Quotulatiousness

January 1, 2015

The Laffer Curve at 40

Filed under: Business, Economics, Government, USA — Tags: , , , , , — Nicholas @ 11:39

In the Washington Post, Stephen Moore recounts the tale of the most famous napkin in US economic history:

It was 40 years ago this month that two of President Gerald Ford’s top White House advisers, Dick Cheney and Don Rumsfeld, gathered for a steak dinner at the Two Continents restaurant in Washington with Wall Street Journal editorial writer Jude Wanniski and Arthur Laffer, former chief economist at the Office of Management and Budget. The United States was in the grip of a gut-wrenching recession, and Laffer lectured to his dinner companions that the federal government’s 70 percent marginal tax rates were an economic toll booth slowing growth to a crawl.

To punctuate his point, he grabbed a pen and a cloth cocktail napkin and drew a chart showing that when tax rates get too high, they penalize work and investment and can actually lead to revenue losses for the government. Four years later, that napkin became immortalized as “the Laffer Curve” in an article Wanniski wrote for the Public Interest magazine. (Wanniski would later grouse only half-jokingly that he should have called it the Wanniski Curve.)

This was the first real post-World War II intellectual challenge to the reigning orthodoxy of Keynesian economics, which preached that when the economy is growing too slowly, the government should stimulate demand for products with surges in spending. The Laffer model countered that the primary problem is rarely demand — after all, poor nations have plenty of demand — but rather the impediments, in the form of heavy taxes and regulatory burdens, to producing goods and services.

[…]

Solid supporting evidence came during the Reagan years. President Ronald Reagan adopted the Laffer Curve message, telling Americans that when 70 to 80 cents of an extra dollar earned goes to the government, it’s understandable that people wonder: Why keep working? He recalled that as an actor in Hollywood, he would stop making movies in a given year once he hit Uncle Sam’s confiscatory tax rates.

When Reagan left the White House in 1989, the highest tax rate had been slashed from 70 percent in 1981 to 28 percent. (Even liberal senators such as Ted Kennedy and Howard Metzenbaum voted for those low rates.) And contrary to the claims of voodoo, the government’s budget numbers show that tax receipts expanded from $517 billion in 1980 to $909 billion in 1988 — close to a 75 percent change (25 percent after inflation). Economist Larry Lindsey has documented from IRS data that tax collections from the rich surged much faster than that.

QotD: Henry Ford and the doubled wages – the real story

Filed under: Business, History, Quotations, USA — Tags: , , , , , — Nicholas @ 00:01

In 1913, turnover reached an unbelievable 370 percent, and Ford hired more than 50,000 people to maintain an average labor force of about 13,600. When profits swelled, he paid well for labor, creating an uproar when he doubled the basic wage to $5.00 a day, which triggered a virtual stampede of job seekers. Paying higher wages for labor was not altruistic in Ford’s eyes. Moreover, it wasn’t simply that Ford was trying to pay his workers “enough to buy back the product,” although he did preach a high-wage doctrine after the stock market crash in 1929. Rather, paying relatively high wages was, for Ford, a matter of smart business. He regarded well-paid skilled workers as important as high-grade material. By paying workers well, he effectively lowered his costs because higher wages reduced turnover and the need for constant training of new hires. (At the time, the newspapers saw Ford’s wage increase as an extraordinary gesture of goodwill.)

Mark Spitznagel, The Dao of Capital: Austrian Investing in a Distorted World, 2013.

December 31, 2014

The (awful) people of Whole Foods

Filed under: Business, Health, Personal, USA — Tags: , , , — Nicholas @ 04:00

Many years ago, when we lived on “the Danforth”, we were occasional patrons of “The Big Carrot”, an early retail store for the self-consciously “alternative” set. If you wanted gluten-free, or dairy-free, or fair-trade, they were almost the only game in town in the late 80s and early 90s. The selection may not have been great at times, but they did try to provide a variety of foods that you couldn’t get at the mainstream supermarkets of the day. The employees seemed to be mostly good, helpful folks, but almost to a person the customers were incredibly self-centred, self-righteous, arrogant, and intolerant. I don’t know how the staff put up with the constant childish antics and unending whining from the customers. Whole Foods is a much bigger enterprise than Toronto’s Big Carrot … and they seem to have attracted exactly the same customer base:

The problem with Whole Foods is their regular customers. They are, across the board, across the country, useless, ignorant, and miserable. They’re worse than miserable, they’re angry. They are quite literally the opposite of every Whole Foods employee I’ve ever encountered. Walk through any store any time of day—but especially 530pm on a weekday or Saturday afternoon during football season — and invariably you will encounter a sneering, disdainful horde of hipster Zombies and entitled 1%ers.

