Scale Determines Technology

The robotaxi business is getting another entrant, but also a different kind of entrant. Zoox, a decade old startup purchased by Amazon in 2020, is expected to launch this year. It has developed a vehicle specifically aimed at the autonomous ride share market without a driver seat or controls, sliding doors in the middle, a seats facing each other. No one will mistake the Zoox car pictured below for a sports car, but its features are specific to the purpose.

Most entrants, like GM's Cruise pictured below, have modified "off-the-shelf" cars that will have inefficient vestigial elements from when they had human drivers. 

Retrofitted cars that make sense at small scale, may imply relatively higher marginal costs at large scale.They represent a low fixed cost/high marginal cost technology. Zoox's design represents a higher fixed cost/lower marginal cost technology. Its features are more efficient for short-haul, dense traffic, intracity rides but require more substantial upfront investment. Zoox is banking on realizing economies of scale once the service takes off. 

GM canceling plans for its Cruise suggest that at least they expect a greater scale.

The Egg Market Rebounds

To prevent the spread of bird flu, 166 million birds were culled, most toward the end of 2024. Since the US typically has about 400 million egg-laying hens at any time, this was significant. With fewer hens, the supply of eggs also fell causing egg prices to more than double. Thankfully, this market disruption already appears to be behind us. A recent USDA report shows that production and egg prices have mostly recovered to where they were a year ago. 

 

Damn that's fast. And just in time for Easter egg hunts. Not even the Ag sector expected the recovery of the egg industry so quickly. Just last month, Farm Progress forecasted, "The U.S. poultry industry could take a year or so to recover from the recent HPAI outbreak." They were only off by 11 months.

The speed of this adjustment is a testament to market forces. With prices doubled, egg producers saw a huge opportunity for short-run profits. Hens that might have been "retired" a year ago would be kept in service a bit longer. Chicks that might otherwise have been deemed unacceptable would be allowed to mature. Had the policy response instead been to impose egg price ceilings to prevent price gouging, the blunted profit motive would have weakened the supply response. Allowing the market to operate alleviated the shortage in short order. 

S&P 500 Largest Ten Firm Transitions

The Visual Capitalist produces many wonderful visualizations. This one displays how fast firms rise into and fall out of the the top US 10 firms. 

 

Re-shoring as a response to tariffs?

Google on the re-shoring response to 2018 Appliance Tariffs:

In response to the 2018 U.S. tariffs on washing machines and other appliances, both LG Electronics and Samsung shifted manufacturing operations to the United States, effectively reshoring some production. The tariffs incentivized these companies to establish or expand manufacturing facilities in the U.S. to avoid the tariffs on imported appliances.

...The tariffs were credited with creating 1,800 new jobs in the U.S., but also raised consumer prices by an estimated $1.5 billion, according to one study. The study also concluded that the tariffs resulted in a high cost per job created.

Re-shoring of Nvidia Chips in response to 2025 Tariff threats:

Contract chipmaker Taiwan Semiconductor Manufacturing (TSM) has started production of Nvidia Blackwell chips at its plants in Phoenix.

Contract assemblers Foxconn and Wistron are building supercomputer manufacturing plants in Houston and Dallas, respectively. Mass production at both plants is expected to ramp up in the next 12 to 15 months, Nvidia said.

Reciprocal tariffs as a tit-for-tat strategy in a repeated prisoners' dilemma

Trade policy has the characteristic of a Prisoners' Dilemma game: free trade is the best outcome (no tariffs), but that is not a Nash Equilibrium because any country can do better by imposing tariffs on imports.  The Nash equilibrium is for all countries to impose tariffs on imports.

One way out of this prisoners' dilemma is to play tit-for-tat (do whatever your rival did last period) because it gives foreign countries an incentive to keep their own tariffs low:  if foreign countries put a tariff on imports from the US, their exports to the US will be treated similarly.  

However, President Trump is computing reciprocal tariffs as (Trade Deficit with US)/(Exports to the US).  This measure is determined largely by foreign investment in the US, not foreign tariffs on US goods.  For example, China sells ￥to buy $ to invest in the US to buy US Treasuries.  Such an increase in demand for $ raises the price of a $ relative to the ￥.  The stronger $ makes Chinese exports look cheap to US consumers.  This is both a US Trade Deficit (the US buys more Chinese goods than China buys US goods), and a Chinese Investment Surplus (China invests more in the US than the US invests in China).

