Recently in Business & Economics Category

It seems that most conservatives are calling the new Bank Term Funding Program a "bailout" for the rich, but as far as I can tell preventing a contagious bank-run is good for everyone. Shareholders and bondholders of any failed banks are not being guaranteed in anyway, only depositors (i.e., bank customers).

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.

Silicon Valley Bank and Signature Bank are being "resolved" and shareholders are being wiped out. Bondholders will probably get some of their money back, but they won't be made whole. Depositors will be fully protected. Bank runs are caused by depositors panicking and withdrawing their money, so the BTFP should be sufficient to forestall that catastrophe without "bailing out" banks using taxpayer dollars. I guess we'll find out.

Alice Evans writes that working-age men in America aren't working.

7 million men aged 25-54 in the USA are not working

What are they doing?

Volunteering? Worship? Care-work?

"Playing Call of Duty stoned"

They report 2000 hours a year of screen time (w/ pain meds)

This phenomenon is far less severe in Western Europe

She has many charts and graphs that dig into the details.

My opinion is that we're beginning to see human workers displaced by automation in a way that doesn't create new jobs for the displaced humans. Men are more affected than women because women dominate "caring professions" that are harder to automate.

Many people I talk to are eager for "prices to get back to normal", but that's not how inflation works. Medora Lee does a good job reminding us of that.

When talking about inflation, it's important to remember that inflation is a rate that measures how fast prices are rising. If the consumer inflation rate drops from its 40-year high of 8.6% in May, prices are still rising - just not as fast.

Consumers won't feel immediate relief even as the inflation rate slows because many of those elevated prices are likely here to stay, said Michael Ashton, managing principal at Enduring Investments in Morristown, NJ.

"The price level has permanently changed," said Ashton. "Until your wages catch up (to inflation), it will continue to hurt."

Even when inflation returns to target 2% levels, prices won't return to "normal" 2019 levels. Prices will continue to grow, but at a slower and more predictable rate.

"Once core prices go up, generally they don't come down," Roussanov said. "In the last 40 to 50 years, we've never seen deflation in core goods. Most durable goods and services don't really come down in price."

And deflation is more dangerous than inflation because it can lead to a total economic collapse. When people believe that their money will buy more in a year than it will now, they stop consuming and just wait.

Additionally, modest, predictable inflation is seen as a sign of a growing economy. It incentivizes people to spend money now rather than waiting, allows wages to increase either in line or above inflation to boost the standard of living and makes it easier for businesses to plan, according to the Federal Reserve and IMF.

San Francisco has a lot of open office space. The COVID reckoning hasn't begun in earnest yet.

As we outlined yesterday, there is over 17 million square feet of vacant office space now spread across San Francisco, which is up from around 16 million square feet of vacant space three months ago and as compared to under 5 million square feet of vacant space at the start of last year.

For context, the 1,070-foot-tall Salesforce/Transbay tower at First and Mission, which is the tallest building in San Francisco, contains 1.35 million square feet of office space spread across 59 floors.

A commenter named Dave provides this analysis:

This begs the question - what to do with all that empty office space. The average annual net absorption for the boom decade just ended was what? About 1.5 million feet? It would take 11 years at that absorption pace to fill the space. However, going forward it's hard to see SF ever averaging that kind of net absorption again over a prolonged period. So it could take decades to fill the 17 million feet of empty space.

This does not bode well for the owners of these buildings - generally. Some of the space can be converted to life sciences or residential. But most of it cannot. Already the Oceanwide development has been abandoned as has 88 Bluxome - and the to follow second phase.

Mission Rock is going forward but it had already started construction and it was early enough to tweak the design and make that space aimed towards life-science tenants. Dropbox abandoned its SF headquarters but that building(s) had been designed to accommodate life science space and a small potion of DropBox's sublease was picked up by a life science company. Life science may be the only option for major new SF "office" development Hence the Power Plant project is now planned/designed as life science space.

In terms of the life sciences and biotech SF is at a disadvantage both to SSF/the Peninsula and Berkeley/Emeryville/Oakland - the latter cities are making a big play to attract life science/biotech firms. SF needs to not only clean itself up but change its business tax policy if it hopes to capture even a small portion of the life science/biotech play.

The only office development that might pan out in SF is small, boutique projects. 50K or so Hence the Union Square condo conversion will include a small amount of said boutique office space.

As to large office developments (like the still empty 3M tower) not only is there not a need/demand for more space, there is no way to determine the potential price/square foot that future space might command. Today it's $73.24 but how long before landlords losing significant amounts of money on these empty towers make large cuts in the asking price per square foot? Meaning future projects could actually be financially untenable if rents take a big hit.

