Archive for the ‘Economy and Business’ Category

Rise of the machines: Links & comments 8/19/14

August 19, 2014

The Internet’s Original Sin by Ethan Zuckerman for The Atlantic.

The basic problem with the commercial Internet, according to this writer, is the use of advertising to finance Internet services.

Because an individual advertisement on the Internet has little impact, the value of advertising is based on the ability of the firm to target individuals who are interested in this particular product.  And the only way to do this is to gather data and use it to profile individuals.

Invasion of privacy is not a bug.  It is a necessary feature.  The reason it is necessary is that most people would rather give up their privacy than pay for Internet services.

Zuckerman thinks this is the reason that NSA surveillance is no big deal for most Americans.  We’re already accustomed to giving up our privacy.

He doesn’t have a good answer as to what to do about all this, and neither do I.

How We Imprison the Poor for Crimes That Haven’t Happened Yet by Hamilton Nolan for Gawker.

The science-fiction movie Minority Report imagined a world in which it was possible to predict when people would commit crimes and to arrest them before the crime occurred.  A predictive science of human behavior does not exist, but that does not stop people in authority from acting as if it did.

American courts are increasingly using what’s called “evidence-based sentencing” on which the severity of the sentence is based on a computer algorithm’s determination of the likelihood that the person will commit another crime.

In practice, what this means that that poor youth who grew up in a family without a father will get a worse sentence than a middle-class youth with access to psychiatrists and good job opportunities.

This is contrary to the basic principle of equal justice under law.   If you commit a crime, you should be punished for what you did, not for what somebody thinks you may do.

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The passing scene: Links & comments 8/7/14

August 7, 2014

New Snowden? Leaks indicate more than one hole in American national security community by Ben Mathis-Lilly for Slate.

The Intercept is reporting new information about the National Security Agency that apparently comes from someone still on the inside.   The huge U.S. national security apparatus has too many secrets and too many people with access to those secrets for those secrets to be truly secure.

My guess is that for every Edward Snowden who patriotically tells the American public what their government is doing behind their backs, there are one or more people who really are spies and are selling information to Russia, China or other foreign governments.

The economics of a McDonalds franchise by Cathy O’Neil as Mathbabe.

The terms and conditions under which McDonalds grants restaurant franchises make it impossible for the restaurant owner to pay a living wage and still make a profit.  That’s why it was both just and important that the National Labor Relations Board decided to allow restaurant employees against McDonalds as a joint employer.

While I am disappointed in President Obama’s record overall, I have to say that such a decision would not have been made under a McCain or Romney administration.  Whether the decision will be upheld in the courts is another question.

Flight MH17 – What You’re Not Being Told by SCG News.

There are many unanswered questions about the downing of Flight MH17 over Ukrainian rebel-held territory, and circumstantial evidence that it was a false-flag attack by conspirators.  All I am willing to say is that we the public don’t know the facts, and that the tragedy should not be used as an excuse to start a new cold war with Russia.

Data Mining Your Children by Stephanie Simon for Politico.

Book review: To Save Everything, Click Here by Evgeny Mozorov. (Daniel Brandt)

Facebook’s Gateway Drug by Evgeny Mozorov for the New York Times Book Review (Daniel Brandt)

Technology is a good servant but a fearful master.

 

The interdependence of Russia and Europe

July 28, 2014

Europe Russia oil gas pipelines map chart

More Signs of Doubt in Europe About the Costs of Siding With Ukraine by Yves Smith for Naked Capitalism.

The Beginning of an End of the Trans-Atlantic Alliance by Mark from Ireland for Ian Welsh.

Hat tip for the map to Vox.

What worked and what didn’t

July 17, 2014

The logic of modern monetary theory

July 10, 2014

Modern monetary theory seems wacky to me.

But try as I might, I can’t find any logical flaw in the basic idea.

Governments create money.  Why, then, do governments ever have to borrow money?  Why can’t they simply print the money they need to cover deficits.

One answer:  It would be inflationary.   But inflation is too much money chasing too few goods and services.   To the extent that government spending would generate goods and services that otherwise would not exist, new fiat money would not be inflationary.  And to the extent that there was a danger of inflation, the excess money could be soaked up through taxation.

MMT supporters said last year’s debt crisis and government shutdown were unnecessary.   The government should simply have created a trillion-dollar platinum coin (which is supposedly authorized by an obscure law), deposited the coin in a Federal Reserve Bank and used the new money to buy up the excess government bonds.

Again, I can’t see any logical flaw.  If the Federal Reserve has authority to create money to buy up bonds, why can’t it buy up Treasury bonds, liquidate them and reduce the national debt?

But the whole idea makes me uneasy.  I do think the U.S. government ought to be spending more money than it is for infrastructure, education, scientific research and other things needed to the nation’s future.   That’s not the same thing as thinking there should be no limits at all.

I fear MMT would remove a sense of limits.   I willingly pay taxes to support police, firefighters, schools, public roads, water and sewerage service and so on.  I’m not so sure I would willingly pay taxes just to reduce the money supply.

