While this answers the question of why we couldn't respond to the bottlenecks, I guess I'm still missing the piece of what caused them in the first place. Like sure, "this silly little global pandemic thing" but it's not really an enlightening answer without more detail as to what the pandemic caused that shocked the system.
People were locked down so they stopped spending money on services (hotels, restaurants, travel, massage, etc) and instead bought more goods. This happened at the same time governments printed trillions and pumped it into the hands of consumers and businesses. The result was a 20% surge in container volumes, which our supply chain infra just wasn't ready for.
As well as rolling labor blackouts as factories had to shut down (repeatedly) because people got sick and they couldn't risk everyone getting sick. And distribution centers. And retail. Etc etc.
Have you seen the YouTube video where a waterwheel [1] demonstrates predictable behavior under one set of conditions, but with a small change, the system moves into chaotic behavior?
I figure the supply chain is like that. Under certain conditions, JIT is fine. Given sufficient disruptions, the system descends into chaos. Note that we have humans in the loop, too, so expect non-linearities.
Basically - complex systems behave in complex ways. When you have a small shift in consumer demand, it gets amplified up the supply chain, such that you need potentially big shifts in the production of intermediate components. We had a big shift in consumer demand. The supply chain basically can't cope, and so we get chaotic behavior until consumer demand normalizes and revised sales forecasts get propagated up the supply chain.
In normal times, people mostly shrug off biological transfer with other people. Maybe you avoid the odd symptomatic person who comes to work anyway, but you don't act as if everyone else is trying to get you sick. This allows for close working conditions, less sanitary practices, etc. The pandemic invalidated this assumption, requiring workers to become less efficient in response. This is the fundamental dynamic - the secondary effects of denial/overcompensation created additional problems.
It also didn't help that everyone was expecting an economic slowdown, and then the government gave trillions of dollars to corporations to juice the stonk market. The resulting price signals induced a ton of aggregate demand for production capacity that simply wasn't there.
Since a bottleneck implies a vessel with fluid passing through, I'll stay with that analogy. There's actually no bottleneck; the pipe is basically the same size as ever. (Actually just slightly smaller because of capacity that was destroyed, rather than taken temporarily offline, during the slowdown.[0]) But the pipe in the first place was only exactly as big as it needed to be, because of the "maximizing ROE" stuff he mentions early in the thread. So when the fluid volume suddenly expands (slingshot effect following the slowdown), the whole system becomes a bottleneck.
[0] Capacity destruction: "Nobody's buying our stuff, we can't afford to keep this one ship/plant/facility/machine running anymore or we'll go out of business." But since every other player in their industry who might've bought it is in the same boat, maybe they're forced to sell to a scrapper, who promptly disassembles the ship/plant/facility/machine. I got my house this way. It was a rental property owned by a company that could no longer afford to keep it, so I bought it, took it off the rental market, and thereby slightly reduced rental capacity in this town. Compare this to an airline temporarily parking a slew of their planes in a densely-packed parking pattern at an un-busy airfield near a nice runway.
Or maybe attempting to shut down large swaths of world economy for an indefinite amount of time wasn’t such a good idea? In the timescale of months to years all business becomes “essential”. Sure shut it down for “just two weeks” but a year or more?
We thought that if we didn't do that we'd run a very real risk of the entire healthcare system collapsing. We were trying to "flatten the curve" so that hospitals could deal with an ongoing roar instead of being hit with a massive explosion.
The entire lockdown/restriction/mask mandate set of policies has been based on managing hospital capacity. State and local governments are still using hospital capacity to decide when to lift or reimpose restrictions.
The wave of explainers we got last year about flattening the curve were wrong about how long it would take, but the fundamental strategy and the reasoning behind it never actually changed.
That’s not a good argument. 1: damage done by shutdowns is still going on so we don’t even know the full cost. 2: the winter storm is not self inflicted. 3: I am not sure you are right that said winter storm did more damage. Would like a source though.
When analyzing the storm I'm not clear are we talking about the power grid alone or the normal organic effects of Texas just not operating well at those temperatures and pipes bursting, frost heave, exposure deaths, etc?
Gas producers not having themselves marked as critical infrastructure so ERCOT would not kill power to them and the failure of plants to winterize themselves are self-inflicted.
That's not a fair comparison. Most covid deaths are from those already past the average life expectancy. There's a very good chance they were going to die soon anyways. Not to mention you have to account for cancer patient + covid, etc.
It's completely fair. There's always a cause of death, and averages aren't indicative of individual cases. If an old person gets shot by a gun tomorrow, we don't chalk that up as "well, they had their time."
I specifically said "death rate" and "per capita".
Your source here is comparing two countries, one of which has 67 million people and the other which has 10 million and showing totals and not per capita, which is a worthless comparison.
Additionally, I don't consider Great Britain a neighbor of Sweden.
The idea of Sweden has no connection at all to the topic at hand. You are using the word "Sweden" to make an argument because you believe the connection between Sweden and conversations about lockdowns is so clear that the mere mention of the word is enough to bring the entire argument into someone else's mind.
So, this demonstrates that you believe everybody reading this comment knows what you mean. Which in turn means you know your comment is adding nothing at all to the conversation.
To belabor the point, if the connection between Sweden and lockdowns was an entirely convincing argument then everybody reading your comment would already agree with you, and there would be no reason for you to remind people of the connection with this comment. Since that doesn't appear to be true, you believe your peers need to be reminded of this argument, some elaboration on your part seems to be in order!
Hacker News is a lovely community where you can learn from a large variety of people, each knowledgeable in their own particular domain. The more thoughtful and substantial we make our comments, the nicer a place it becomes for everybody else.
I really don't understand what you mean by this comment. The only swaths of the economy that I'm aware of that got shut down in the U.S. are things like bars, restaurants and movie theaters. These are not tightly connected to global supply chains, AFAIK, and if they were why would their shut down cause bottlenecks (it should lessen demand, not increase it)?
Thinking about it from the perspective of someone who thinks the shutdowns were net good but reviewing the comment in good faith:
Lessened demand in large sections of the economy can itself create shortages in the parts that take on the load or at least stress on the supply chain to redirect to those places now in extreme demand. Take restaurants for example, people didn't stop eating but vast swaths of food supply chains had to change pretty much overnight.
