nhaliday + white-paper + scale + study   4

There’s good eating on one of those | West Hunter
Recently, Y.-H. Percival Zhang and colleagues demonstrated a method of converting cellulose into starch and glucose. Zhang thinks that it can be scaled up into an effective industrial process, one that could produce a thousand calories of starch for less than a dollar from cellulosic waste. This would be a good thing. It’s not just that are 7 billion people – the problem is that we have hardly any food reserves (about 74 days at last report).

Prepare for Nuclear Winter: http://www.overcomingbias.com/2017/09/prepare-for-nuclear-winter.html
If a 1km asteroid were to hit the Earth, the dust it kicked up would block most sunlight over most of the world for 3 to 10 years. There’s only a one in a million chance of that happening per year, however. Whew. However, there’s a ten times bigger chance that a super volcano, such as the one hiding under Yellowstone, might explode, for a similar result. And I’d put the chance of a full scale nuclear war at ten to one hundred times larger than that: one in ten thousand to one thousand per year. Over a century, that becomes a one to ten percent chance. Not whew; grimace instead.

There is a substantial chance that a full scale nuclear war would produce a nuclear winter, with a similar effect: sunlight is blocked for 3-10 years or more. Yes, there are good criticisms of the more extreme forecasts, but there’s still a big chance the sun gets blocked in a full scale nuclear war, and there’s even a substantial chance of the same result in a mere regional war, where only 100 nukes explode (the world now has 15,000 nukes).

...

Yeah, probably a few people live on, and so humanity doesn’t go extinct. But the only realistic chance most of us have of surviving in this scenario is to use our vast industrial and scientific abilities to make food. We actually know of many plausible ways to make more than enough food to feed everyone for ten years, even with no sunlight. And even if big chunks of the world economy are in shambles. But for that to work, we must preserve enough social order to make use of at least the core of key social institutions.

http://www.overcomingbias.com/2017/09/mre-futures-to-not-starve.html

Nuclear War Survival Skills: http://oism.org/nwss/nwss.pdf
Updated and Expanded 1987 Edition

Nuclear winter: https://en.wikipedia.org/wiki/Nuclear_winter

Yellowstone supervolcano may blow sooner than thought — and could wipe out life on the planet: https://www.usatoday.com/story/news/nation/2017/10/12/yellowstone-supervolcano-may-blow-sooner-than-thought-could-wipe-out-life-planet/757337001/
http://www.foxnews.com/science/2017/10/12/yellowstone-supervolcano-could-blow-faster-than-thought-destroy-all-mankind.html
http://fortune.com/2017/10/12/yellowstone-park-supervolcano/
https://www.sciencenews.org/article/supervolcano-blast-would-blanket-us-ash
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march 2017 by nhaliday
The Hidden American Immigration Consensus: A Conjoint Analysis of Attitudes toward Immigrants - Hainmueller - 2014 - American Journal of Political Science - Wiley Online Library
https://twitter.com/tcjfs/status/862076519077879808
https://archive.is/worD7
Polls re "increasing"/"decreasing" levels aren't reliable, because normies have no idea how much we currently have. https://cis.org/Camarota/Survey-Highlights-Popularity-Immigration-Enforcement

https://www.numbersusa.com/news/voters-swing-states-support-raise-act
https://www.numbersusa.com/news/pew-us-has-more-immigrants-any-other-country
The report also noted that almost half of Americans (49%) say that immigration in the U.S. should be decreased while only 15% said it should be increased.

also:
- 13.4% foreign-born
- of those, 25% illegal, 44% naturalized, 25% permanent resident
- 1/2 not proficient in English

It's the immigration, stupid: http://anepigone.blogspot.com/2015/11/its-immigration-stupid.html
Polling on immigration often appears to be all over the place. Wording is crucial. When the choices are "deport everyone" and "secure the border and then offer a path to citizenship", the Cathedral can manufacture headlines to try and create an illusion of amnesty as a political winner. When the questions are more objectively designed, it becomes clear that restrictionism is the populist position.

Over the summer, Reuters approached the issue in the most straightforward manner I've ever come across. In terms of fleshing out public sentiment, the approach is bar none. Respondents were asked about what should be done with illegal immigrants in the US. Only two committal answers--"deport most or all of them" and "allow most or all of them to stay"--along with a third "unsure" cop-out option, were offered as responses.