They stand in the middle of the aisles, blocking passage of any other cart, staring intently at the selection asking themselves that critical question: which one of these olive oils makes me seem coolest and most socially conscious, while also making the raw vegetable salad I’m preparing for the monthly condo board meeting seem most rustic and artisanal?

If you are a normal human being, when you come upon a person like this in the aisle you clear your throat or say excuse me, hoping against hope that they catch your drift. They don’t. In fact, they are disgusted by your very existence. The idea that you would violate their personal shopping space — which seems to be the entire store — or deign to request anything of them is so far beyond the pale that most times all they can muster is an “Ugh!”

Over the years I have tried everything to remain civil to these people, but nothing has worked, so I’ve stopped trying. Instead, I walk over to their cart and physically move it to the side for them. Usually, the shock of such an egregious transgression is so great that the “Ugh!” doesn’t happen until I’m around the corner out of sight. Usually, all I get is an incredulous bug-eyed stare. Sometimes I get both though, and when that happens, I look them square in the eye and say “Move. Your. Cart.” I used the same firm tone as Jason Bourne, with the hushed urgency of Jack Bauer and the uncomfortable proximity of Judge Reinhold. From their reaction you’d think I just committed an armed robbery or a sexual assault. When words fail them, as they often do with passive aggressive Whole Foods zombies, the anger turns inward and they start to vibrate with righteous indignation. Eventually, that pent up energy has to go somewhere, and like solar flares it bursts forth into the universe as paroxysms of rage.

December 30, 2014

Economics of SF writing – the fall of the short story and the rise of the novel

Filed under: Books, Business, Economics, Media — Tags: , , — Nicholas @ 09:48

Charles Stross outlines the reason SF writers pretty much stopped writing short stories en masse in the mid-to-late 1950s:

A typical modern novel is in the range 85,000-140,000 words. But there’s nothing inevitable about this. The shortest work of fiction I ever wrote and sold was seven words long; the longest was 196,000 words. I’ve written plenty of short stories, in the 3000-8000 word range, novelettes (8000-18,000 words), and novellas (20,000-45,000 words). (Anything longer than a novella is a “short novel” and deeply unfashionable these days, at least in adult genre fiction, which seems to be sold by the kilogram.)

[…]

Genre science fiction in the US literary tradition has its roots in the era of the pulp magazines, from roughly 1920 to roughly 1955. (The British SF/F field evolved similarly, so I’m going to use the US field as my reference point.) These were the main supply of mass-market fiction to the general public in the days before television, when reading a short story was a viable form of mass entertainment, and consequently there was a relatively fertile market for short fiction up to novella length. In addition, many of these magazines serialized novels: it was as serials that Isaac Asimov’s Foundation and E. E. “Doc” Smith’s The Skylark of Space were originally published, among others.

For a while, during this period, it was possible to earn a living (not a very good living) churning out pulp fiction in short formats. It’s how Robert Heinlein supplemented his navy pension in the 1930s; it’s how many of the later-great authors first gained their audiences. But it was never a good living, and in the 1950s the bottom fell out of the pulp market — the distribution channel itself largely dried up and blew away, a victim of structural inefficiencies and competition from other entertainment media. The number of SF titles on sale crashed, and the number of copies each sold also crashed. Luckily for the writers a new medium was emerging: the mass market paperback, distributed via the same wholesale channel as the pulp magazines and sold through supermarkets and drugstore wire-racks. These paperbacks were typically short by modern standards: in some cases they provided a market for novellas (25,000 words and up — Ace Doubles consisted of two novellas, printed and bound back-to-back and upside-down relative to one another, making a single book).

The market for short fiction gradually recovered somewhat. In addition to the surviving SF magazines (now repackaged as digest-format paperback monthlies) anthologies emerged as a market. But after 1955 it was never again truly possible to earn a living writing short stories (although this may be changing thanks to the e-publishing format shift — it’s increasingly possible to publish stand-alone shorter works, or to start up a curatorial e-periodical or “web magazine” as the hip young folks call them). And the readership profile of the remaining magazines slowly began to creep upwards, as new readers discovered SF via the paperback book rather than the pulp magazine. With this upward trending demographic profile, the SF magazines entered a protracted, generational spiral of dwindling sales: today they still exist, but nobody would call a US newsstand magazine with monthly sales of 10,000-15,000 copies a success story.