Then there is also the problem of the demand of certain things being highly uncertain, like cars towards the beginning.
Then there is the extreme induced demand on certain things like webcams, laptops, or other home electronics as everyone stays home. I'm sure that also isn't an easy overnight change to make and then swing back from since it was completely unplanned. I know the area I work immediately ran out of widgets based on orders of 10s of thousands instantly coming in and it has been backed up since that time to this day.
Finally during the initial portion of the pandemic lots of factories, both in the US and China, were getting shut down. China seemingly longer. When restaurants and whatnot started to open back up was about the time you saw those shutdowns stop happening too. So on top of the above concerns for the supply chain lots of non bars and movie theatres were also affected by shutdowns, just perhaps not as long.
May be more I'm missing but I don't think GP is an empty comment by any means.
Much of the problem with understanding what GP means is that 'the shutdowns' is a very hazy term. Implicit in the comment seems to be the idea that there was some small set of authority figures who decided to shut down the global economy and if only they hadn't done that things would be better.
e.g., The induced demand from work from home you mention I wouldn't count as part of any 'shutdown' at all. It has been largely driven organically by the decisions of individual firms and workers. My office was ordered to work from home by company HQ, not by any government authority, and at this point staying WFH is an individual voluntary choice. Does this count as part of the 'shutdown'? Certainly my sector of the economy (software development) was not shutdown, quite to the contrary.
I'm not sure the comment is implicit of who did the shutdowns but even taking it as so the widget orders by the 10s of thousands I referenced were mostly public school systems receiving mandates and associated COVID relief funding to compl,y not private enterprises. Particularly younger grades weren't normally assigned personal hardware and not every child had internet access at home. Though like you say the private sector remote work shift certainly happened too and exacerbated the ordering situation.
Sure, many (most?) schools went remote, but they didn't shut down, and they aren't really integrated into the "global economy."
It's certainly true that collectively, society pushed down in some places and things popped up in others, sometimes in obvious ways (going remote creates demand for laptops and cameras and office chairs) and sometimes in surprising ones (spiking rental car prices, yet internet providers were totally unfazed). I don't think "if only we hadn't been so foolish as to shutdown a large part of the global economy" is a useful or helpful way to think about these phenomena, though.
A fallacy that might be at work here is comparing the shutdowns that actually occurred with a counterfactual world where business activity remained essentially unchanged.
We'll never know for sure, but I doubt that's the correct comparison. Even without government-mandated shutdowns, many areas--especially major urban cores--would still have experienced massive shocks as people voluntarily shifted to working from home, stopped going out to eat, etc. In other words, much of what the government did through law would likely have happened anyway out of fear and individuals exercising their common sense.
Sure, it wouldn't have been exactly the same, but I think the counterfactual is much less rosy than you assume. And then there are the benefits of the shutdown which helped to direct the drop in activity towards less essential parts of the economy and increased predictability, to say nothing of the benefits of reduced viral transmission.
Where I live the vast majority of people were deemed "essential" for the purposes of working and then not "essential" for the purposes of receiving the vaccine.
The places which were closed were not producing things used in the supply chain.
Have you forgotten the state of Italy and New York (among others) at the start and middle of 2020? There were literal trucks full of dead bodies in the streets because they couldn't be buried fast enough.
How do you envision the time between march 2020 and the point where herd immunity through vaccines / infection would have been sufficient would have gone without a lockdown?
I'll take a lack of a few non-essential luxury goods for a year or two over a world where everywhere looked like that, any day of the week.
Which was insanely, criminally stupid, and absolutely contributed to a lot of deaths.
But New York also has a subway system that (approximately) everyone uses to get around. That turned out to be a perfect spreading ground for a respiratory virus. If I understand correctly, that's a big part of why New York got hit so hard. You can't just pin it on Cuomo's criminal irresponsibility.
Hm, seems like a monocausal 'explanation' of a complex problem - or let's say a mere opinion with little background information.
Given the 'hundred year crisis', I think we have fared relatively well from a purely economic point of view... So, yes, some problems may exist but I think we have witnessed a surprisingly resilient system, given how optimized everything is and how unprecedented the issue is.
I don't know if a slight price increase in graphics cards is the key issue to worry about at this point.
Keeping tons of spare capacity is neither economical nor environmentally friendly. Also, it would probably only shift the problem elsewhere.
Well at least we will be going back to writing everything in C and squeezing everything out of our old legacy chips because what else can we do? Maybe the Intel/IBM/Globalfoundries fabs in the US can continue producing whatever last gen chips they are capable of.
There's no reason to think that we are 'just getting started'.
We know what the system looked like before, and post-pandemic, there's no reason to believe it wouldn't return to that state. Aside from some ongoing pandemic measures, by and large, we should see things mostly settle into the system that already works.
It's just going to take some time to clear. In the meantime, most things are working well enough.
Much of the inflation we are seeing is a function of 12 years of mass money printing and pandemic response, if it were not for that, the pricing issue wouldn't be so acute.
If there is a 'new normal' it will due to monetary issues - the adjustments in supply chains I think will be incremental, with a few strategic changes i.e. TSMC in Austin etc..
If it was just one item, such as graphics cards, I wouldn’t be particularly concerned. The problem is it’s a bit of everything, a mere 11-ish years after the Great Recession, which was itself “supposed” to be a once-a-century economic catastrophe.
To be even more fair, there's absolutely no reason to think these types of events are independent; there's good reason to believe they're positively correlated. This means once one happens the chances of it happening again soon are greater than before it happened. (But if you're lucky and it doesn't happen again the chances decrease further, giving you an average of 100 years between them again.)
I can believe a pandemic might cause a global economic catastrophe on par with the Great Depression or the Great Recession, but I my imagination isn’t giving me any ideas how the latter might cause the former?
By the economic catastrophe causing us to elect a president who dismantled a group that worked to monitor and respond to global health issues to prevent them from becoming a pandemic. I think it's hard to say if that group could have prevented Covid-19. Nor am I necessarily saying that the economic crises of 2008 caused us to elect Trump. But I think you could possibly find a path from one one to the other.
