Business Dynamism

Visual Capitalist has a nice graphic that indicates the level of dynamism across industries in the US economy. An industry is not competitive if no firms ever fail.

 

Returns to Master's degrees

 Economist:

Responding to Professional Disruption

In Chapter 24 on "The Luddites," The Industrial Revolution Podcast recounts an episode when entrepreneur John Bell began producing textiles that drove out local small-scale competitors and putting many workers out of work. In 1799, Bell received a letter, reading:

“I send you this to inform you that we – the cloth workers of Trowbridge, Bradford, Chippinham, and Melkshom – are almost (or the greatest part of us) out of work and we are fully convinced that the greatest of the cause is your dressing work by machinery. And we are determined, if you follow this practice any longer, that we will keep some people to watch you about with loaded blunderbuss or pistols, and will certainly blow your brains out. It is no use to destroy the factories but put you damned villains to death.”

Contrast this with the demise of the retail video rental business in this century. The dramatic drop in employment rivals the most precipitous job loss in any industry. Where was the hue and cry? Where the death threats? Where the Luddite armies sabotaging the competition?

First, is the historical, sociological explanation. Job loss due to industrialization had never been seen before. The disruption of ancient jobs, norms, and entire ways of subsisting within a generation was new and frightening. Today, we are used to hearing of yet another radical disruption in some industry, e.g., music streaming, EVs, ebooks, big data, cloud computing, and AI. This has become regularized. Workers expect their profession to look much different at the end of their career than at the beginning.

Second though, is a not unrelated economic explanation. What were the options available to an out-of-work textile worker in 1799 versus the options of a displaced Blockbuster clerk exactly two centuries later? Textiles were among the first industries to benefit from mechanization. Textile workers had left the farm and now saw few other options in the cities. Blockbuster was able to hire clerks because clerking was so similar to clerking of other retail products. These workers took these jobs because the skills were transferable. They had outside opportunities. The supply curve for textile workers was steep meaning that a drop in worker demand would seriously lower wages. The supply curve for Blockbuster clerks was steep meaning that a drop in demand for video rental clerks would hardly affect the wages of the displaced workers.

Does inequality make us rich?

Economist:

America ranks as the most unequal big rich-world country (see chart). Combined with lower average incomes elsewhere, the pay of America’s top workers looks astonishing to European eyes. For comparison, it takes the equivalent of a mere $250,000 or so to enter the top 1% of two-person households in Britain.

It would be natural to conclude that high inequality is merely the flipside of America’s wealth. That is probably true to an extent. Yet America has grown more redistributive over the period examined by this special report, expanding the earned-income tax credit, a wage top-up for low earners, in the 1990s, and subsidies for health insurance in the 2010s. And it is not clear that tolerance for inequality is powering its economic outperformance over the past decade.

How the Trump Whale made money betting on prediction markets

WSJ:

Polymarket’s remarkable liquidity explains Théo, the Polymarket whale [who made $85 million]. Théo behaved as one would expect of a smart trader: Once he had conviction, he sized the trade aggressively. He built his positions discreetly, with a variety of wallets and with small-sized buys, to avoid causing a run-up in price. This is exactly the opposite of what one would expect if, as much of the media and BlueAnon claimed, he was throwing away dozens of millions to influence the election.

More important, Théo did his own research. Rather than rely on polls, he theorized that there was a strong “shy Trumper” effect. That is, he believed that Trump supporters were both less likely to talk to pollsters and less likely to tell pollsters that they would vote for the former president. As he told The Wall Street Journal in an email, he commissioned his own surveys in which respondents were asked who they thought their neighbors would vote for. The results “were mind blowing to the favor of Trump!”

Not only did Théo bet that Trump would win the Electoral College. He also bet that Trump would win the popular vote—an outcome that was the minority position even on Polymarket—and that Trump would sweep six of seven swing states, including the “blue wall” of Michigan, Pennsylvania and Wisconsin.

Standardization and Specialization

I am a couple dozen episodes in on Dave Broker's Industrial Revolutions Podcast and cam across this tidbit from chapter 14.

But what Whitworth was most famous for was something called British Standard Whitworth – BSW.

Up until this point, different machine tool makers used different designs for their tools. For the end users – really, anyone involved in industry by this point – it was maddening. If you had a steam engine made by Company X, for example, and one of the screws was damaged, it could only be replaced with a screw provided by Company X or the vendor for Company X. Otherwise the screw wouldn’t fit.