A side-effect of dwindling sales is that the fixed overheads of running a magazine (the editor’s pay check) remains the same but there’s less money to go around. Consequently, pay rates for short fiction stagnated from the late 1950s onwards. 2 cents/word was a decent wage in 1955 — it was $20 for a thousand words, so $80-500 for a short story or novelette. But the monthly magazines were still paying 5 cents/word in the late 1990s! This was pin money. It was a symbolic reward. It would cover your postage and office supplies bill — if you were frugal.

The humble pallet … and a shipping revolution

Filed under: Business, Economics — Tags: , , — Nicholas @ 04:00

It’s very easy to let your eye skip over the humble pallet, yet it represents a huge improvement in how products get from the factory to you:

The magic of these pallets is the magic of abstraction. Take any object you like, pile it onto a pallet, and it becomes, simply, a “unit load” — standardized, cubical, and ideally suited to being scooped up by the tines of a forklift. This allows your Cheerios and your oysters to be whisked through the supply chain with great efficiency; the gains are so impressive, in fact, that many experts consider the pallet to be the most important materials-handling innovation of the twentieth century. Studies have estimated that pallets consume 12 to 15 percent of all lumber produced in the US, more than any other industry except home construction.

Some pallets also carry an aesthetic charge. It’s mostly about geometry: parallel lines and negative space, slats and air. There is also the appeal of the raw, unpainted wood, the cheapest stuff you can buy from a lumber mill — “bark and better,” it’s called. These facts have not escaped the notice of artists, architects, designers, or DIY enthusiasts. In 2003, the conceptual artist Stuart Keeler presented stacks of pallets in a gallery show, calling them “the elegant serving-platters of industry”; more recently, Thomas Hirschhorn featured a giant pallet construction as part of his Gramsci Monument. Etsy currently features dozens of items made from pallets, from window planters and chaise lounges to more idiosyncratic artifacts, such as a decorative teal crucifix mounted on a pallet. If shipping containers had their cultural moment a decade ago, pallets are having theirs now.

Since World War II, most of America’s pallet needs have been met by several thousand small and mid-sized businesses. These form the nucleus of not just an industry, but a sprawling, anarchic ecosystem — a world, really, complete with its own customs, language, and legends, with a political class, with its own media. This world is known as “whitewood.” There are approximately forty thousand citizens of whitewood, ranging from pallet pickers (who salvage pallets from the trash) to pallet recyclers (who repair broken pallets and make them whole) to pallet manufacturers, pallet consultants, pallet academics, pallet thieves, and pallet association presidents. Whitewood includes people who crisscross the country selling pallet repair machinery, preaching the gospel of tools such as the Rogers Un-Nailer.

Not all pallets belong to the world of whitewood. The most important other category — and whitewood’s chief antagonist — is the blue pallet. These blues are not just a different color; they are also built differently, and play by different rules, and for the past twenty-five years, the conflict between blue and white has been the central theme in the political economy of American pallets. The person most identified with this conflict is a soft-spoken, middle-aged man from Kansas named Bob Moore. Currently embroiled in a legal battle over a pallet deal gone bad, Moore is a singular figure in the industry and a magnet for controversy. When not in federal court, he can sometimes be found piloting a Mooney Acclaim Type S airplane, which he prefers, when possible, to flying commercial. The Mooney is a good place to concentrate, one imagines. And it is important to concentrate when plotting the future of pallets.

Tax-splaining a headline

Filed under: Business, Economics, Law, USA — Tags: , — Nicholas @ 03:00

The headline that grabs attention says that a vast number of US corporations pay absolutely no corporate taxes. Tim Worstall explains that this is quite true:

Timothy Taylor has a nice piece here on the subject:

    More than 90 percent of businesses, representing more than one-third of all business activity, in the United States are structured as flow-through entities — businesses that do not pay the corporate income tax, but rather pass profits through to owners who pay tax under the individual income tax.

    We have two (actually, more than two, but this is the distinction that matters to us here) forms of business ownership. The first is the C Corporation, what we all normally think of as a corporation. The second is an S corporation (in taxation, very like a partnership). And the important thing is that C corporations are the only ones that pay the corporate income tax. S corporations don’t: their owners pay individual income tax on the profits. So, if we saw a move from C to S corporations as the method of organisation then we’d see a reduction in corporate income tax paid. But not, possibly, a reduction in total tax paid on business profits.