World Publics Welcome Global Trade — But Not Immigration: http://www.pewglobal.org/2007/10/04/world-publics-welcome-global-trade-but-not-immigration/
In both affluent countries in the West and in the developing world, people are concerned about immigration. Large majorities in nearly every country surveyed express the view that there should be greater restriction of immigration and tighter control of their country’s borders.
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july 2016 by nhaliday
Too much of a good thing | The Economist
None of these accounts, though, explain the most troubling aspect of America’s profit problem: its persistence. Business theory holds that firms can at best enjoy only temporary periods of “competitive advantage” during which they can rake in cash. After that new companies, inspired by these rich pickings, will pile in to compete away those fat margins, bringing prices down and increasing both employment and investment. It’s the mechanism behind Adam Smith’s invisible hand.

In America that hand seems oddly idle. An American firm that was very profitable in 2003 (one with post-tax returns on capital of 15-25%, excluding goodwill) had an 83% chance of still being very profitable in 2013; the same was true for firms with returns of over 25%, according to McKinsey, a consulting firm. In the previous decade the odds were about 50%. The obvious conclusion is that the American economy is too cosy for incumbents.

Corporations Are Raking In Record Profits, But Workers Aren’t Seeing Much of It: http://www.motherjones.com/kevin-drum/2017/07/corporations-are-raking-in-record-profits-but-workers-arent-seeing-much-of-it/
Even Goldman Sachs thinks monopolies are pillaging American consumers: http://theweek.com/articles/633101/even-goldman-sachs-thinks-monopolies-are-pillaging-american-consumers
Schumpeter: The University of Chicago worries about a lack of competition: http://www.economist.com/news/business/21720657-its-economists-used-champion-big-firms-mood-has-shifted-university-chicago
Some radicals argue that the government is now so rotten that America is condemned to perpetual oligarchy and inequality. Political support for more competition is worryingly hard to find. Donald Trump has a cabinet of tycoons and likes to be chummy with bosses. The Republicans have become the party of incumbent firms, not of free markets or consumers. Too many Democrats, meanwhile, don’t trust markets and want the state to smother them in red tape, which hurts new entrants.

The Rise of Market Power and the Decline of Labor’s Share: https://promarket.org/rise-market-power-decline-labors-share/
A new paper by Jan De Loecker (of KU Leuven and Princeton University) and Jan Eeckhout (of the Barcelona Graduate School of Economics UPF and University College London) echoes these results, arguing that the decline of both the labor and capital shares, as well as the decline in low-skilled wages and other economic trends, have been aided by a significant increase in markups and market power.

...

Measuring markups, De Loecker explained in a conversation with ProMarket, is notoriously difficult due to the scarcity of data. In attempting to track markups across a wide set of firms and industries, De Loecker and Eeckhout diverged from the standard way in which Industrial Organization economists look at markups, the so-called “demand approach,” which requires a lot of data on consumer demand (prices, quantities, characteristics of products) and models of how firms compete. The standard approach, explains De Loecker, works when it is tailor-made for particular markets, but is “not feasible” when studying markups across many markets and over a long period of time.

To do that, De Loecker and Eeckhout use another approach, the “production approach,” which relies on standard, publicly-available balance sheet data and an assumption that firms will try to minimize costs, and does not require other assumptions regarding demand and market competition.

...

Markups, De Loecker and Eeckhout note, do not necessarily imply market power—but profits do. The enormous increase in profits over the past 35 years, they argue, is consistent with an increase in market power. “In perfect competition, your costs and total sales are identical, because there’s no difference between price and marginal costs. The extent to which these two numbers—the sales-to-wage bill and total-costs-to-wage bill—start differing is going to be immediately indicative of the market power,” says De Loecker.