> This means once one happens the chances of it happening again soon are greater than before it happened.
or more likely, it happens, but because of prior experience, the event is no longer as calamitous as the first time.
Looking at the GFC in 2008, the monetary policy back then was too tight (hindsight 20/20 and all that of course), causing the recession to be extended longer than it would've.
This covid disaster would've caused a similar problem, imho, if the Feds did not loosen up like never before. It "solved" that same problem the GFC produced. Had the GFC not occured, the pandemic would cause a double wammy - a medical problem, and also a monetary problem.
Sure, it affects everything and given the complex interconnections and dependencies within production chains / networks, the cause-and-effect relationships are hard to understand and cause for concern. But given how complex and decentralized things are, I am still amazed we haven't seen worse effects (yet). I doubt that spare capacity in logistics alone would make a huge difference, because you'd also need spare parts, materials and manufacturing capacity, all of which are part of the same network.
With shipping containers being sent back to Asia empty rather than taking an extra leg to mid-America to fill up on US farm products to sell in Asia, is the price of soybeans and corn in Asia going to spike soon?
Farmers are smarter than you give them credit for.
They check real-time shipping costs and choose the cheaper option. It takes a few dollars worth of cardboard to turn a shipping container into a suitable container for corn or soybean shipping (really!).
> I don't know if a slight price increase in graphics cards is the key issue to worry about at this point.
The price increase in graphics cards isn't related to this.
GMs trouble selling cars because they don't have enough chips to finish off the cars is a problem related to the pandemic and planning like the posts on Twitter note. The lack of new cars available has driven up prices on used cars. This is all supply chain driven.
> how unprecedented the issue is.
How unprecedented is it? In the last 130 years there have been two world wars and two global pandemics.
The US has now outsourced most of the production of goods to places in other countries. So, if something changes there (like the mask issues we had early in the pandemic) we have limitations here. And then there is the changes in posture of China where many of our things are manufactured. It wouldn't be unheard of, historically speaking, for that to impact businesses in the future.
> The US has now outsourced most of the production of goods to places in other countries.
I think that is the point (or one of the points): it's not just logistics and spare capacity - it's a much more complex set of issues.
This isn't something accounting practices or "less greed" would solve, as seems to be implied in the Twitter thread.
Would you have voted for a party that spent $1b annually on mask manufacturing subsidies for masks nobody even bought? Who could have foreseen that demand spike?
It might have something to do with drastically lower labor prices and environmental laws.
There is only so much discrepancy in prices that global markets will allow before buyers start rewarding the lower priced sellers for taking advantage of the arbitrage.
Plenty of people foresaw it. California spent ~$200m on building up a stockpile of PPE and other medical supplies back in 2006, before Brown cut funding for the program in 2011.
Would you have voted for a party that spent $1b annually on mask manufacturing subsidies for masks nobody even bought?
I would have voted for a party with a program of "bring the manufacture of strategically crucial items back to the US and make it robust". This seems like it would even be Republican "bread and butter" and I don't see why either party had an issue with it.
Use the stockpile to sell / provide such masks to the VA, Military, and other government organizations on a FIFO basis so the stock is never stale. For stock that can not be moved quickly enough donate it to other countries that may need it.
"mask manufacturing subsidies for masks nobody even bought? Who could have foreseen that demand spike?"
The entire industrial capacity of USA, country of 300 million people, could produce zero Meltblown, so it could make zero masks. Do you think it's acceptable?
People talk about conflict with China while we depent on them for toilet paper to wipe out butts, it's like a mentall ilness.
The US gets a neglible amount of toilet paper, if any, from China. And there was never a supply disruption: there was a demand disruption, a distribution disruption and a run.
> Would you have voted for a party that spent $1b annually on mask manufacturing subsidies for masks nobody even bought? Who could have foreseen that demand spike?
Many people did (only at the $450MM level/annually). It was considered standard practice to have the federal government purchase large quantities of N95 masks to have in case of an emergency. GWB started the program, and Obama distributed 100,000,000 masks during the H1N1 crisis from the stockpile. I will say that restocking the pile took a cut after 2010, Congress cut its funding and Obama's team didn't fight for it. And what funding they did get didn't seem to get prioritized into masks.
The 'lack of chips' has nothing to do with US preparedness, it's entirely an overseas issue.
China & Co. did a big over-correction during the start of the pandemic, and that put a lot of things into chaos.
You now have chip speculators entering the foray, jacking up prices, not very helpful in letting the market clear.
10% padding in US operations I don't think would have made up for anything, the problems exist in shipping and on key/acute issues from the suppliers in Asia really.
I don't think it's reasonable to imply 'We should build all the stuff here to avoid delays during 1 in 50 years pandemics'.
I'm not blaming so much as pointing out that's where the underlying issues are.
Of course exacerbated by other things.
I think working out solutions to transportation, buyers paying for things like guarantees, plant and supply chain risk analysis etc. will become a thing now.
CEOs will hire consultants and firms to measure the likelihood in supply chain failure and make ammends.
I actually think we'll get adapt past most of this.
> In the last 130 years there have been two world wars and two global pandemics.
Delays on intercontinental shipping and lack of availability of a few durable goods is a perfectly fine price to pay on that frequency. Optimizing to surviving a global pandemics without any problem would be ridiculous expensive.
Yes, specifically on the subject of cars, the manufacturers seem to be accepting way more risk than what is sensible. But that's their decision to make. If they were just left to face the costs of their decisions, they would stop making bad ones quite quickly.
(By the way, there were 2 flu pandemics similar or worse than this one on the last 100 years. That's one more than you are counting.)
what's your methodology? The linked section includes stuff like the "2015–2016 Zika virus epidemic", which was "worldwide" but had a death toll of 53 people. Should that be considered a pandemic? If we go with the "Epidemics and pandemics with at least 1 million deaths" table, there's only 6 worldwide pandemics.
If you're counting pandemics since 1891, I think any number between 6 and 13 is more defensible than the number 2.