And that is what seems to have happened at least in part:

    Back in 1980, nearly 80% of business income went to “C” corporations–so named after the applicable part of the tax code that governs them–which are what most of us think of when we think of a “corporation.” Back then, the remaining 20% was almost all sole proprietorships, which were just taxed as individual income. …..(…)…But C corporations now account for only about 30% of all business income. The share going to sole proprietorships hasn’t changed much. But much more corporate income is going to partnership and S corporations….(…)…Back in the 1960s, the corporate income tax often collected 4-5% of GDP. Since about 1990, it has more commonly collected 1-2% of GDP. Part of the reason is that a smaller share of business income is flowing through the conventional C corporation form.

That really is a large part of the explanation. It’s not that business profits are not being taxed, it’s that they’re being taxed in a different way. And that explains much of the fall in the corporate income tax revenues: and all too few people are over on the other side looking at the increase in individual income tax payments stemming from corporate profits.

So a legal change has drawn a lot of corporations to change how they are structured, so that profits are taxable in the hands of their individual owners, rather than in the imaginary hands of the corporate person. And another US tax quirk explains even more of the headline:

There is another point to be made here, about how we measure the share of corporate profits in the US economy. This has very definitely risen, this is absolutely true. And the tax bill hasn’t, that’s also true. A goodly part of the explanation is the above, about C and S corporations. But there’s this one more thing. Profits in the US economy includes all profits made in the US, by both Americans and foreigners. But it also includes foreign profits made by US corporations. Those tens of billions being made abroad by Google and Apple, Microsoft, they’re all included in the US profit share. And as we also know, those foreign profits aren’t paying the US corporate income tax because, entirely legally, they’re being used overseas to reinvest in those foreign businesses. My stick my finger in the air estimate of the difference those profits make is about 2% of US GDP. Meaning that if we measure US profits as 10% of GDP, then look at tax payments, we’re only seeing the tax payments from 8% of GDP (before we even look at the C and S corporation thing).

December 27, 2014

Regulatory costs don’t scale to smaller businesses

Filed under: Bureaucracy, Business, Food — Tags: , — Nicholas @ 04:00

Warren Meyer writes a letter to the dean of Harvard Business School after reading the story of a professor at HBS harassing a mom’n’pop restaurant over a $4 overcharge on a meal order:

… I was horrified to see an HBS professor (prof Edelman) in the news harassing a small business over a small mistake on its web site. I don’t typically get worked up about Harvard grads acting out, but in this particular case his actions are absolutely at the core of what is making the operation of a small business increasingly impossible in this country.

Small businesses face huge and growing compliance risks from almost every direction — labor law, safety rules, environmental rules, consumer protection laws, bounty programs like California prop 65, etc. What all these have in common is that they impose huge penalties for tiny mistakes, mistakes that can be avoided only by the application of enormous numbers of labor hours in compliance activities. These compliance costs are relatively easy for large companies to bear, but back-breaking for small companies.

So it is infuriating to see an HBS professor attempting to impose yet another large cost on a small business for a tiny mistake, particularly when the proprietor’s response was handled so well. Seriously, as an aside, I took service management from Ben Shapiro back in the day and I could easily see the restaurateur involved being featured positively in a case study. He does all the same things I learned at HBS — reading every customer comment personally, responding personally to complaints, bending over backwards to offer more than needed in order to save the relationship with the customer.

As for the restaurateur’s web site mistake — even in a larger, multi-site company, I as owner do all my own web work. Just as I do a million other things to keep things running. And it is hard, in fact virtually impossible, to keep all of our web sites up to date. Which is why Professor Edelman’s response just demonstrates to me that for all HBS talks about entrepreneurship, the faculty at HBS is still more attuned to large corporations and how they operate with their enormous staff resources rather than to small businesses.

Large corporations are crushing smaller ones in industry after industry because of the economy of scale they have in managing such compliance issues. If the HBS faculty were truly committed to entrepreneurship, it should be thinking about how technology and process can be harnessed by smaller businesses to reduce the relative costs of these activities. How, for example, can I keep up with 150+ locations that each need a web presence when my sales per site are so much less than that of a larger corporation? This is not impossible — I have learned some tools and techniques over time — and we should be teaching and expanding these, rather than spending time raising the cost of compliance for small business.