Markup increases, De Loecker and Eeckhout find, became more pronounced following the 2000 and 2008 recessions. Curiously, they find that economy-wide it is mainly smaller firms that have the higher markups, which according to De Loecker is indicative of widely different characteristics between various industries. Within narrowly defined industries, however, the standard prediction holds: firms with larger market shares have higher markups as well. “Most of the action happens within industries, where we see the big guys getting bigger and their markups increase,” De Loecker explains.

http://www.janeeckhout.com/wp-content/uploads/RMP.pdf

http://www.overcomingbias.com/2017/08/marching-markups.html
The authors are correct that this can easily account for the apparent US productivity slowdown. Holding real productivity constant, if firms move up their demand curves to sell less at a higher prices, then total output, and measured GDP, get smaller. Their numerical estimates suggest that, correcting for this effect, there has been no decline in US productivity growth since 1965. That’s a pretty big deal.

Accepting the main result that markups have been marching upward, the obvious question to ask is: why? But first, let’s review some clues from the paper. First, while industries with smaller firms tend to have higher markups, within each small industry, bigger firms have larger markups, and firms with higher markups pay higher dividends.

There has been little change in output elasticity, i.e., the rate at which variable costs change with the quantity of units produced. (So this isn’t about new scale economies.) There has also been little change in the bottom half of the distribution of markups; the big change has been a big stretching in the upper half. Markups have increased more in larger industries, and the main change has been within industries, rather than a changing mix of industries in the economy. The fractions of income going to labor and to tangible capital have fallen, and firms respond less than they once did to wage changes. Firm accounting profits as a fraction of total income have risen four fold since 1980.

...

If, like me, you buy the standard “free entry” argument for zero expected economic profits of early entrants, then the only remaining possible explanation is an increase in fixed costs relative to variable costs. Now as the paper notes, the fall in tangible capital spending and the rise in accounting profits suggests that this isn’t so much about short-term tangible fixed costs, like the cost to buy machines. But that still leaves a lot of other possible fixed costs, including real estate, innovation, advertising, firm culture, brand loyalty and prestige, regulatory compliance, and context specific training. These all require long term investments, and most of them aren’t tracked well by standard accounting systems.

I can’t tell well which of these fixed costs have risen more, though hopefully folks will collect enough data on these to see which ones correlate strongest with the industries and firms where markups have most risen. But I will invoke a simple hypothesis that I’ve discussed many times, which predicts a general rise of fixed costs: increasing wealth leading to stronger tastes for product variety. Simple models of product differentiation say that as customers care more about getting products nearer to their ideal point, more products are created and fixed costs become a larger fraction of total costs.

Note that increasing product variety is consistent with increasing concentration in a smaller number of firms, if each firm offers many more products and services than before.

https://niskanencenter.org/blog/markups-market-power/
http://marginalrevolution.com/marginalrevolution/2017/08/robin-hansons-take-rising-margins-debate.html

https://growthecon.com/blog/Markups/

Variable costs approach zero: http://www.arnoldkling.com/blog/variable-costs-approach-zero/
4. My guess is that, if anything, the two-Jan’s paper understates the trend toward high markups. That is because my guess is that most corporate data allocates more labor to variable cost than really belongs there. Garett Jones pointed out that these days most workers do not produce widgets. Instead, they produce organizational capital. Garett Jones workers are part of overhead, not variable cost.

Intangible investment and monopoly profits: http://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html
I’ve been reading the forthcoming Capitalism Without Capital: The Rise of the Intangible Economy, by Jonathan Haskel and Stian Westlake, which is one of this year’s most important and stimulating economic reads (I can’t say it is Freakonomics-style fun, but it is well-written relative to the nature of its subject matter.)

The book offers many valuable theoretical points and also observations about data. And note that intangible capital used to be below 30 percent of the S&P 500 in the 70s, now it is about 84 percent. That’s a big increase, and yet the topic just isn’t discussed that much (I cover it a bit in The Complacent Class, as a possible source of increase in business risk-aversion).

...

Now, I’ve put that all into my language and framing, rather than theirs. In any case, I suspect that many of the recent puzzles about mark-ups and monopoly power are in some way tied to the nature of intangible capital, and the rising value of intangible capital.

The one-sentence summary of my takeaway might be: Cross-business technology externalities help explain the mark-up, market power, and profitability puzzles.

Why has investment been weak?: http://marginalrevolution.com/marginalrevolution/2017/12/why-has-investment-been-weak.html
We analyze private fixed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of profitability and valuation — particularly Tobin’s Q, and that this weakness starts in the early 2000’s. There are two … [more]
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march 2016 by nhaliday

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