Let me count again, while leaving out relatively minor pandemics like Zika:
* Fifth cholera pandemic
* Third plague pandemic (multiple outbreaks are listed)
* Sixth cholera pandemic
* 1915 encephalitis lethargica pandemic
* Spanish flu
* 1957-58 "Asian flu"
* Seventh cholera pandemic
* 1968-70 "Hong Kong flu"
* 1977 Russian flu
* HIV/AIDS pandemic
* 2009-10 swine flu
* COVID-19
That's 12 and doesn't count stuff like Zika, SARS, or MERS. It also doesn't count any of the Ebola epidemics.
I don't know if cases or deaths are a good proxy for expected supply chain impact. SARS, for instance, had relatively few cases and deaths because it mostly broke out in well-functioning developed East Asian countries that were capable of responding to it effectively, but those same countries have outsized effects on global supply chains.
It seems obvious to me that covid-19 had a much greater impact than any of those previous pandemics, even more severe ones, because it’s the first one for which we even attempted to implement such disruptive mitigations. Working from home was not feasible for most people in 1968-1970 for example, and nobody would have seriously suggested a major economic shutdown to deal with it.
An epidemic is an unexpected rise in cases within a community or region, which could mean part of a country, an entire country, an ethnic group spread across multiple countries, or an entire landmass. And a pandemic is an epidemic that has exponential growth.
An epidemic usually starts within a particular country and if it becomes a pandemic it will grow rapidly and spread to other countries, but the WHO definitions are only based on the number of cases compared to normal and how fast the number of cases is rising.
There were many more global pandemics in last 130 years. There were multiple global flu pandemics that were within the same order of magnitude of severity as Covid-19, eg. the Hong Kong flu of 1968 killed more people than Covid-19 had on per-capita basis.
It is not deadly global pandemics that are unprecedented, it’s the lockdown response to them that is.
> In the last 130 years there have been two world wars and two global pandemics.
One rationale behind the push for global integration after WW2 and later on with China and the former Soviet Bloc was the idea that such integration would create incentives against a resurgence of war between great powers. It is precisely because another world war would be so disruptive in light of global economic integration that global integration was promoted and pursued in the first place by many policy makers—in order to make such wars less likely to occur.
I suppose the thinking was that the obvious downside—that if a great-power war were to occur, the global economy would be in shambles—was irrelevant given that another world war would likely amount to Armageddon.
In other words, preparing for the contingency of a world war is worse than useless, because the only viable path (both from a utilitarian and from a moral perspective) is to do what is most effective to prevent the occurrence of such a war (which pursuant to this line of thinking includes, of course, making significant investments in defense).
> One rationale behind the push for global integration after WW2 and later on with China and the former Soviet Bloc was the idea that such integration would create incentives against a resurgence of war between great powers. It is precisely because another world war would be so disruptive in light of global economic integration that global integration was promoted and pursued in the first place by many policy makers—in order to make such wars less likely to occur.
That's a topic explored a bit in The Interdependency Series by John Scalzi. I found it am amusing read (and actually liked Wil Wheaton as a narrator for it... though not everyone agrees on that point).
The teaser for the first book of the series:
> Our universe is ruled by physics, and faster-than-light travel is not possible - until the discovery of The Flow, an extradimensional field we can access at certain points in space-time that transports us to other worlds, around other stars.
> Humanity flows away from Earth, into space, and in time forgets our home world and creates a new empire, the Interdependency, whose ethos requires that no one human outpost can survive without the others. It's a hedge against interstellar war - and a system of control for the rulers of the empire.
> One rationale behind the push for global integration after WW2 and later on with China and the former Soviet Bloc was the idea that such integration would create incentives against a resurgence of war between great powers.
i wonder what the recent resurgence of nationalism and "us vs them" thinking plays into this...
is it possible that our global economic system, international relations etc are not yet evolved enough to keep such a system functioning stably (in geo-political terms)?
For such a system to function, there must be one superpower, rather than two.
The US has clearly emerged as the one superpower in the aftermath of the soviet dissolution. But China has now emerged as a potential competitor to the superpower status (they've basically replaced the soviets in this model). They haven't yet reached the same level, but will soon according to all modeling and prediction.
I do believe that it is the US's hope, in the clinton administration, to have china's market economy open up, and thus, allow western "democratic" culture seep in (ala, like japan and korea - but without having a war to start with). This certainly, and clearly has failed now. China do not want to be "subservient" to the US superpower like the other westernized asian nations.
In wealthy countries like the US it might be harder to get that new XBox you wanted. In the rest of the world there's hundreds of millions of people who are starving to death.
as someone originally from a 3rd world country. I can truly say never trust what the UN or any of those big NGO's say. It's propaganda pushing a narrative. what causes starvation in most poorer parts of the world are western induced climate change i.e draughts, floods etc. Then of course political instability
Keeping tons of spare capacity is neither economical nor environmentally friendly. Also, it would probably only shift the problem elsewhere.
* There some things that are people simply need for survival. At a certain point, having no spare capacity and cascading failures means people die. Lack of masks last arguably killed people last year.
* It's quite possible to excess capacity and be good to the environment while present production is often terrible despite the lack of excess capacity.
* Sure, a complete lack of excess capacity is economical. Which is the OP's point in different words. Robustness to failure has been traded for immediate returns.
> Lack of masks last arguably killed people last year
I think that was the least of the problem. At the beginning of the pandemic in the US, hospitals, nursing homes, and many other companies would not allow their workers to bring in their own PPE. This continued for upwards of six months. Several outbreaks occurred in my area because management refused to allow their workers to use PPE. Fast food operators also had several outbreaks because they were not testing their employees temperatures until it was far too late.
As late as April, we had dental offices across the country refusing to allow receptionists to wear masks. Same went for supermarkets and restaurants. Upwards of 30% of lives could have been saved if corporate and management hadn’t setup major roadblocks for worker protections. One of the most common arguments I heard was, “we don’t want the customer to see our people behind a mask”. For companies, this wasn’t a pandemic with real health risks, this was a front-facing visibility problem for the organization. These people should all lose their jobs for the suffering they caused.
Given the 'hundred year crisis', I think we have fared relatively well from a purely economic point of view...