December 20, 2014

“The Freight Yard” – New York Central Railroad

Filed under: Business, History, Railways, USA — Tags: — Nicholas @ 00:03

Uploaded on 14 Apr 2011

New York Central Railroad (NYC) publicity film from the late 1940’s, part of their “Running the Railroad” series. Archival footage shows freight yards of all types, along with steam and diesel locomotives.

The New York Central Railroad (NYC), known simply as the New York Central in its publicity, was a railroad operating in the Northeastern United States. Headquartered in New York, the railroad served most of the Northeast, including extensive trackage in the states of New York, Pennsylvania, Ohio, Michigan, Indiana, Illinois, and Massachusetts, plus additional trackage in the Canadian provinces of Ontario and Quebec. The railroad primarily connected greater New York and Boston in the east with Chicago and St.Louis in the midwest along with the intermediate cities of Albany, Buffalo, Cleveland, Cincinnati, and Detroit. The NYC’s Grand Central Terminal in New York City is one of its best known landmarks.

Repost – Induced aversion to a particular Christmas song

Filed under: Business, Cancon, Gaming, Media, Personal — Tags: , , , , — Nicholas @ 00:02

Earlier this year, I had occasion to run a Google search for “Mr Gameway’s Ark” (it’s still almost unknown: the Googles, they do nothing). However, I did find a very early post on the old site that I thought deserved to be pulled out of the dusty archives, because it explains why I can — to this day — barely stand to listen to “Little Drummer Boy”:

Seasonal Melodies

James Lileks has a concern about Christmas music:

This isn’t to say all the classics are great, no matter who sings them. I can do without “The Little Drummer Boy,” for example.

It’s the “Bolero” of Christmas songs. It just goes on, and on, and on. Bara-pa-pa-pum, already. Plus, I understand it’s a sweet little story — all the kid had was a drum to play for the newborn infant — but for anyone who remembers what it was like when they had a baby, some kid showing up unannounced to stand around and beat on the skins would not exactly complete your mood. Happily, the song has not spawned a sequel like “The Somewhat Larger Cymbal Adolescent.”

This reminds me about my aversion to this particular song. It was so bad that I could not hear even three notes before starting to wince and/or growl.

Mr. Gameways' ArkBack in the early 1980’s, I was working in Toronto’s largest toy and game store, Mr Gameways’ Ark. It was a very odd store, and the owners were (to be polite) highly idiosyncratic types. They had a razor-thin profit margin, so any expenses that could be avoided, reduced, or eliminated were so treated. One thing that they didn’t want to pay for was Muzak (or the local equivalent), so one of the owners brought in his home stereo and another one put together a tape of Christmas music.

Note that singular. “Tape”.

An ad from the year of Trivial Pursuit (via OSRcon)

An ad from the year of Trivial Pursuit (via OSRcon)

Christmas season started somewhat later in those distant days, so that it was really only in December that we had to decorate the store and cope with the sudden influx of Christmas merchandise. Well, also, they couldn’t pay for the Christmas merchandise until sales started to pick up, so that kinda accounted for the delay in stocking-up the shelves as well …

So, Christmas season was officially open, and we decorated the store with the left-over krep from the owners’ various homes. It was, at best, kinda sad. But — we had Christmas music! And the tape was pretty eclectic: some typical 50’s stuff (“White Christmas” and the like), some medieval stuff, some Victorian stuff and that damned “Drummer Boy” song.

We were working ten- to twelve-hour shifts over the holidays (extra staff? you want Extra Staff, Mr. Cratchitt???), and the music played on. And on. And freaking on. Eternally. There was no way to escape it.

To top it all off, we were the exclusive distributor for a brand new game that suddenly was in high demand: Trivial Pursuit. We could not even get the truck unloaded safely without a cordon of employees to keep the random passers-by from trying to grab boxes of the damned game. When we tried to unpack the boxes on the sales floor, we had customers snatching them out of our hands and running (running!) to the cashier. Stress? It was like combat, except we couldn’t shoot back at the buggers.

Oh, and those were also the days that Ontario had a Sunday closing law, so we were violating all sorts of labour laws on top of the Sunday closing laws, so the Police were regular visitors. Given that some of our staff spent their spare time hiding from the Police, it just added immeasurably to the tension levels on the shop floor.

And all of this to the background soundtrack of Christmas music. One tape of Christmas music. Over and over and over and over and over and over and over again.