As a result of the policy, US tariffs on foreign goods are set to dramatically increase, which will lead to tit-for-tat responses from foreign countries which will result in less trade.  From Chapter One, we know that voluntary transactions create wealth, and with fewer of them, we are all poorer.  

It might some sense to set reciprocal tariffs equal to actual tariffs on a country-by-country basis, i.e.,(reciprocal US tariffs on foreign goods) = (foreign tariffs on US goods). 

However, see: WSJ: Reciprocal Tariffs Make No Sense

The U.S. trades with roughly 200 countries. Is Washington ready to impose and manage 2.6 million individual tariff rates? The lobbying pressures for exemptions and exceptions on the U.S. side would be enormous. This would fill the swamp, not drain it.

BOTTOM LINE: Reciprocal Tariffs, as calculated, would harm the US.

HT:  Mike, Donna

Will the world run out of resources?

Only if you ask an ecologist.

"We are using 50% more resources than the Earth can sustainably produce, and unless we change course, that number will grow fast—by 2030, even two planets will not be enough," says Jim Leape, director general of the World Wide Fund for Nature International (formerly the World Wildlife Fund).

To get the right answer, ask an economist.  They will point out that when a good gets scarce, its price increases, which gives consumers an incentive to conserve or find substitutes, and producers an incentive to find more of it.

Until about 10 years ago, it was reasonable to expect that natural gas might run out in a few short decades and oil soon thereafter. If that were to happen, agricultural yields would plummet, and the world would be faced with a stark dilemma: Plow up all the remaining rain forest to grow food, or starve. 

But thanks to fracking and the shale revolution, peak oil and gas have been postponed. They will run out one day, but only in the sense that you will run out of Atlantic Ocean one day if you take a rowboat west out of a harbor in Ireland. Just as you are likely to stop rowing long before you bump into Newfoundland, so we may well find cheap substitutes for fossil fuels long before they run out.

REPOST from 2014

Remove barriers to progress!

Open Philanthropy's Progress and Growth Fund

• ...scientific and technological progress that creates ideas is the main driver of long-run growth...But ideas don’t automatically raise living standards; economic growth requires turning them into technologies that can disseminate throughout society. 
• Burdensome government regulations and institutional constraints are increasingly slowing the pace of this progress and creating artificial scarcity. 
• Restrictive zoning and land use regulations have created housing shortages in many major cities, driving up rents and preventing people from [moving to] to centers of economic growth and innovation. 
• Similar constraints hinder scientific and technological innovation — key institutional funders ...burden researchers with excessive paperwork and overly lengthy grant review processes, [leading to] low-risk, incremental research over higher-risk but potentially transformative ideas. 
• ...environmental review laws slow a wide variety of infrastructure projects, including green energy. [Irony is my favorite kind of humor.]

HT:  MarginalRevolution

Revealed Preference: people like inequality

 From Bryan Caplan's Bet On It:

“In their recent article,‘Why People Prefer Unequal Societies,’the psychologists Christina Starmans, Mark Sheskin, and Paul Bloom found that people prefer unequal distributions, both among fellow participants in the lab and among citizens in their country, as long as they sense that the allocation is fair: that the bonuses go to harder workers, more generous helpers, or even the lucky winners of an impartial lottery (Pinker 2019).“

And they move into neighborhoods with more inequality. From research by Prof Douglas Coate (Rutgers):

...I find that two-bedroom home sale prices are not adversely impacted by income inequality in favor of the well off in the community. In fact, the results show these prices may be slightly higher in communities where high quintile households receive a greater share of community income

Historical conservationists are the bad guys

 Economist:

[Cambridge, MA] is “becoming a barbell society,” ...The poor got help and the wealthy lived well, but ... young families leave for cheaper places. “One of the biggest signs that something was going wrong,” says Mr Azeem, is “when you can’t create space for the next generation.” 

But now, they are relaxing zoning to allow " six-storey residential buildings citywide ... People are waking up to the fact that land use regulation has something to do with housing costs”. 

But: “The minute someone tries to put a six-storey building in a residential zone that has historically been no higher than 35 feet, there’s going to be immediate negative pushback,” from "powerful historic conservationists"

Can income buy happiness?

 

Economist: 

The magazine article focuses on explaining "residual" happiness, the vertical distance between the line and the observation), i.e., how happy is a country controlling for its GDP. 

But elephant in the graph is the HUGE positive correlation between GDP and Happiness, likely caused by innovation, free markets, and less regulation, topics the left-leaning magazine doesn't want to talk about.