Month: January 2019
Can you identify the implicit leverage in that organization?
Most (not all) organizations have forms of leverage which are built in and which do not show up as debt on the balance sheet. Banks may have off-balance sheet risk through derivatives, companies may sell off their valuable assets, and NBA teams may tank their ability to keep draft picks and free agents in their future.
Or a university may have ambitious plans, or payroll commitments, which require an ongoing stream of tuition increases or admissions boosts, usually from out-of-state students.
None of this has to be a bad thing — many growing organizations should have leverage. Nonetheless leverage it is.
So take your favorite organization. Do you know where the hidden leverage is?
If not, you probably don’t understand it very well.
That is the topic of my latest Bloomberg column, here is one excerpt:
The real power here is held by government employees, especially those in critical jobs. Let’s say that more TSA screeners decided to walk off the job. It’s already the case that the TSA absentee rate has gone up to 7.6 percent, from 3.2 percent a year ago. It is possible to imagine screeners staying home in much greater numbers, thus crippling the entire nation. That could either force President Donald Trump’s hand or lead to a congressional override of a potential presidential veto.
As a rationale for showing up to work, “I’m helping both the TSA and my colleagues” can work for a while, because of both cooperative norms and peer pressure. But I don’t think it can hold things together for more than a few months. They may not have the right to strike, but federal employees can still gum up the works with high absenteeism and poor performance.
I really don’t expect anything good to come of this entire episode.
The best paper I have read in a long time is Hopenhayn, Neira and Singhania’s From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share. HNS do a great job at combining empirics and theory to explain an important fact about the world in an innovative and surprising way. The question the paper addresses is, Why is dynamism declining? As you may recall, my paper with Nathan Goldschlag, Is regulation to blame for the decline in American entrepreneurship?, somewhat surprisingly answered that the decline in dynamism was too widespread across too many industries to be explained by regulation. HNS point to a factor which is widespread across the entire economy, declining labor force growth.
Figure Two of the paper (at right) looks complicated but it tells a consistent and significant story. The top row of the figure shows three measures of declining dynamism: the rise in concentration which is measured as the share of employment accounted for by large (250+) firms, the increase in average firm size, and the declining exit rate. The bottom row of the figure shows the same measures but this time conditional on firm age. What we see in the bottom figure is two things. First, most of the lines jump around a bit but are generally flat or not increasing. In other words, once we control for firm age we do not see, for example, increasing concentration. Peering closer at the bottom row the second thing it shows is that older firms account for a larger share of employment, are bigger and have lower exit rates. Putting these two facts together suggests that we might be able to explain all the trends in the top row by one fact, aging firms.
So what explains aging firms? Changes in labor force growth have a big influence on the age distribution of firms. Assume, for example, that labor force growth increases. An increase in labor force growth means we need more firms. Current firms cannot absorb all new workers because of diminishing returns to scale. Thus, new workers lead to new firms. New firms are small and young. In contrast, declining labor force growth means fewer new firms. Thus, the average firm is bigger and older.
HNS then embed this insight into a dynamic model in which firms enter and exit and grow and shrink over time according to random productivity shocks (a modified version of Hopenhayn (1992)). We need a dynamic model because suppose the labor force grows today, this causes more young and small firms to enter the market today. Young and small firms, however, have high exit rates so today’s high entry rate will generate a high exit rate tomorrow and also a high entry rate tomorrow as replacements arrive. Thus, a shock to labor force growth today will influence the dynamics of the system many periods into the future.
So what happens when we feed the actual decline in labor force growth into the HNS dynamic model (calibrated to 1978.) Surprisingly, we can explain a lot about declining dynamism. At right, for example, is the startup rate. Note that it jumps up with rising labor force growth in the 1950s and 1960s and declines after the 1970s.
The paper also shows that the model predictions for firm age and concentration also fit the data reasonably well.
Most surprisingly, HNS argue that essentially all of the decline in the labor share of national income can be explained by the simple fact that larger firms use fewer non-production workers per unit of output. That is very surprising. I’m not sure I believe it.
If HNS are correct it implies a very different perspective on the decline in labor share. In the HNS model for example non-competitive factors do not play a role so there’s no monopoly or markups . Moreover, if the decline in labor share is caused by larger firms using fewer non-production workers then this is surely a good thing. In their model, however, there is only one factor of production so declining labor share means increasing profit share which I find dubious. If production and non-production labor are distinguished it may also be that declining non-production share will redound to production labor so the labor share won’t fall as much. Nevertheless, the ideas here are intriguing and the results on dynamism, which are the heart of the paper, do not rely on the arguments about the labor share.