It’s been over 20 [now 30] years, and I still feel the hackles rise on the back of my neck with this song … but I’m over the worst of it now: I can actually listen to it without feeling that all-consuming desire to rip out the sound system and dance on the speakers. After two decades.

December 19, 2014

Mark Steyn on the collapse of moral fibre at Sony

Filed under: Asia, Business, Media, USA — Tags: , , , — Nicholas @ 00:04

Mark Steyn is never one to hold back an opinion:

I was barely aware of The Interview until, while sitting through a trailer for what seemed like just another idiotic leaden comedy, my youngest informed me that the North Koreans had denounced the film as “an act of war”. If it is, they seem to have won it fairly decisively: Kim Jong-Un has just vaporized a Hollywood blockbuster as totally as if one of his No Dong missiles had taken out the studio. As it is, the fellows with no dong turned out to be the executives of Sony Pictures.

I wouldn’t mind but this is the same industry that congratulates itself endlessly — not least in its annual six-hour awards ceremony — on its artists’ courage and bravery. Called on to show some for the first time in their lives, they folded like a cheap suit. As opposed to the bank-breaking suit their lawyers advised them they’d be looking at if they released the film and someone put anthrax in the popcorn. I think of all the occasions in recent years when I’ve found myself sharing a stage with obscure Europeans who’ve fallen afoul of Islam — Swedish artists, Danish cartoonists, Norwegian comediennes, all of whom showed more courage than these Beverly Hills bigshots.

While I often find Mark Steyn’s comments amusing and insightful, the real lesson here may not be the spineless response of Sony, but the impact of a legal system on the otherwise free actions of individuals and organizations: if Sony had gone ahead with the release and someone did attack one or more of the theatres where the movie was being shown, how would the legal system treat the situation? As an act of war by an external enemy or as an act of gross negligence by Sony and the theatre owners that would bankrupt every single company in the distribution chain (and probably lead to criminal charges against individual theatre managers and corporate officers)? While I disagree with Sony’s decision to fold under the pressure, I can’t imagine any corporate board being comfortable with that kind of stark legal threat … Sony’s executives may have been presented with no choice at all.

I see that, following the disappearance of The Interview, a Texan movie theater replaced it with a screening of Team America. That film wouldn’t get made today, either.

Hollywood has spent the 21st century retreating from storytelling into a glossy, expensive CGI playground in which nothing real is at stake. That’s all we’ll be getting from now on. Oh, and occasional Oscar bait about embattled screenwriters who stood up to the House UnAmerican Activities Committee six decades ago, even as their successors cave to, of all things, Kim’s UnKorean Activities Committee. American pop culture — supposedly the most powerful and influential force on the planet – has just surrendered to a one-man psycho-state economic basket-case that starves its own population.

Kim Jong-won.

Eugene Volokh makes some of the same points that Steyn raises:

Deadline Hollywood mentions several such theater chains. Yesterday, the Department of Homeland Security stated that there was “no credible intelligence” that such threatened terrorist attacks would take place, but unsurprisingly, some chains are being extra cautious here.

I sympathize with the theaters’ situation — they’re in the business of showing patrons a good time, and they’re rightly not interested in becoming free speech martyrs, even if there’s only a small chance that they’ll be attacked. Moreover, the very threats may well keep moviegoers away from theater complexes that are showing the movie, thus reducing revenue from all the screens at the complex.

But behavior that is rewarded is repeated. Thugs who oppose movies that are hostile to North Korea, China, Russia, Iran, the Islamic State, extremist Islam generally or any other country or religion will learn the lesson. The same will go as to thugs who are willing to use threats of violence to squelch expression they oppose for reasons related to abortion, environmentalism, animal rights and so on.

QotD: The twin rise and fall of unions and manufacturing

Filed under: Business, Economics, History, Quotations, USA — Tags: , , , — Nicholas @ 00:01

Unions only help if the underlying economic situation is that the employer is able to charge a great deal more for the amount of product generated per worker-hour than the worker is getting — there is headroom for the worker’s wage to expand into while the manufacturer still makes a net profit. (If the manufacturer doesn’t make a net profit the business collapses and nobody gets paid.)

During the age that manufacturing nostalgisists remember nostalgically, this was true. For most of that period (roughly 1870-1970), the capital goods required to manufacture in a way price-competitive with the U.S. were so expensive that almost nobody outside the U.S. could afford them, and in the few places that could they were mainly preoccupied with supplying their domestic markets rather than the U.S. World War II prolonged this period by hammering those “few places” rather badly.