Forbes announces that they will automatically distrust any company that hires vocal Trump supporters. But this totally isn't "cancel culture", of which they disapprove.

Let it be known to the business world: Hire any of Trump's fellow fabulists above, and Forbes will assume that everything your company or firm talks about is a lie. We're going to scrutinize, double-check, investigate with the same skepticism we'd approach a Trump tweet. Want to ensure the world's biggest business media brand approaches you as a potential funnel of disinformation? Then hire away.

This isn't cancel culture, which is a societal blight.

Good thing the media is so widely trusted so we ignorant plebes know who to obey.

The experiences of Facebook moderators show just how harmful the company is to our society.

Early on, Speagle came across a video of two women in North Carolina encouraging toddlers to smoke marijuana, and helped to notify the authorities. (Moderator tools have a mechanism for escalating issues to law enforcement, and the women were eventually convicted of misdemeanor child abuse.) To Speagle's knowledge, though, the crimes he saw every day never resulted in legal action being taken against the perpetrators. The work came to feel pointless, never more so than when he had to watch footage of a murder or child pornography case that he had already removed from Facebook.

In June 2018, a month into his job, Facebook began seeing a rash of videos that purportedly depicted organs being harvested from children. (It did not.) So many graphic videos were reported that they could not be contained in Speagle's queue.

"I was getting the brunt of it, but it was leaking into everything else," Speagle said. "It was mass panic. All the SMEs had to rush in there and try to help people. They were freaking out -- they couldn't handle it. People were crying, breaking down, throwing up. It was like one of those horror movies. Nobody's prepared to see a little girl have her organs taken out while she's still alive and screaming." Moderators were told they had to watch at least 15 to 30 seconds of each video.

It doesn't seem to me that these problems can be solved. In the process of removing this vile content, Facebook simultaneously censors protected speech: politics, religion, satire, and more.

"I really wanted to make a difference," Speagle told me of his time working for Facebook. "I thought this would be the ultimate difference-making thing. Because it's Facebook. But there's no difference being made."

I asked him what he thought needed to change.

"I think Facebook needs to shut down," he said.

This has to be the most cold-hearted argument for abortion that I've ever read: abortion is good for business.

More than 180 business owners, including Twitter CEO Jack Dorsey, signed a letter protesting restrictive abortion legislation and published a full-page ad in The New York Times.

Business owners banded together to "stand up for reproductive health care" by posting the ad in Monday's print edition titled "Don't Ban Equality," which says abortion bans are "bad for business." ...

"Equality in the workplace is one of the most important business issues of our time," the ad reads. "When everyone is empowered to succeed, our companies, our communities, and our economy are better for it."

"Restricting access to comprehensive reproductive care, including abortion, threatens the health, independence and economic stability of our employees and customers," the ad continued. "Simply put, it goes against our values, and is bad for business. "

"We, the undersigned, employ more than 108,000 workers and stand against policies that hinder people's health, independence, and ability to fully succeed in the workplace."

Basically: "Killing babies will help us make more money." This is completely insane. The argument tries to side-step the moral and human dimensions of abortion by turning it into an economic issue, but where does that lead? Who else can we kill for money? Who gets to decide? Apparently the richest and strongest people are free to kill the weakest and most helpless people for money.

The argument is also wrong. Human beings are the only wealth-generating "objects" in the universe -- more humans means more wealth.

What a bunch of posturing, evil idiots.

Momentum is gathering for government action to break up the world's largest tech companies.

As in the gilded age a century ago, the tech industry epitomizes capitalism run amok, with huge concentrations of wealth, power, and control over key markets, like search (Google), cellphone operating systems (Apple and Google), and social media (Facebook/Instagram).

We have been accustomed to think of technology entrepreneurs as bold, risk-taking individuals who thrive on competition but now we know that it is more accurate to see them as oligarchs ruling over an industry ever more concentrated, centrally controlled and hierarchical. Rather than idealistic newcomers, they increasingly reflect the worst of American capitalism--squashing competitors, using indentured servants from abroad, colluding to fix wages, and dodging taxes while creating ever more social anomie and alienation.

Trust-busting has appeal that crosses the ideological spectrum -- monopolies enhance inequality and make us poorer, and simultaneously corrupt and undermine our government.

Others, such as centrist Michael Lind, suggest that if these are in fact natural monopolies, it would be best that they be regulated as such, much as we have seen in markets such as electricity and water. Whatever the kind of poison being prescribed, the oligarchs have generated a remarkable range of enemies.

I would prefer break-up to regulation like a utility, but there's no doubt that change is coming.

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.