Deathbed aphorisms and declarations of love for one’s country are exceptions or inventions. According to one doctor, the last words of the dying are often strings of curses; a hospice nurse says that most dying men call for ‘Mommy’ or ‘Mama’, if they can call at all. “At the end of life, the majority of interactions will be non-verbal as the body shuts down and the person lacks the physical strength for long utterances. People will whisper, and they’ll be brief, single words — that’s all they have energy for.”
Dozens of air traffic controllers are keeping Austin-Bergstrom International Airport functioning smoothly through the longest government shutdown in US history — and all without a paycheck.
Friday was the first payday since the shutdown began and while hundreds of thousands of federal workers can expect to be paid for the work they put in during the shutdown, they are not receiving paychecks until it ends. Tuesday marks Day 25 of the shutdown.
Austin pilots want to do what they can to help their aviation fellows who are affected by the shutdown.
“Those controllers have always had my back, during the normal flights and the rare times that I’ve had a slight abnormal flight that caused me concern,” Ken VeArd said, a longtime pilot.
VeArd recently posted on social media asking his fellow pilots to help him give back to ABIA’s controllers.
“I just made a post saying this is what I am thinking about doing and before I knew it, it just got out of control,” he said. “Whether you need diapers, milk or eggs, or even if all you need is a six pack of beer,” VeArd hopes it’s the small things that will make a difference.
He’s been buying $20 gift cards from H-E-B for the controllers.
“My biggest concern with this thing is that we try to do something nice for our air traffic control friends and it turns out to be a problem, we don’t want to make problems any worse than it is,” VeArd said. “So we capped it at $20.”
In 1974, Paul Samuelson wrote Challenge to judgement, a searing critique of money managers. Samuelson challenged the money managers to show that they could beat the market. He concluded that “a respect for evidence compels me to incline toward the hypothesis that most portfolio decision makers should go out of business.” Samuelson hoped for something new:
At the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.
Inspired by Samuelson, John Bogle created the first index fund in 1976 and it quickly…failed. In the initial underwriting the fund raised only $11.3 million, which wasn’t even enough to buy a minimum portfolio of all the stocks in the S&P 500! The street crowed about “Bogle’s folly” but Bogle persevered and in so doing he benefited millions of investors, saving them billions of dollars is fees. As Warren Buffet said today:
Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing to accomplish a huge amount.
The creation of the index fund is a great example of how economic theory and measurement can improve practice. Our course on Money Skills at MRU is very much influenced by Bogle. Tyler and I recommend index funds and Vanguard in particular. In the videos and in our textbook we present data from Bogle’s book Common Sense on Mutual Funds. Here’s the first video in the series.
The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this summer from June 10-19, 2019. The program is designed for students in graduate programs in economics, though students in graduate school in other fields as well as newly minted PhDs will also be considered.
Students will be competitively selected and successful applicants will receive free housing and a booklet of readings. We are also able to provide limited travel support. The deadline for applying is March 1.
We are very excited about this year’s program, which will focus on giving participants the tools to set up and teach their own undergraduate course in the history of economic thought. There will also be sessions devoted to showing how concepts and ideas from the history of economics might be introduced into other classes. The sessions will be run by Duke faculty members Bruce Caldwell and Jason Brent, who will be joined by Steve Medema of the University of Colorado–Denver. More information on the Summer Institute is available at our website, http://hope.econ.duke.edu/
This was a really good one, here is the text and audio. The opening:
TYLER COWEN: I’m here today with the great Larissa MacFarquhar. She is a staff writer for the New Yorker, considered by many to write the very best and most interesting profiles of anyone in the business. She has a very well-known book called Strangers Drowning. The subtitle is Impossible Idealism, Drastic Choices, and the Urge to Help. It’s about extreme altruists. And she’s now working on a book on people’s decisions whether or not to leave their hometown.
Here is one excerpt proper:
COWEN: If you’re an extreme altruist, are you too subject to manipulation by others? If you care so much about so many other people, and those people actually can be harmed pretty easily at low cost, does this mean that you, the extreme altruist, you just go through life being manipulated?
MACFARQUHAR It’s funny you say that because one thing that I have noticed about the extreme altruist . . . You know what? I don’t want to call them extreme altruists. I think they’re people with a very strong sense of duty.
The people I met were very, very different from each other, but one thing they had in common is they really, really barely cared about what other people thought. They had to feel that way because almost everyone they met thought they were at best weirdos, and at worst dangerous megalomaniacs. So they were unconventional in their degree of duty but also in many other ways.
COWEN: They didn’t care at all what people thought about anything they did like how they dressed or . . . ?
MACFARQUHAR: Things like that. I don’t mean they didn’t care about anything about what people thought because obviously —
COWEN: In this context they didn’t care.
MACFARQUHAR: Obviously they cared about making other people’s lives better. But yes, in terms of opinions of themselves, they were much less sensitive to that than most of us.
COWEN: Your view on how much you should be lied to if you have dementia — is that the same as what you would propose for a sibling or a child, someone you loved and knew?
