12 Aug

The cult of shareholder value is killing us

Fuck ‘shareholder value.’

The most interesting, innovate companies right now don’t give a shit about their stock price. And here’s the evidence that middling, corporate drones are fucking everything else up with their quarterly obsessions:

“Over the last month, the Financial Times has been doing a great job in cataloguing the problems caused by the shareholder value theory. Now Robin Harding has terrific article pinpointing its role in undermining the US economic recovery.

In his article entitled ‘Corporate investment: A mysterious divergence’ he explores a conundrum that has puzzled the world’s top economists: why is net investment at a measly 4 per cent of output when pre-tax corporate profits are now at record highs – more than 12 per cent of GDP?

In standard economic theory, this makes no sense. When profits go up, companies should be seizing investment opportunities to lay the groundwork for even more profits in future. In turn, that investment should create jobs, generate more capital goods and lead to higher wages. That’s how capitalism is meant to work. So why isn’t it happening? Mr. Harding explores systematically why all the leading scapegoats for what’s gone wrong—regulations, Obamacare, tax policy, fear of another financial crisis and so on—and shows why they don’t add up.

Then he comes up with the kind of thing that you rarely see in economics—a study that enables us to pinpoint the problem by offering ‘with’ and ‘without’ data.

A brilliant study by economists from the Stern School of Business and Harvard Business School, Alexander Ljungqvist, Joan Farre-Mensa, and John Asker, entitled ‘Corporate Investment and Stock Market Listing: A Puzzle?’ compares the investment patterns of public companies and privately held firms. It turns out that the lag in investment is a phenomenon of the public companies more than the privately held firms.

‘They find that, keeping company size and industry constant, private US companies invest nearly twice as much as those listed on the stock market: 6.8 per cent of total assets versus just 3.7 per cent.’

As Matthew Yglesias at Slate writes:

‘On this account we are reaping the bitter fruits of the ‘shareholder value’ revolution. Executives at publicly traded companies are paid to generate higher share prices, which is done by hitting quarterly earnings targets. This leads to underinvestment relative to the behavior of managers of privately held firms. Not because managers of private firms are indifferent to the interests of shareholders, but because there’s less need for creating the shareholder value link via a simplistic relationship between compensation, share price, and quarterly earnings.’”

(Via How The ‘World’s Dumbest Idea’ Killed The US Economic Recovery – Forbes.)

Oh, look, Business Insider talks about this as well:

“One of the big reasons the U.S. economy is so lousy is that big American companies are hoarding cash and ‘maximizing profits’ instead of investing in their people and future projects.
This behavior is contributing to record income inequality in the country and starving the primary engine of U.S. economic growth — the vast American middle class — of purchasing power. (See charts below).

If average Americans don’t get paid living wages, they can’t spend much money buying products and services. And when average Americans can’t buy products and services, the companies that sell products and services to average Americans can’t grow. So the profit obsession of America’s big companies is, ironically, hurting their ability to accelerate revenue growth.”

(Via Companies Need To Pay People More – Business Insider.)

12 Aug

Raising the minimum wage

Truth-out leans left, but that doesn’t mean this section isn’t wrong:

“NOOR: Can you talk more about your response to the conservative position that raising minimum wage will actually hurt the economy? You argue that in fact it actually benefits the economy. Talk more about why you believe so.

BABONES: There’s a theory that make raising the minimum wage will result in fewer jobs. And that theory seems to make intuitive sense, that when wages are higher, you know, people hire fewer people. And in isolation that would be true. There’s an assumption economists like to make called ceteris paribus, which means all other things remaining equal, this would happen.

But all other things are never equal. For example, if you raise the minimum wage, people make more money. That’s the first thing that’s not equal. As people make more money, they spend more, they pay more in taxes. The entire character of the economy changes.

And so what we really need to do is instead of arguing from theory that if you raise minimum wage it would cause problems for employers, you should argue from fact, that is, look at countries where the minimum wage is higher, see how well they’re doing. And, in fact, those countries are doing quite well. Even in the United States, we recently raised the minimum wage from an extraordinarily low level of $5.15 an hour in 2007 up to–now it’s $7.25 an hour–not a high level, but still that’s an enormous increase in the minimum wage, you know, almost a 50 percent increase in just a few years. And what have we seen? Even though there’s been a big recession in the U.S., we’ve seen low-wage employment actually increase. So, you know, the idea that raising the minimum wage will hurt employment just has no basis in empirical fact.”