Covid was essentially "Sars II". If Sars1 had had the qualities needed to be a world wide epidemic, we'd be looking 10-100x the casualties. Sars1 happened a decade ago. Calling this a "hundred year crisis" seems wholly disingenuous. This event was forecast by quite a few people, the world was terribly unprepared and there's every reason to think the same factors that created this virus will create others much sooner than a hundred years from now.
I have a tidbit on the following:
>> we'd be looking 10-100x the casualties.
Viruses conform to the distribution of deadliness-vs-reproduction rate. For Sars 1 to spread widely, it has to be less deadly. There are limits to how a virus can both be deadly and contagious.
There are limits to how a virus can both be deadly and contagious.
That leaves out the whole question of incubation time. The scary thing about COVID is that it gives you several days to a week or more to walk around spreading the infection before you even know you have it.
That's why the reaction in the public health sector was so dramatic. It was the sort of thing that could have easily been much worse than it has turned out to be.
And it's still only one or two mutations away from living up to the worst-case fears: a seriously-deadly virus that spreads all over the world before anyone knows what's happening. One that large sectors of the population have already been preconditioned to deprecate or ignore.
Viruses conform to the distribution of deadliness-vs-reproduction rate.
That's a fine rule of thumb but not something to literally bet your life on. When smallpox was introduced to North America, it wiped out a substantial percentage of the population of the continent (This [1] claims 90%, which might be much but it was a lot).
The original SARS didn't have the qualities needed to be a world-wide pandemic, though, and one of the big obstacles to that was that it was just too deadly. Not only do people who are so sick they have to be hospitalized not go out and socialize and spread the disease, all the hospitalizations and deaths gives a whole bunch of really obvious starting points for contact tracers - instead of only knowing about a tiny fraction of cases, most of them are highly visible and those people's contacts can be tracked down and isolated before they become infectious.
Also, a lot of governments did take suitable precautions in case Covid was more like the original SARS early on and just got flak for it. This was particularly visible here in the UK, where Public Health England and the government had already planned for another SARS or MERS-like virus and introduced really aggressive testing and contact tracing early on in case this was it. They just got attacked in the press for not continuing that once it became clear this wasn't like SARS and it wouldn't work - and then once they gave in and reintroduced testing and contact tracing as a measure, they were attacked again because (predicatably) it wasn't that effective and the media fuelled endless badly-informed conspiracy theories about the testing and contact tracing program only existing to funnel money to their pals.
The UK test and trace program cost £37 billion, which was handed solely over to a company that has a long history of delivering projects poorly. By all good measures it wasn't effective in tracking COVID or preventing cases. In my opinion the government were rightly attacked over this issue.
See, this is what I mean about there being a lot of misinformation out there. That £37 billion wasn't handed solely over to any one company - political opponents of the current government kept on falsely claiming that it was all given to Serco, but in reality only a small fraction of the Test and Trace spending went to them: https://fullfact.org/health/test-trace-march-2021/ (I think most of the money that went to Serco was ultimately spent on employing the numerous call center staff required to actually scale up manual contact tracing too.)
For articulated analyses of complex phenomena a Twitter thread is completely inadequate. For simplistic explanations whose objective is to promote an opinion it is great, because it makes it easy to re-share morsels of the argument.
Everywhere I travel, tiny life. Single-serving sugar, single-serving cream, single pat of butter. The microwave Cordon Bleu hobby kit. Shampoo-conditioner combos, sample-packaged mouthwash, tiny bars of soap. The Tweets I read each day? They're single-serving books.
Really? Forced shutdowns -> things not being made -> not enough things...
It's basic supply/demand. If demand stays the same but supply is interrupted, production needs to increase for the same amount of time just to satisfy the demand that went unfulfilled. If supply is interrupted and 'reopening' simply means going back to initial production, you'll always be playing catch up.
The goods stuck on ships waiting to be unloaded don't help the overall situation. Containers sitting loaded on ships and ships waiting in an anchorage are containers and ships that can't pick up newly manufactured items elsewhere.
It's not that simple. Modern (just-in-time) practices have created a situation where a single change in customer demand leads to widespread supply shocks.
Take a look at the beer game[0] for a smaller version of real life.
That's what happened here - lockdowns led to a single change in customer demand for a wide variety of goods both on the personal side(more people at home -> snacks, food, toiletpaper that would have been used up at work started being needed at home), and on the commercial side (no people in the office: no ongoing bulk papertowels/toiletpaper/vending machines/office supplies).
That’s just finger waving. The main cause is the madness of the situation where a deadly global pandemic causes the money supply to increase across all sectors. If you were a manufacturer in March 2020, the only responsible thing was to reduce operations to the bare minimum.
Add lockdowns and changing, unpredictable consumption patterns (e.g buying more cars against all predictions because who wants public transport now?) and you get the perfect storm.
You could hold a years worth of inventory and you’d still have a problem.
Correct. The Fed is holding huge amounts of assets artificially boosting stocks and both corporate and govt. investment, creating a housing bubble and wealth inequality as a tradeoff to keep unemployment low. Combined with the government 'stimulus.' School districts and municipalities with millions to spend for several years into the future.
Why would we expect there to be a perfect equilibrium immediately?
Is "NIFO" really the right way to do accounting? If you sell the government one aircraft carrier, the cost of producing a second one will be much lower, so NIFO doesn't seem to fit there.
I think NIFO applies only to variable costs. Fixed costs are fundamentally different.
Also, low-volume items like aircraft carriers are probably a bad example. Aircraft carriers are ordered and built in small, specific quantities; I think it makes more sense to account for building a single aircraft carrier as a construction project rather than as a unit of mass production. Almost like you were building a small airport, thousands of units of housing, and a nuclear power plant.
But my point was that variable but decreasing costs seem to throw NIFO off too. Aircraft are the extreme example but I'm sure the first of Tesla's latest car model costs more to produce than the thousandth. Not even counting capital expenses but just by things running smoother with practice. NIFO seems to fall short here too.
I’m not sure that’s always or necessarily true. The variable costs will go down over time if there are process improvements, but eventually there are diminishing returns to those. Meanwhile, the cost of materials and labor could rise.