When profits and productivity aren’t enough

July 9, 2014

Losing Sparta by Esther Kaplan on VQR tells the following story.

A Philips lighting fixtures plant in Sparta, Tenn., was named by Industry Week in 2009 as one of the 10 best factories in the USA.

Workers and managers had worked together to increase output on some lines by 60 percent, lower changeover time between small orders by 90 percent, and reduce defective parts by 95 percent.  As a result the plant generated a good profit.

Yet in 2010 an executive showed up from corporate headquarters in the Netherlands and announced that the plant was closing, and its operations moved to Monterey, Mexico.

To people in Sparta, this didn’t make sense.  Local business leaders did a study that showed that any savings on wages (which generally are no more than 10 to 15 percent of manufacturing costs) would be offset by increased transportation costs of Philips’ markets in the Northeast and Midwest.  They were unable to make contact with anyone in Philips who was willing to listen or who had authority to make the decision.

Esther Kaplan thinks that the decision probably was based not on study of the Sparta plant specifically, but on an overall policy of centralizing manufacturing in low-wage countries.

I know from reporting on business years ago that there are fashions in management.  In one era, the fashion was diversification, so that your business is not dependent on any one market; in another, it was divestment and concentration on core competency.  And I know there are managers who think that willingness to cause human suffering is a sign of realism and tough-mindedness.

I also know from my own experience that when managers tell employees it is necessary to do X in order to keep their operation going, they almost always will do everything humanly possible to achieve X—provided that they think the statement is being made in good faith.

Workers in Sparta did everything management asked of them, but to no avail.  Kaplan wrote that this is the story of American workers as a whole.   Americans by many measures are the most productive workers in the world, and U.S. productivity continues to increase, but this does not keep manufacturing jobs in the USA.

The reality of monopoly power in the USA

June 30, 2014

brands.monopoly_n

Yesterday I commented on Thomas Frank’s interview with Barry Lynn, author of Cornered, an important new book about business monopoly in the USA.   I intend to read the book and review it on this web log, but, in the meantime, here are some highlights of the interview, touching on the surprising (to me) extent of monopoly power.

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Amazon now essentially governs business within the book industry.  Amazon has so much power that it virtually gets to tell really big companies like Hachette, the French publisher, what to do.

You’re gonna sell this book at this price. You’re gonna sell that book at that price. That means Amazon pretty much has the power to determine how many copies of a book a publisher might sell.

That’s not citizens trading with one another in an open market setting those prices, that’s a giant corporation setting those prices.  Which means what we are witnessing in the U.S. book industry, I think, is a form of top-down government.

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Some years back a company named Tyco decided to take over the business of making plastic clothes hangers. It went out and bought at least four companies, and that gave it the power to jack up prices to clothing retailers. That’s the pattern in pretty much every industrial activity in America.

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The Supreme Court [in the mid-1960s] forced Pabst to unwind a merger with Blatz because their combined market share [of beer sales] would have been 4.49 percent.  … …

Well, now there’s two foreign companies, Anheuser-Busch InBev, which is controlled out of Brazil, and MillerCoors, which is controlled out of London.   And those companies control about 80% of the US market.  And until recently they controlled about 90% of the market.

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It’s not all that hard to manufacture eyeglasses. But there’s a single company, Luxottica, an Italian company, that controls most of the business in America. You go shopping for eyeglasses.

You go to a place called Lenscrafters. You go to a place called Sunglass Hut. You go to a place called Pearle Vision.  You go to Target Optical.  You go to Sears Optical. You go to Macy’s Optical.

You’re comparing quality, comparing prices, imagining you live in an open and competitive market.  And yet all of these stores and most of the product in them are controlled by Luxottica.

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The passing scene: Links & comments 6/30/14

June 30, 2014

What If Banks, Not Abortion Clinics, Needed Buffer Zones? by Barbara O’Brien for Open Salon.

What if people doing business with the “too big to fail” banks had to run a gantlet of yelling protestors just to enter the bank.  Suppose the banks were vandalized, and their employees subject to harassing and threatening telephone calls.  Suppose bankers had actually been murdered.  Is there any doubt that the bank protestors would be classified as terrorists?  Yet all these things have happened with abortion clinics, and it is accepted as normal.

The Unkindest Cut by Elias Vlanton for The Washington Monthly.

Joshua Steckel, a high school guidance counselor, worked hard with students from poor families to convince them it was both possible and worthwhile to qualify for college by studying hard.   But at the end of the road, his students found that college was unaffordable.   Financial aid packages only covered part of the cost of college, and what was left was more than poor families can pay.

Antibiotic scientist must push discovery to market by Kelly Crowe for CBC News.

The emergence of antibiotic-resistant bacteria is a big threat to public health.  Yet few if any drug companies are interested in developing new antibiotics.  Profits on new antibiotics are small and risky because developing new antibiotics is difficult and expensive, regulatory approvals take time and money and antibiotics soon become obsolete as bacteria develop new resistance.

Peru now has a ‘license to kill’ environmental protestors by David Hill for The Guardian.