(Via Australia Has $16 Minimum Wage and Is the Only Rich Country to Dodge the Global Recession.)

If RJ Gordon’s ideas about growth being a historical accident minimum wage looks like a safeguard against the US becoming what it was in the 1700 and 1800s: a large, not so powerful country with a lot of inequity:

“This paper raises basic questions about the process of economic growth. It questions the assumption, nearly universal since Solow’s seminal contributions of the 1950s, that economic growth is a continuous process that will persist forever. There was virtually no growth before 1750, and thus there is no guarantee that growth will continue indefinitely. Rather, the paper suggests that the rapid progress made over the past 250 years could well turn out to be a unique episode in human history. The paper is only about the United States and views the future from 2007 while pretending that the financial crisis did not happen. Its point of departure is growth in per-capita real GDP in the frontier country since 1300, the U.K. until 1906 and the U.S. afterwards. Growth in this frontier gradually accelerated after 1750, reached a peak in the middle of the 20th century, and has been slowing down since. The paper is about ‘how much further could the frontier growth rate decline?’

The analysis links periods of slow and rapid growth to the timing of the three industrial revolutions (IR’s), that is, IR #1 (steam, railroads) from 1750 to 1830; IR #2 (electricity, internal combustion engine, running water, indoor toilets, communications, entertainment, chemicals, petroleum) from 1870 to 1900; and IR #3 (computers, the web, mobile phones) from 1960 to present. It provides evidence that IR #2 was more important than the others and was largely responsible for 80 years of relatively rapid productivity growth between 1890 and 1972. Once the spin-off inventions from IR #2 (airplanes, air conditioning, interstate highways) had run their course, productivity growth during 1972-96 was much slower than before. In contrast, IR #3 created only a short-lived growth revival between 1996 and 2004. Many of the original and spin-off inventions of IR #2 could happen only once – urbanization, transportation speed, the freedom of females from the drudgery of carrying tons of water per year, and the role of central heating and air conditioning in achieving a year-round constant temperature.”

(Via Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds.)

That being said, even if you’re not as pessimistic as Gordon, the success of minimum wage abroad argues that it is not scary. Overseas economies are largely faltering based on austerity, which the US is semi-avoiding. If the US is a powerful country with large resources, and capitalism is awesome, a minimum wage shouldn’t hurt the economy. If conservatives argue against a minimum wage, to me it seems an admission that they don’t really believe in capitalism, or they’d shrug it off, knowing capitalism can handle pulling lower earning wage folk along just fine because it is a strong engine. Like it does in Australia, et al. I tend to view minimum wage non-existence as a feature of developing world economies with an oversupply of manual labor (here, cut grass for pennies and some table scraps because you have no other options and be grateful for it, peasant).

05 Aug

Basic Income Plan: a thought experiment

Charles Stross posted this thought experiment recently:

“As automation of mind-work bites, sooner or later we’re going to need to switch from a work-to-live-and-pay-taxes-on-income economy to a basic-income-and-work-to-add-luxuries economy. Otherwise we’re going to end up with a vast majority of the population who are immiserated and have nothing to lose from violent unrest, and whose immiseration means they can’t provide the level of consumer spending that supports the profits of the businesses owned by the 0.1%. And indeed, Switzerland looks set to vote on a basic income law shortly. (Switzerland: very odd place. But we should look for change first on the margins, as with cannabis legalization in Uruguay—small countries can move far faster than lumbering behemoths.)”

(Via Marking time, more thoughts – Charlie’s Diary.)