Along with Clement, Roberts, and other Maudslay alumni, Whitworth was a strong proponent for standardization such parts – nuts, bolts, and screws. So, in 1841, he sat down and wrote up what he thought should be the standards. Screw threads should be set at a 55 degree angle with very specific depths and radii. By the 1870s, as the railroads became increasingly frustrated with the different systems being used, they said, “yeah, Whitworth was right.” By the 1890s, everyone was using BSW.

With BSW standardization, a steam engine maker need not produce all of the screws, rivets, fasteners, and other minor parts. Outsourcing these components allowed him to focus on improving the steam engine and the component makers to improve production. Economies of scale in, say, screw manufacturing unleashed by dis-integration would drive costs down dramatically.

I recommend the podcast to fellow history buffs and I am sure I will mine it for future blog posts.

The NFL sends Mediocre Teams to Play in Europe

The NFL schedules a handful of games each season to be played in Europe, London and Munich this year. With plans to expand the program to Africa, Asia, and Australia, The Times of India asks why they disappoint their European fans by not sending "contender teams."

Since the league’s initial foray into Europe in 2007, 42 games have been held on the continent. Yet, only two of these contests featured both teams with winning records - the New York Giants and Green Bay Packers in 2022 and the Kansas City Chiefs and the Miami Dolphins in the 2023 season.

One possibility is that they don't need to - the stadiums sell out anyways. I am reminded of when I lamented to a friend that I have a fondness for the Chicago Cubs but they, at that time, had not won a World Series since before the Depression. His reply was that the fans are so loyal that they do not have to. Why pay for a better team roster when you already sellout the stadium? If you cannot adjust capacity to meet greater demand, adjust demand to meet capacity.

When will RoboTaxis become Profitable?

An interesting article in the WSJ reports on the growing acceptance of autonomous vehicles being used for ride hailing. The dominant platform, Waymo, is currently operating 300 retrofitted Jaguars in San Francisco and 400 in a few other other west coast cities.

It is doubtful that they are profitable yet but there are reasons to believe that the service will achieve economies of scale. Consumer acceptance is growing with Waymo customers being more loyal than Uber or Lyft. As it scales, the trips without paying passengers, now 40% of all trips, should fall. And, while luxurious Jaguars are a nice way to introduce the service, Waymo, plans to introduce less expensive vehicles.

Correlation is not causation: birth weight determines mortality, not the animus of white physicians

Economist: 

CORRELATION: “when Black newborns are cared for by Black physicians, the mortality penalty they suffer, as compared with White infants, is halved.” 

MISTAKENLY INFERRING CAUSALITY FROM CORRELATION:

This striking finding quickly captured national and international headlines, and generated nearly 700 Google Scholar citations. The study was widely interpreted—incorrectly, say the authors—as evidence that newborns should be matched to doctors of the same race, or that white doctors harboured racial animus against black babies. It even made it into the Supreme Court’s records as an argument in favour of affirmative action, with Justice Ketanji Brown Jackson (mis)citing the findings. A supporting brief by the Association of American Medical Colleges and 45 other organisations mentioned the study as evidence that “For high-risk black newborns, having a black physician is tantamount to a miracle drug.”

CAUSALITY:  birth weight determines mortality, not the animus of white physicians

...a disproportionately high share of underweight black babies were treated by white doctors, while a disproportionately high share of healthy-weight black babies were treated by black doctors.

IRONY:

That a flawed social-science finding which fitted neatly within the zeitgeist was widely accepted is understandable. Less understandable is that few people now seem eager to correct the record. The new study has had just one Google Scholar citation and no mainstream news coverage. 

Who regulates the regulators?

From REASON:

For decades, the California Coastal Commission has had near-unchecked authority to regulate development along the state's 860-mile coastline, and it's been unafraid of using it. 

It's now trying to expand its terrestrial authority to outer space. 

This past week, the commission voted to oppose plans by private space company SpaceX to launch more rockets from Vandenberg Space Force Base in Santa Barbara County, California. 

The commission is asserting for the first time that SpaceX must get coastal development permits to shoot more rockets into space. SpaceX and the Department of the Air Force have conversely argued that SpaceX launches are federal activity that's exempt from the commission's regulatory powers.

WORSE:  it appears that the regulators opposed the launch due to Elon Musk's political beliefs.  The case now goes to trial.