MACFARQUHAR: With dementia?
COWEN: Right. Would you be consistent and apply the same standard to them that you would want for yourself?
MACFARQUHAR: Ohhh, I don’t know.
COWEN: I would say don’t lie to me, but, in fact, for others, I would be more willing to lie to them than I would wish to be lied to myself.
Try this part too:
COWEN: If during a profile, when you describe people’s looks, are you worried that you are reinforcing stereotypes?
MACFARQUHAR: No. But I have —
COWEN: But isn’t there a thing, looksism?
MACFARQUHAR: Well, of course.
COWEN: There’s sexism, there’s racism, and looksism — people who look a certain way, you should make certain inferences. Is there any way we can describe people’s looks that doesn’t run that danger?
MACFARQUHAR: Probably not. But I’ll say two things about this.
First is, I think there is far too much emphasis on describing people’s looks. Because the thing about humans is that their faces are unique, so you can describe somebody, but you’re never going to be able to call up an exact picture in a reader’s mind about what the person looks like. So what you’re doing is not really describing what they look like — what you’re doing is evoking something which, I guess, the malign form of that is looksism.
But I’ve started avoiding describing what people look like, not because it results in looksism — though I’m sure that’s true — but because, unconsciously or not, it puts the reader in a position of being outside the person, looking at them.
And also, from me:
COWEN: Could the same person be both, say, a Rwandan killer in the 1990s and an extreme altruist? Or is that a contradiction?
- Latest: Eurozone industrial production shrank 1.7% in November
- Worst decline in almost three years.
- Introduction: China’s exports fell 4.4% in December
- Biggest fall in exports in two years as slowdown gathers pace
Here is the link, developing…
Ray Washburne, the Texan property developer who heads the US government’s development finance institution, has emerged as a contender in the race to be Donald Trump’s nominee for the presidency of the World Bank, according to people familiar with the matter. Mr Washburne became a candidate following his efforts to bolster the Overseas Private Investment Corporation since taking up the reins in September 2017, earning new funding from Congress that could help counter China’s sweeping investments — and influence — across many developing economies. Before taking on that role, Mr Washburne’s career spanned commercial property and restaurants in his hometown of Dallas, Texas. He was also a prominent Republican party donor, including helping raise money for former president George W Bush and former Republican presidential nominee Mitt Romney.
Yes, yes, I know she is only running the interviewing process, but that is how Dick Cheney ended up as vice President. Here is one excerpt from my Bloomberg column:
You might argue that Ivanka is not qualified to run the World Bank, and I might agree with you. (She would not be my personal pick; how about Carly Fiorina, Kristin J. Forbes or Arthur Brooks?) Yet consider that the previous president, Jim Yong Kim, was highly qualified on paper. He co-founded a famous foreign-aid public health group, has a Ph.D. in anthropology, was a professor at Harvard Medical School and the Harvard School of Public Health and then president of Dartmouth. As an Asian-American, he had the potential to be a powerful symbol of multicultural governance.
Yet by most accounts his tenure at the bank was a failure. He alienated much of the staff, and his organizational changes (after first creating chaos and bad morale) were largely reversed.
Now he is leaving suddenly, years before his term is up, allowing Trump to appoint his replacement. Not only that, Kim is moving to a for-profit infrastructure firm, hardly the best symbolism for the leader of an institution that is supposed to be about helping the global poor.
The sad reality is this: If Ivanka took over the reins of the bank, she probably would be an improvement.
And she might not even use the word “and” so much.
2. “A row has broken out between the mayor of Rome and the Roman Catholic Church over what should happen to coins retrieved from the Trevi fountain. Every year nearly €1.5m (£1.3m) is fished out of the famous landmark. It is traditionally given to a Catholic charity to help the destitute. But now Mayor Virginia Raggi wants the money spent on the city’s crumbling infrastructure instead.” Link here.
5. Friday, January 25 I speak in Ann Arbor at the University of Michigan, and January 31 at the University of Chicago.
We study the influence of television translation techniques on the worldwide distribution of English-speaking skills. We identify a large positive effect for subtitled original version broadcasts, as opposed to dubbed television, on English proficiency scores. We analyze the historical circumstances under which countries opted for one of the translation modes and use it to account for the possible endogeneity of the subtitling indicator. We disaggregate the results by type of skills and find that television works especially well for listening comprehension. Our paper suggests that governments could promote subtitling as a means to improve foreign language proficiency.
That’s from TV or not TV? The impact of subtitling on english skills, a clever study with a useful finding.
I cannot help but note that our Principles of Microeconomics and Principles of Macroeconomics videos at MRU (and linked to in our textbook) are subtitled in English, Spanish, Hindi, Arabic and other languages so perhaps we can help teach languages as well as economics.