At the same time, on Reason.com, I spotted this article about Basic Income plans:

“I made a brief reference yesterday to the idea of a negative income tax or universal basic income: a single, unconditional cash payment aimed at keeping people out of poverty. There’s been an increased interest in this idea recently — a new book here, a piece in the Post there — and a bunch of different variations on the concept have been put on the table. One way to sort those ideas is to separate the proposals in which the payments would supplant the existing welfare state from the ones that would just add one more program to the mix. (That’s why Milton Friedman ended up opposing Richard Nixon’s Family Assistance Plan, even though it had been inspired by Friedman’s negative-income-tax proposal: Nixon’s version would have been an add-on to the existing welfare state rather than a replacement for it.) Another notable distinction is between the people who would means-test the program and the ones who would just send a check to everyone. (That second division isn’t a right/left split, by the way — Friedman was a means-tester, while Charles Murray is in the checks-for-all camp.)”

(Via One State Already Has a Basic Income Plan – Hit & Run : Reason.com.)

If you’ve never come across the concept, you can start reading on Wikipedia. One of the framing ideas around the idea that jumped out at me on Wikipedia was to call it the “Citizens Dividend.” Presumably that’s a way to make it palatable to people of a Certain Political Persuasion.

Jumping further down the rabbit hole this weekend, I became curious about what it would take to create a basic income plan.

Me being me, I built a spreadsheet on the fly so I could plug in some variables and wrap my head around the idea.

With a 1 trillion dollar initial investment, and investing 1/3 of military spending and investing all corporate subsidies, at 5% annual growth and 1% annual population growth, you could pay everyone over 18 and under 65 the amount of roughly $42K on the dividends from a program like this after 104 years of investment. Which would be roughly $10,000 a person.


The citizen’s dividend would begin paying roughly $50 a year to people on year one.

More interesting to me, as an investment in humanity, is what you do if you take this program and start it before 18. If you fiddle with the numbers on the spreadsheet, it’s startling what happens if you were to give an 18 year old a check for the 18 years of yearly dividends that began at their birth. In just decades it’s a nice lump sum that might help them get a start in life. But further down the road of this 100 year experiment, you’re talking inflation adjusted equivalents of $200K.

It’s fairly startling, actually, to play with the numbers. Extend the program out to 150 years, and people would get a $41,000 a year dividend. Imagine if someone had started this 100 years ago?

Here’s the spreadsheet, you can do better things with it than I can, probably. I was just toying with the impact of things based on reading the above to see if it was feasible to envision… in particular, you could do variations where once it gets about 10K inflation adjusted, you take welfare programs and invest them into it, or move social security over to it as well, etc.

Have fun.

02 Aug

A nation of hamburger flippers

Why the recovery doesn’t feel like a recovery…

“‘Really we have become a nation of hamburger flippers, Wal-Mart sales associates, barmaids, checkout people and other people working at very low wages.’
The growth of low-wage jobs helps explain why the majority of Americans continue to believe the economy is in recession, despite a falling unemployment rate – now down to a four-year low of 7.4% – a record-setting stock market rally and a rebound in the housing market.”

(Via “We Have Become a Nation of Hamburger Flippers”: Dan Alpert Breaks Down the Jobs Report | Daily Ticker – Yahoo! Finance.)

06 Jun

Money and the artist

Molly Crabapple has some interesting observations:

“Unlike most artists, I started to make money. Not 1 percent money, but more than my mom ever dreamed of. Once I did, I started to realize how broken the idea of American meritocracy was.

Meritocracy is America’s foundational myth. If you work hard, society tells us, you’ll earn your place in the middle class. But any strawberry picker knows hard work alone is a fast road to nowhere. Similarly, we place our faith in education. Study, and the upper-middle class will be yours. Except the average student graduates $35,000 in debt.”

(Via Filthy Lucre | VICE United States.)

If I wasn’t dashing my brains out against the wall of a novel that needs wrapped up ASAP, I’d have a lot of reactions to this. Mainly I want to put a pin in it and share with everyone.

04 Jun

Freakonomics on my current favorite charity

My favorite charity. Even my more left leaning friends freak when I tell them about Give Directly, but it’s pretty strongly backed by research… and my own experience living at the margin briefly and knowing people in rougher shape: they worked hard and were good with money, they were just starting from so far behind the deck was seriously stacked against them.

For international aid I like Give Directly. For domestic I give to Modest Needs, and have been an evangelist for both.