In that environment, U.S. firms could profit-take hugely, benefited by being scarce suppliers not just to the U.S. but (later on) to the whole world. And unions could pry loose enough of that margin to make manufacturing jobs comfortably middle-class.

All that ended in the early 1970s. A good marker for the change is the ability of the Japanese to make cheap cars for export and sell them for the U.S.

In the new world, the profit margins on manufactured goods narrowed dramatically. The manufacturing firms could no longer effectively ignore overseas competition in the U.S. domestic market. U.S. consumers no longer had to to pay the large price premiums required to sustain domestic manufacturing wages at pre-1970 levels, and they jumped right on that option.

In this environment, unions don’t help because they have almost no negotiating room. If they bid up workers’ wages, the jobs will evaporate or move overseas – not because corporations are being “greedy” but because they can no longer charge the prices that would allow such high wages to be sustained. Too much foreign labor and capital is ready to pounce on the first hint of price-taking.

Eric S. Raymond, “Why labor unions have lost their moxie”, Armed and Dangerous, 2014-11-29.

December 17, 2014

Canadian telcos: “there is no need for legally mandated surveillance and interception functionality”

Filed under: Business, Cancon, Law, Liberty — Tags: , , , — Nicholas @ 07:10

Sounds good, right? Canada’s telecom companies telling the government that there’s no reason to pass laws requiring surveillance capabilities … except that the reason they’re saying this is that “they will be building networks that will feature those capabilities by default“:

After years of failed bills, public debate, and considerable controversy, lawful access legislation received royal assent last week. Public Safety Minister Peter MacKay’s Bill C-13 lumped together measures designed to combat cyberbullying with a series of new warrants to enhance police investigative powers, generating criticism from the Privacy Commissioner of Canada, civil liberties groups, and some prominent victims rights advocates. They argued that the government should have created cyberbullying safeguards without sacrificing privacy.

While the bill would have benefited from some amendments, it remains a far cry from earlier versions that featured mandatory personal information disclosure without court oversight and required Internet providers to install extensive surveillance and interception capabilities within their networks.

The mandatory disclosure of subscriber information rules, which figured prominently in earlier lawful access bills, were gradually reduced in scope and ultimately eliminated altogether. Moreover, a recent Supreme Court ruling raised doubt about the constitutionality of the provisions.

[…]

Perhaps the most notable revelation is that Internet providers have tried to convince the government that they will voluntarily build surveillance capabilities into their networks. A 2013 memorandum prepared for the public safety minister reveals that Canadian telecom companies advised the government that the leading telecom equipment manufacturers, including Cisco, Juniper, and Huawei, all offer products with interception capabilities at a small additional cost.

In light of the standardization of the interception capabilities, the memo notes that the Canadian providers argue that “the telecommunications market will soon shift to a point where interception capability will simply become a standard component of available equipment, and that technical changes in the way communications actually travel on communications networks will make it even easier to intercept communications.”

In other words, Canadian telecom providers are telling the government there is no need for legally mandated surveillance and interception functionality since they will be building networks that will feature those capabilities by default.

December 15, 2014

Sony games the copyright laws

Filed under: Business, Law, Media — Tags: , , — Nicholas @ 00:02

At Techdirt, Mike Masnick explains why Sony released only a tiny number of pressed CDs of 1964 musical tracks:

Two years ago we wrote about the very odd release, by Sony, of just 100 copies of a set of previously unreleased Bob Dylan tracks. Why so few? Well, Sony sort of revealed the secret in the name of the title. See if you can spot it:

Bob Dylan - Copyright Extension

Yup. The release had absolutely nothing to do with actually getting the works out to fans, and absolutely everything to do with copyright. You see, back in 2011, despite having absolutely no economic rationale for doing so, the EU retroactively extended copyright on music from 50 years to 70 years. However, there was a tiny catch: there was a “use it or lose it” provision in the law, saying that the music had to have been “released” to qualify for that 20 year extension. Thus, Sony realized with Dylan that it had to “release” (and I use the term loosely) some of its old recordings that had never been officially released, or it would lose the copyright on them.

The other major labels have been doing the same. Last year, there was a series of releases of 1963 music, including more from Dylan, along with some previously unreleased Beatles tunes (at least those were somewhat more widely available). This year, we’re getting a new crop of barely released 1964 songs including (yet again) more from Dylan, along with some from the Beach Boys as well (and some expect more Beatles tunes as well).