Under a new law, Peruvian police can escape criminal responsibility for killing civilians while on duty without having to show they are acting according to police regulations.

Big business loves desperate, overqualified, underpaid workers by David Atkins for The Washington Monthly.

Today’s South is boldly moving backwards by labor historian Nelson Lichtenstein for Reuters.

Historically Southern business leaders have sought to compete with the North by means of cheap labor.  This is still true.

Obama Admin’s TPP Trade Officials Received Hefty Bonuses From Big Banks by Lee Fang for Republic Report.

 

The real problem is monopoly

June 29, 2014

Jeff Bezos

Monopoly power is the real enemy of both free enterprise and economic justice in the USA today.

In industry after industry, a single company or handful of companies dominates the market, and they act like little miniature governments, determining who can participate and how much they are paid.

Barry C. Lynn, a senior fellow at the New America Foundation, and author of Cornered, a new book about monopoly, wrote that the cause is simple.

Starting with the Reagan administration in the 1980s, the government decided to stop enforcing the anti-trust laws when it was argued that monopoly offered greater economic efficiency.

The solution also is simple (although, Lynn admitted, extremely difficult politically to do).

Resume interpreting the anti-trust laws as they were understood prior to 1980.

LINKS

Free markets killed capitalism: Ayn Rand, Ronald Reagan, Wal-Mart, Amazon and the 1 percent’s sick triumph over us all, an interview of Barry C. Lynn, author of Cornered: The New Monopoly Capitalism and the Economics of Destruction. Strongly recommended.

Printing controversy:  Amazon’s latest plan to harm publishers and consumers under the guise of customer satisfaction by Nathaniel Mott for PandoDaily.

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The argument for monopoly is the same as the argument for state socialism, which is that it offers greater economic efficiency and less duplication than a competitive free enterprise system.

It is true that Amazon, like Wal-Mart, achieved its domination of its markets through a superior business model in which costs were passed on to the consumer.  Once dominance was achieved, however, Amazon, like Wal-Mart, was in a position to use its position to drive down wages, drive down prices of suppliers and deny customers any alternative by squeezing out competition.

Under business monopoly, the only competition is between individuals and localities as to how much they are willing to give up.

 

How did U.S. courts get to rule on Argentina?

June 27, 2014

A financial speculator won a decision in U.S. courts against the government of Argentina which could mean years of unemployment, high taxes, cutbacks in public services in that court.

I am mystified about a number of things in this case, including why the U.S. courts have jurisdiction over Argentina, a sovereign country, and how this decision is to be enforced.

Agentina's economic recovery.  Click to enlarge.

Double click to enlarge.

The background is that Argentina defaulted on its government bonds back in 2001.  Between 2005 and 2010, it worked out a deal with bondholders for them to write off about two-thirds of the debt in return for payment of the rest.

This was a good decision from the standpoint of the people of Argentina and, for the bondholders, better than nothing.

But the U.S. courts have negated that deal by ruling that a speculator who bought some of the original bonds for 20 cents on the dollar is entitled to be paid in full.

Default is a serious matter for nations, just as bankruptcy is a serious matter for individuals and corporations, but sometimes it is necessary.

For a head of state or a head of family, it is better to refuse to pay your creditors than to let people who depend on you go hungry.

Government defaults should, like individual bankruptcy, destroy or greatly harm the credit rating of the defaulter or bankrupt.   In practice, this rarely happens as often as it perhaps should.   Banks have so much more money than good ideas for investing it that they soon start lending again to defaulters and bankrupts.

Click to enlarge

Source: New York Times.  Click to enlarge

But how is it that U.S. courts have jurisdiction over a dispute between sovereign country and its creditors, who are based in many countries?  Is it because the payments go through the Bank of New York Mellon, which is in New York City?

How do U.S. courts propose to enforce their decision on a sovereign country.   Does their jurisdiction over New York City banks give them leverage over the whole world banking system?

It seems to me that this decision is a good reason for Argentina and other countries—including the BRIC group, Brazil, Russia, India and China—to create their own payments system outside U.S. jurisdiction.   Another thing I do not understand is why they have not done this already.  Is it because they fear being locked out of the old system in retaliation, before the new system is in place?

What’s needed is an international bankruptcy court, not under control of any government nor of banks, that could.  Its mission would be to resolve disputes between governments and their creditors when national leaders say they are unable to pay in full, in a way that was fair to the lenders without imposing undue hardships on peoples.

Such a court would have authority to free democratic governments of “odious” debts incurred by previous dictatorships.   Yes, that would make lending to dictatorships risky for banks.  It should be.

LINKS

Supreme Court Dismisses Case Between Argentina and U.S. Vulture Funds by Mark Weisbrot, co-director of the Center for Economic and Policy Research, for US News.  Hat tip for the link to Bill Harvey.

Paul Singer v. Argentina: A Thriller Reaches Its Climax by Ignacio Portes, a Buenos Aires journalist, for Naked Capitalism.

US vulture fund ruling pushes Argentina towards a second bankruptcy by Philip Inman for The Guardian.   [Added 6/28/14]


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