Sure it's not 100% of the time but that's besides the point still. Isn't NIFO a bad fit for the times when per-unit costs are decreasing? And since this happens fairly regularly it seems like a bad choice period, or at least not obviously better than FIFO or LIFO.
typically when you're selling aircraft carriers, you're selling it before you build it - the customer is paying you to make it, not paying you for the one you've already made. so the neither the economics or the accounting work the same way as acting as middleman for retail goods.
I suppose it depends on what we're talking about, but probably not. LIFO and FIFO are book accounting concepts, and business decisions aren't (shouldn't be) based on book.
For example, almost every successful company is valued at some multiple of book equity, because book equity doesn't (and shouldn't, and can't) incorporate any notion of growth. Tesla's book value per share is something like $27/share, which reflects the cars it has sold and the ones in process. It trades at $1077, which reflects hopes for cars that it will sell.
LIFO and FIFO are just book accounting methods for tracking costs of production. They tell financial statement readers how management puts the cost of unit production into inventory values on the balance sheet, and how inventory values are translated into Cost Of Goods Sold on the income statement. They really aren't the right basis for business decisions like pricing or production.
I don't know what he means by "companies now use FIFO or LIFO accounting" as if this is some innovation. These have been the _only_ choices under GAAP for . . . a century? Longer? Letting companies use Next In First Out for financial statements would be inviting management to manipulate its balance sheet and earnings through its cost assumptions. Of course a company will use up-to-date cost information for pricing decisions, but they've always done that.
Accounting is really a language of its own. It provides a lot of useful information, but you have to know how to use it and what to use it for.
Must also take into account that many industrial processes are not easily restartable. Even if only shut down for 1 day or 1 week, it can take multiples of that length of time to ramp back up to 100% output rate. Complex factories do not switch on and off like a lightswitch.
My dad worked on some testing software for a float glass factory back in the 1980s. Float glass is a process where a factory makes a continuous sheet of glass that floats on a river of molten tin, about 3 meters wide, 24 hours a day. It never stops. If it does then the glass cools down and solidifies inside the machinery, and the factory needs to be practically scrapped and rebuilt. I imagine that's the worst case scenario, but many large scale manufacturing businesses are likely to have similar processes that can't be stopped easily, and that cost a fortune to restart.
I don't know. I imagine it takes a lot longer than that to cool down though, ans perhaps you can't run the machinery without glass in it to take the heat away?
Many of the processes might require the product is pushed and/or pulled through the machinery. If there is no material behind to push it could cause problems within the machines.
Once the continuous process is broken it needs to be restarted somehow. Depending on the type of production this could be days or weeks of work just to rethread all the material through the machines and getting it going.
Might not be an option. If the material hardens in the machine it might need to be completely disassembled and rebuilt with many of the parts requiring replacement (since it wouldn't have been designed with disassembly in mind).
Now you've gone in a circle. That's what the original comment was talking about. This subthread is hinged on the idea of that specific problem not happening.
The pandemic may be the proximate cause. But Petersen is saying the sufficient cause is
Modern finance with its obsession with "Return on Equity."
With a more robust economic system not so beholden to return on equity, this may not have happened even given the pandemic. Without such a robust system, other proximate triggers can cause similar effects.
Not being snarky but I find it hard when well-meaning folks like Petersen don't give alternatives. Maybe the obsession with RoE is bad but what's the alternative? What measure should CEOs care about if the shareholders who put them in charge aren't happy?
Market forces tend to reward efficiency rather than resilience through redundancy. But super-efficient systems can be fragile ones too. So dude has a point. But seems like a mistake to say that its the only relevant factor.
He's right to point out that the obsession with RoE is a big part of the problem.
He's wrong to suggest that the billionaire class and founders will solve the problem if we only trust them and let them keep their money. Founders have just as much incentive to optimize the excess out of the system, they just call it "disruptive innovation" by which they mean tweaking how the system works so that they can squeeze out profit for themselves.
You have it backwards. Rents are revenue accrued due to the ownership of a resource, such as grants, subsidies, tax breaks and loaning or leasing an asset. Optimising out excesses is minimising the holding of assets, so it’s directly antithetical to rent seeking strategies.
In the terms "economic rent" and "rent seeking", the concept of rent is not specific to assets. Rent paid to landowners was the original inspiration for the terminology, but in actual usage it refers to any economic behavior that extracts value without creating new value.
Notably, this usage does not include "providing liquidity", so most of what hedge funds and private equity do for a living is rent seeking, by definition.
So the parent commenter's usage appears to be correct... If it's any consolation, I was under the same mistaken impression as you for a long time.
Liquidity is a service customers pay for. It’s not clear to me that’s unproductive work. More efficiently allocating capital can absolutely improve productivity.
Some activities classed as renty can be economically beneficial. It’s not all pure usury, but activities that seek to increase rent revenue without increasing the value provided are a problem and that’s the ‘rent seeking’ part. I’ve no problem with fair value rents, but rents should be as low as the market can reasonably bear as excess rents are essentially a tax on production.
I'm not arguing whether the definition is valid, just correcting the previous poster's misuse of some well-established economics jargon.
Re: Liquidity... The fact that a service is immediately useful to somebody (and has a willing customer) does not prove that it's a net productive behavior for the society, as a whole. That's just how the field of economics defines it, and the practioners widely agree that "providing liquidity" falls into that category.
Now, it sounds like you may be trying to defend the morality of rent-seeking behavior... If that's the case, I wish you good luck in your argument, with somebody besides me. I have no dog in that fight.
Car hire companies are built on a renting business model, but I don't hate Avis. I don't curse every time I need to hire a skip at the evils of the skip hire company. What am I going to do, buy a skip? Start a local skip share collective? As long as the 'landlord' or owner is improving the efficient allocation or utilisation of resources there really isn't a problem.
The real issue is when owners seek benefits of ownership that are not correlated with efficiency or productivity. For example grants and subsidies, inflation of rents though monopolistic practices or opportunism. In fact all monopolistic profit inflation is renty in a way, regardless of what the business model is, because it's extracting extra profits from simply exercising control of something in excess of the economic value provided. It's exercising the power of incumbency that's the problem.