December 14, 2014

Google to Spain: “Buh-bye!”

Filed under: Business, Europe, Media — Tags: , , , — Nicholas @ 00:04

Spanish legislation imposing a special tax on Google has resulted in Google erasing Spain from their Google News business plan altogether:

Back in October, we noted that Spain had passed a ridiculously bad Google News tax, in which it required any news aggregator to pay for snippets and actually went so far as to make it an “inalienable right” to be paid for snippets — meaning that no one could choose to let any aggregator post snippets for free. Publishers have to charge any aggregator. This is ridiculous and dangerous on many levels. As we noted, it would be deathly for digital commons projects or any sort of open access project, which thrive on making content reusable and encouraging the widespread sharing of such content.

Apparently, it’s also deathly for Google News in Spain. A few hours ago, Google announced that due to this law, it was shutting down Google News in Spain, and further that it would be removing all Spanish publications from the rest of Google News. In short, Google went for the nuclear option in the face of a ridiculously bad law:

    But sadly, as a result of a new Spanish law, we’ll shortly have to close Google News in Spain. Let me explain why. This new legislation requires every Spanish publication to charge services like Google News for showing even the smallest snippet from their publications, whether they want to or not. As Google News itself makes no money (we do not show any advertising on the site) this new approach is simply not sustainable. So it’s with real sadness that on 16 December (before the new law comes into effect in January) we’ll remove Spanish publishers from Google News, and close Google News in Spain.

Every time there have been attempts to get Google to cough up some money to publishers in this or that country, people (often in our comments) suggest that Google should just “turn off” Google News in those countries. Google has always resisted such calls. Even in the most extreme circumstances, it’s just done things like removing complaining publications from Google News, or posting the articles without snippets. In both cases, publishers quickly realized how useful Google News was in driving traffic and capitulated. In this case, though, it’s not up to the publishers. It’s entirely up to the law.

December 12, 2014

QotD: Apple isn’t worth the same as Switzerland

Filed under: Business, Economics, Quotations — Tags: , , , — Nicholas @ 00:01

It is true that Switzerland’s GDP is around $700 billion. But GDP is a measure of value added in a country in one year. That is, it’s the income of the place. Apple’s $700 billion valuation is the total value of the company: this is akin to wealth, not income. And of course the value of a stock is the net present value of all of the future income from it. So, that $700 billion for Apple is the current value (as the market estimates it) of everything that Apple will ever do in the future. The valuation of Switzerland, that $700 billion, is what the place made this year alone. Two very different numbers.

To get to something comparable for Apple we need to work out this year’s added value. A rough and ready definition of that is profits plus wages paid (this is approximately equal to the labour and profit shares in GDP which don’t quite equal total GDP but good enough for rough comparisons). Apple’s profits are around $40 billion, it employs a little under 100,000 people directly. Say each of those is paid $100,000 a year (obviously, some get very much more but when we add in the Genius Bar folks that might be reasonable enough as an average) which gives us another $10 billion. Not entirely accurate but reasonable enough to say that Apple’s value add, the equivalent of GDP, is some $50 billion.

When we go looking for a country at around that we find The Sudan and Luxembourg jointly on some $55 billion. And Luxembourg is some 400,000 people, and roughly half of the people in a country work (take out the kiddies, pensioners, housewives etc, roughly correct) giving us a Luxembourgois workforce of 200,000 people. 100,000 people in one of the most profitable companies on the planet produce about the same value as 200,000 rich world people in a country. OK, that’s impressive for Apple but it’s a much better indication of the company’s economic size than any other measure. It is, around and about, fair to say that Apple produces the same economic value as Luxembourg. […]

And to repeat the point at the top, we’re never going to really understand corporate power or the size of the corporate sector (or corporations) until we start to understand what these different numbers being bandied about as valuations and value of production etc really mean. Corporations really are very much smaller than countries: even the largest and most valuable of corporations is really only comparable to a city sized country. To give you a much better idea of the size of Apple relative to economic output of an area then Apple’s about the size of Raleigh, North Carolina, Omaha Nebraska, maybe, just maybe as large as Forth Worth, Texas, or Charlotte, North Carolina. Somewhere in that range at least. Or to use States, perhaps around Rhode Island or Maine.

Corporations just aren’t as large and economically powerful as some seem to think.

Tim Worstall, “Apple Isn’t Worth Switzerland But It Is Worth All The World’s Airlines”, Forbes, 2014-11-22.

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