corporate tax rate of 8.84 percent. Companies with annual net income of more than $1 million in California would pay an additional surcharge of 7 percent, or half their savings from the recent federal tax cut.

If approved by two-thirds of the Legislature, Assembly Constitutional Amendment 22 would go before the voters for final consideration. Proponents estimate it would raise between $15 billion and $17 billion a year, which would be directed toward funding for education, college affordability initiatives, child care and preschool slots, taxpayer rebates and an expansion of California's Earned Income Tax Credit.

The $15 - $17 billion estimate is a static analysis that doesn't take into account the likelihood that some businesses will reduce their footprint in California, or just leave. Reducing the federal rate means that a company doesn't have to leave the country to benefit, it only has to leave California.


Megan McArdle connects the obvious dots: slow wage growth is due to slow productivity growth.

A lot of sectors don't have room to raise wages. There's a common pattern in internet commentary: Some article is published, full of manufacturers complaining that they can't find workers for good old-fashioned jobs, and the left half of the commentariat lowers their spectacles, looks down the bridge of their nose, and inquires "I say, old chap, did you try offering them more money?" The problem is that in many cases these employers can't offer more money, because at current wages they are just barely competitive with China (or some other country).

There are other factors, but slowing productivity growth is the critical bit. The key factor that McArdle doesn't mention is that as more humans are replaced by machines, replacing each additional human costs more and produces a proportionally smaller gain in productivity. The low-hanging fruit is quickly being picked, or has already been eaten. Mmmmm, fruit.


President Trump has scored another impressive deal for American industry: opening the Chinese beef market to American beef.

Well, I was wrong. Several weeks ago in this blog, I expressed my skepticism that China would act anytime soon on its promise to open its borders to direct import of U.S. beef. I based my skepticism on the past 13, now nearly 14, years of hollow promises by the Chinese government that it would relent.

And I based my skepticism on the fact that China has stringent import requirements that serve as non-tariff trade barriers. The main hurdles are no use of ractopamine and a national animal ID system. While the U.S. has infrastructure in place to deal with both those, I was sure that China would hold the line on animal ID. Since the U.S. can't meet the nationwide animal ID requirement, I was sure the deal would fall apart once again.

I got Trumped.

I'm not tired of winning yet.


Americans have borrowed over $1 trillion to finance our cars, and the used car market is worth something like $200 billion per year... will all that value evaporate when autonomous cars become available? Aftermarket autonomy kits might help car owners cling to some of that value, but if the future looks like Uber/Lyft fleets rather than personal vehicles then the kits won't help much.


It's not your imagination: many costs really are rising much faster than inflation. The post has a ton of great charts, but let me quote this summation of the evidence:

So, to summarize: in the past fifty years, education costs have doubled, college costs have dectupled, health insurance costs have dectupled, subway costs have at least dectupled, and housing costs have increased by about fifty percent. US health care costs about four times as much as equivalent health care in other First World countries; US subways cost about eight times as much as equivalent subways in other First World countries.

I worry that people don't appreciate how weird this is. I didn't appreciate it for a long time. I guess I just figured that Grandpa used to talk about how back in his day movie tickets only cost a nickel; that was just the way of the world. But all of the numbers above are inflation-adjusted. These things have dectupled in cost even after you adjust for movies costing a nickel in Grandpa's day. They have really, genuinely dectupled in cost, no economic trickery involved.

Read the whole thing -- that summary is only the half-way point.


Organic, locally-sourced food is a scam. I mean, obviously.

It's hard to be too angry at consumers. To be sure, they probably should have known that you couldn't really buy organic, locally sourced food year-round at just a smidge more than you'd pay for a regular meal. After all, the average American spent half their income on food in 1900, while the modern American now spends a paltry 12 percent, even including a lavish helping of restaurant meals. That should give us some sign that local, artisanal food is not going to be cheap. But most Americans are not economic historians.

But it's not even that easy to be mad at the restaurants. They're in a viciously competitive business where most places don't survive. In a competitive equilibrium where so many people want to be told they're eating farm-fresh food -- and so few people seem willing to pay for it -- many of them probably feel that their choice is "lie or die."

The Left is all about virtue signalling, not actual virtue.


Yelp doesn't pay its employees enough to eat, says former employee Talia Jane. It's a sad story, but hopefully instructive. Miss Jane thought that moving to the Bay Area would be fun, but she didn't realize that California is basically a feudal system -- just because the dukes are having a blast doesn't mean it's fun to be a serf.

I haven't bought groceries since I started this job. Not because I'm lazy, but because I got this ten pound bag of rice before I moved here and my meals at home (including the one I'm having as I write this) consist, by and large, of that. Because I can't afford to buy groceries. Bread is a luxury to me, even though you've got a whole fridge full of it on the 8th floor. But we're not allowed to take any of that home because it's for at-work eating. Of which I do a lot. Because 80 percent of my income goes to paying my rent. Isn't that ironic? Your employee for your food delivery app that you spent $300 million to buy can't afford to buy food. That's gotta be a little ironic, right?

Miss Jane was (unexpectedly!) fired soon after posting this open letter. Naturally the Duke of Yelp, Jeremy Stoppelman, blames her predicament on the government, disavows all knowledge of her firing, and hides behind Human Resources.

"Late last night I read Talia's medium contribution and want to acknowledge her point that the cost of living in SF is far too high," Stoppelman tweeted.