It's not about whether something is immediately valuae to somebody... It's about whether the total net effect on society produces new value, or if it's just shifting value from someone to another. Per the overwhelming opinion of economists, providing liquidity is rent seeking, because the benefit it provides to one person is exactly offset by the value it takes away from someone else.
Rent-seeking practices are not the same as a traditional Rent or Lease arrangement. They get the term because instead of buying a product that you know own and can do with as you wish, they still maintain control as if you were a renter.
A topical example is consumer electronics companies designing devices to only last so long and actively suppressing the after market through DRM, difficult or dangerous to repair designs, restricting owner autonomy through software patents and IP law and other methods to ensure you must come back to them and purchase another one.
Another more direct example is the slow conversion of all paid as a product software into subscription services. You can't buy the adobe suite anymore. You have to subscribe to it. Sooner or later you wont be able to buy your operating system either.
DRM is rent seeking through control of digital assets. Patents and IP law manipulation, yes also rent seeking based on ownership of IP assets. Software subscriptions again, no question, that’s renting access to a software asset or service. These all meet the criteria I described.
Designed obsolescence is arguable though. The customer could always buy elsewhere.
Anyway tye case I was replying to is not rent seeking. Leaner businesses may be more fragile, but they are also more profitable and productive. It’s just being paid to do work.
Yep, the capital owning class just doesn't care if their businesses go into shock because they already have their cash in hand. They'll never go back to pre-ROE days because they'd have to live with less money and worse less control. While they still have personal reserves in the billions they can decide the fate of their ventures but if say 20% of their current cash was on the balance sheets of corporations with boards that don't vote their way most of the time then they're forced in the medium to long term acceptance of their policies. This isn't an argument for a return to traditional corporate power because they bungled so many things (GM and the rest of Detroit got their rear ends handed to them by the Japanese and their application of JIT).
Rather, it seems like to me the reliance of having a few owners or a few institutions with consolidated power in the form of money or assets is a recipe for disaster. If anything, it's time to disperse the wealth and responsibility of production to as many firms as reasonably as possible. I'd rather have 20 smaller companies making the same thing than 3 big ones that supposedly make them cheaper due to scales of economy which imo is wrong and that most big firms are in diseconomy of said scales now (prices imo reflect this). Basically, we need to both economically and politically Switzerfy the economy (more dispersed institutions, less central control where reasonably possible).
Inflation generally helps big business and its owners. They get to raise prices, and they usually get to raise prices more than the average firm does because they have little competition. You're seeing this now with record-high corporate earnings.
As long as the capital-owning class is holding equity (stocks, real estate) they benefit from inflation.
> Inflation generally helps big business and its owners.
I'm not sure that follows in extreme cases. I don't even think it follows in baseline cases (2% inflation yoy).
Raising prices leaves customers with limited resources, as wages do not follow at anywhere near the same rate.
If inflation brings prices up, consumers can only spend on specific items, prioritizing necessities over entire verticals of goods. For the vast majority of companies, it's bad.
That effect is true, but the vast majority of big (top-100 in S&P 500) businesses are in relative necessities. That's how you get to be big: position yourself as a critical component in a key consumer value chain.
Take a look at a sampling of the top 50 or so companies by market cap. There's computing & telecom (Apple, Google, Facebook, Microsoft, NVidia, Intel, Comcast, AT&T, Verizon, Broadcom, Cisco), which is fundamental to obtaining products & services these days. Retail (Amazon, Walmart, Costco, Target, Home Depot, and Lowe's). Financial services, necessary for paying for things (JPMorgan Chase, Wells Fargo, Visa, Mastercard, Bank of America). Critical enterprise software (Oracle, Salesforce). Health care (United Health, Johnson & Johnson, Eli Lilly, Pfizer, Abbott Labs, Merck). Oil (Exxon and Chevron).
Of the top 50, the only ones that I think would be seriously vulnerable are Tesla, Netflix, and possibly branded foodstuffs (Coke/Pepsi/McDonalds). Sure, it'll be devastating to the vast majority of companies - but it's companies like restaurants, niche hobby stores, luxury activities, etc, not the staples that make up the S&P 500.
> Yep, the capital owning class just doesn't care if their businesses go into shock because they already have their cash in hand.
Billionaires have relatively very little cash in hand. Their billions typically are in form of business equity, and so they very much care of the businesses go into shock.
Which is kind of to the point, they have more money on hand than a small country’s budget and even if they lose it all it almost doesn’t make a dent in their net worth.
In this situation it is almost reasonable to want a small crisis to shake out your upcoming competitors and buy some more land or other things of real value at a discount.
> Which is kind of to the point, they have more money on hand than a small country’s budget
They don’t, though, that’s the entire point.
> and even if they lose it all it almost doesn’t make a dent in their net worth.
> In this situation it is almost reasonable to want a small crisis to shake out your upcoming competitors and buy some more land or other things of real value at a discount.
A small crisis will in fact not cause them to lose significant amount of cash, but will cause them to lose significant amount of their net worth. Nobody wants that.
Unless the billionaire in question is extremely vain, they should absolutely want some of their paper wealth to vanish temporarily since it is an opportunity to accrue more real value stuff at a discount for those that have large amounts of either cash or cash equivalents on hand.
All of their paper wealth will appear again in the next upswing.
“ In 2014, for example, Oracle cofounder Larry Ellison disclosed he had used 250 million of his Oracle shares as collateral to secure a $9.7 billion personal line of credit.”
I would not call that 'cash in hand'. I get why you see it that way but to compare it to the little guy:
A credit card with a $5000 limit is not $5000 cash in hand. It's a 'line of credit' for $5000 and whether I actually have the cash to pay that back is a different story. I might actually have $0 cash in hand to pay that back and many people don't until their next paycheck arrives.
Any guesses how far the Oracle share price (of ~$100) has to drop before the bank will actually use that collateral to get their cash?
That's where collateral comes in. I guess the credit card analogy only works in the likening it to cash aspect. For the other aspects a mortgage might be a better analogy.
The little guy had cash in hand for maybe 24 hours (and even then probably just a certified check). Maybe a little later, say 10 years in they get a home equity line of credit and the bank takes back the previously paid off part of the house as collateral again.