“GiveDirectly stems from economist Paul Niehaus‘s research in India, where to limit corruption the government  makes direct cash transfers via mobile phones.  ‘A typical poor person is poor not because he is irresponsible, but because he was born in Africa,’ says Niehaus, adding that GiveDirectly’s transfers have had positive impacts on nutrition, education, land, and livestock — and haven’t increased alcohol consumption.  The charity is also No. 2 on Givewell’s list of recommended charities.”

(Via Freakonomics » Should We All Just Give Cash Directly to the Poor?.)

02 Jun

Some reading advice to breathless reporting about job-stealing robots

Pro tip, everyone getting ready to talk about robots and economics should read Jack Williamson’s ‘With Folded Hands’ and ‘Midas World’ by Frederik Pohl.

Which is to say, you all should interview some SF/F writers. We’ve been thinking on this shit for half a century, at least.

“It’s the same around the world. Western manufacturing jobs used to go to Chinese workers; now they’re increasingly going to Chinese robots, such as the million new robots that Foxconn is deploying.

Think you’re safe because you don’t work in a factory? Guess again. ‘In a move that could put millions of teenagers around the world out of their first job, Momentum Machines is creating a hamburger-making machine that churns out made-to-order burgers,’ reports Gizmag. A Cornell robot can learn how and when to pour you a beer. Well, never mind food service, how about social services? …Oh. Other robots have been shown ‘wiping the mouth of a disabled man and adjusting a blanket.’”

(Via After Your Job Is Gone | TechCrunch.)

30 Apr

The eco-branding problem

Spotted via Paolo Bacigalupi on twitter. In other words, if it’s associated with green anything, many conservatives will actively hurt themselves financially.

“Conservatives presented with an eco-labelled fluorescent were about half as likely to choose it as conservatives presented with a bulb without an environmental label. In other words, they ‘preferred to bear a long-term financial cost to avoid purchasing an item associated with valuing environmental protection,’”

(Via Branding Problem | Conservation Magazine.)

If we truly acted like libertarians claim we would, only buying things that are financially good for us, this wouldn’t happen. But humans can be quite irrational.

The culture war strikes again.

23 Apr

Subsistence economies and surplus economies

This has been clipped and put in my research notes:

Malthusian theory is inadequate because it misses the fact that a dollar’s worth of diamonds contributes less to survival and reproduction than a dollar’s worth of grain.

“To explain the balanced growth, I propose the theory of group selection. Selection of group characteristics, including culture and technology, goes on by migration and conquests. Since living standards rise with the ratio of surplus to subsistence, migrants and invaders usually move from places relatively rich in subsistence to those relatively rich in surplus. They spread the culture and technology of their subsistence-rich origin to the surplus-rich destination – the bias of migration favors the spread of subsistence over that of surplus. Even if surplus cultures and technologies would develop faster than subsistence ones in a local environment, the o setting biased migration balances the two sectors on a global scale. This explains the constancy of living standards.”

(Via Subsistence economies and surplus economies.)

12 Apr

Crowdsourcing econ research into rural African solar uptake

Interesting. I suspect the answer is a combination of a) tradition (they know kerosene works and the solar lights are new and we humans don’t like change) and b) upfront cost is always hard for people (you pay less for a cellphone if you buy it upfront, but we still have better results with carriers subsidizing them). I’m wondering if an African entrepreneurial system with rural Africans offering lights for the weekly payment of kerosene will get more switch overs?

Either way, help fund the research, and one can follow along and maybe even help find a better answer, and one that will help solar proliferate:

“The typical household in rural Africa is ‘off the grid.’ With no electricity, such households spend a significant fraction of their income on kerosene for lamps. Yet for about $20, they can buy a solar light, which provides a superior source of light and charges their cell phones. (Yes, cell phone use is common, even in rural households with no electricity; they simply walk to the nearest town and pay to charge their phones.)  Given that the light pays for itself in about 6 weeks and lasts for about 3 years, purchasing one seems like a no-brainer. Yet few households have done so.  These intrepid economists are trying to figure out why”

(Via Freakonomics » Crowdsourcing Economics.)