He continued by noting that he's "been focused" on the high cost of living in San Francisco and has backed a group trying to bring awareness to the issue.

He added that there are "[t]wo sides to every HR story" and asked the "Twitter army" to put down its "pitchforks."

Laugh. Out. Loud. At least Miss Jane and Stoppelman Duke of Yelp have brought more awareness to the issue!


The proliferation of welfare programs and the decline of the labor force have crushed America's post-2009 economic recovery. When it's more beneficial not to work, people won't work. Quoting within quoting:

So what accounts for America's anemic economy? Hall has about 50 pages of analysis, but since brevity is a virtue, let's look at some of what he wrote in his final paragraph.
Labor-force participation fell substantially after the crisis, contributing 2.5 percentage points to the shortfall in output. The decline showed no sign of reverting as of 2013. ...an important part may be related to the large growth in beneficiaries of disability and food-stamp programs. Bulges in their enrollments appear to be highly persistent. Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries. The bulge in program dependence...may impede output and employment growth for some years into the future.

In other words, he pointed out that a large number of people have left the labor force, which obviously isn't good since our economy's ability to generate output (and boost living standards) is a function of the degree to which labor and capital are being productively utilized.

And his work suggests that redistribution programs are a big reason for this drop in labor-force participation.


Megan McArdle says that there's no magic lever for economic growth. Maybe there are a bunch of levers that deliver economic growth when you don't pull them?

Republicans and Democrats suffer from a common delusion that there is some magic lever we can use to make the economy grow, if only we elect a president with the vision and iron determination to grab that sucker and pull really hard. This illness presents differently, depending on the patient. Democrats think the government needs to get right in there and micromanage our way back to 1950, preferably Sweden in 1950, while Republicans think that the road to prosperity is paved with low marginal tax rates. But no matter what the symptoms, it is still a sickness. Economic growth is mostly a matter of millions of individuals making decisions to save, invest and consume in new and better patterns -- and as amazing as this may sound, most of these people are thinking about things other than the government when they make those decisions.


For your financial entertainment here are two very different approaches to family finances. First, here's a name-dropping advocate for "wife bonuses".

As I stroll around the mall on a recent trip to Houston, Texas, moving from designer store to designer store, my mind is crunching numbers. Will I splurge on the elegant $750 French navy Chanel ballet pumps that I've been lusting after for months? Or shall I be pulling out my gold card to grab a pair of limited-edition $800 Louboutins, with striking red Valentine's hearts on the toe, to match their distinctive sole?

As I tally up the total, I can't help but smile -- I can easily stretch to both pairs of shoes, and still have plenty left of my five-figure bonus.

These pricey pairs of designer footwear will join a lineup of Jimmy Choo, Manolo Blahnik, Diane Von Furstenburg and Rupert Sanderson heels and a closet crammed with handbags from Prada, Chanel and Anya Hindmarch. Every single one was bought with one of my annual bonuses -- the nod from a happy boss for a job well done.

But, in this case, the boss in question is my husband, Al. The role he's rewarding me for is my work as a stay-at-home wife and mother. And the luxury labels are purchased with the "wife bonus" -- 20 percent of his own company bonus -- that I'm proud to receive for putting his career before my own, and keeping our lives together.

Second, single-digit millionaires who live more frugally than they have to.

There were common threads in this group. These were people who had all made the money in their own lifetimes and done that as much by saving, investing and making careful choices about spending as by making large salaries.

One of the big choices was what they spent money on. A common thread was frugality about cars. Not only did they buy modestly priced vehicles, they kept them for a long time.

But fancy cars were more of a proxy for unnecessary purchases. Steve Ingram, a real estate and oil and gas lawyer in Albuquerque, said he and his wife simply didn't care that much about material possessions.

"We have some nice things, but I drive a car for 10 years and then trade it in and get another car for 10 years," he said. "We like to travel, and we'll spend the money for that because it's worth it having a real experience together."

There are many paths you can follow in life. Scout ahead and see where your choices will take you.


Even China -- home of the world's "cheap labor" (though not as cheap anymore!) -- is investing in robotic manufacturing. The numbers look big, but these are baby-steps. Once the bugs in the robotic systems get ironed out we'll see robots displacing millions of workers.

Robots are set to take over in many factories in the Pearl River Delta, the area of southern China known as the 'world's workshop' because of the huge export manufacturing industry there, as labour shortages bite and local authorities face the need to spur innovation to counter the economic slowdown.

Since September, a total of 505 factories across Dongguan have invested 4.2 billion yuan in robots, aiming to replace more than 30,000 workers, according to the Dongguan Economy and Information Technology Bureau.

By 2016, up to 1,500 of the city's industrial enterprises will began replacing humans with robots.

At current exchange rates that's about $22,500 per worker.


Jeremy Warner writes that widespread negative interest rates demonstrate that the world is fighting for every scrap of demand. If you're young enough, stay employed and ride out the coming correction by staying fully invested.

The flip side of the cheap money story is soaring asset prices. The bond market bubble is just the half of it; since most other assets are priced relative to bonds, just about everything else has been going up as well. Eventually, there will be a massive correction, in which creditors will suffer sickening losses.

Nobody can tell you when that moment will arrive. We live in an "extend and pretend" world in which economies pathetically fight between themselves for any scraps of demand. One burst of money printing is met by another in an ultimately futile, zero-sum game of competitive currency devaluation.

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