I don't doubt repossession of the little guy's house is easier and happens more often than a Bezos loosing his collateral :) and for every Bezos there are probably quite a few small and medium business owners that put their businesses as collateral to get that line of credit and that did get repossessed.
>Yep, the capital owning class just doesn't care if their businesses go into shock because they already have their cash in hand.
You do realize when we talk about jeff bezos being a billionaire, it doesn't mean he has his billions in gold/cash in a vault somewhere? The overwhelming majority of his wealth is tied in various financial assets (eg. equities) that certainly do get affected when "businesses go into shock". Sure, he'll be in a much better position to weather such "shocks", but it's still in his best interest to ensure that the economy doesn't crash.
Genuine question: 2020 feels like the biggest shock to the economy in a while yet it was one of the best years for most big businesses. If Jeff Bezos didn't feel the shock from 2020 then when will he feel the shock?
How does this have anything to do with the claim that it was "best years for most big businesses"? Do "most big businesses" do better when that happens?
There were two quantified subjects in the quote you referenced - "biggest shock to economy" and "best years for most big businesses". My guess is he was replying about the first subject.
You mean how S&P 500 was up 35% compared to the start of the pandemic? That's more of a reflection of the stock market getting inflated 35%, than the constituent companies getting 35% better.
This shock benefitted the particular industry in which he invested. A different kind of shock such a total internet meltdown for anything but basic services, would render his wealth down to just a couple billion while other billionaires would win the top position.
It should not be a shock that a company that provides a wide variety of goods delivered for relatively little money would do well during a global quarantine.
>it's still in his best interest to ensure that the economy doesn't crash
Technically, yeah! Functionally, though, if the Even Greater Depression arrived tomorrow? He'd still be the richest man alive, and probably even more powerful than he already is right now thanks to how Amazon and AWS would get to take over more failing social institutions.
Sure, a falling tide lowers all boats, but Bezos will still comfortably afford his gigayacht. It's a setback for Bezos, and maybe he wants to avoid it in order to maximize profit and utility and whatever, but it's an existential threat to him in the same way spilling a glass of milk or losing a round in a video game are. Even extreme social unrest has been priced in, at however much a luxury bunker in New Zealand costs.
Other people, when the Big Crash arrives, will -- in a totally economically rational way! -- commit suicide in order to ensure their spouses and children aren't bankrupted by their medical bills. Uh, in greater numbers than they already do. Many will starve, or at least go very hungry. In greater numbers, I mean. Should be a good time for the owner class to buy up all the housing stock for cheap, too.
I don't think the owner class is worried about it. I think they actually might be excited.
None of this is the point, though. The point is that Amazon wouldn't have achieved what it has if Bezos was forced to slowly divest control of his company over the last two decades.
Bezos does not have his cash in hand, for the most part. To the extent that he does have cash in hand, he has already paid taxes on that cash. To the extent that he has not paid taxes on his wealth, he is fully incentivized by the share price of AMZN.
Fortunately, you don’t get to decide that. Contrary to popular sentiment on HN, Amazon is one of the most favorably perceived brand by Americans, ranked top 4 in 2020. When you go against Amazon, you go against something that Americans like more than Netflix.
> When you go against Amazon, you go against something that Americans like more than Netflix.
That just gives more reason to go against, there's quite a few Western comforts that could use a bit more opposition, Amazon being one of them.
You're making the case that it is virtuous to be aligned with popular sentiments on issues, which is a position that dissolves any ethical or political principles in the name of conformity.
> Bezos does not have his cash in hand, for the most part. To the extent that he does have cash in hand, he has already paid taxes on that cash.
What a lot of high wealthy individuals are doing is using their portfolios as collateral against lines of credit. The LOCs give them cash to fund their lifestyle, and they don't have to liquidate their portfolios and take the capital gains charges (at least in the short-term).
Someone can have both holdings and cash in this situation.
This has been possible lately because rates are so low, so the interest doesn't cost borrowers that much.
Pretty sure many in the middle class do the exact same thing. That's the whole idea behind mortgages, auto loans, etc -- to fund consumption on credit and pay the interest with income.
I think a lot of middle class people roll over their debt, too, no? Say buying a new car when the warranty expires on the old car. Or buying a new house every 10 years (US average).
But I don't feel like digging around SCF data, so this is just a hunch. Having said that, my hunch is that middle class households are much more indebted than wealthy households.
Don't they have to payback the loans at some point? And at that point do they not liquidate some assets to do so and pay taxes on that? (Serious question.)
> Don't they have to payback the loans at some point?
LOCs are often open-ended, so as long as they're at minimum paying the interest, the lender doesn't care. Presumably it will be cleared up eventually on death with the estate.
You don't use all your assets as a collateral – you loan out, say, 1%, for the needs you have. If the creditor demands a repayment for some reason – and if you're still solvent, it's not like your IOU can't be treated as money in itself – then you can get a loan on some other 1% of your now-appreciated assets, use that to repay the first loan. All without liquidating any assets and accruing any “income”. Then pass the bucket to whoever inherits your assets.
You can presumably go a layer deeper and use the loaned cash to build an investment portfolio with a rate of return sufficient to fund your lifestyle, pay the interest on the original loan, and pay for the management of the whole thing.
> What a lot of high wealthy individuals are doing is using their portfolios as collateral against lines of credit. The LOCs give them cash to fund their lifestyle, and they don't have to liquidate their portfolios and take the capital gains charges (at least in the short-term).
> Someone can have both holdings and cash in this situation.
Ya, I understand this. This is exactly my point, though. If he's taken out loans against his shares, he is even more incentivized by the value of those shares than if he had not done so.
To the extent that he has pure (unencumbered) cash positions, he's paid taxes. To the extent that he has unrealized gains or loans against unrealized gains, he is incentivized by share price appreciation.
This was in response to the a comment suggesting that because Bezos had already cashed out, he didn't care about the value of his shares anymore.
For a billionaire it's not about the absolute dollar value of their wealth.
It's about the fraction of global wealth that they control.
That's how they benefit from crisis and catastrophe.
Maybe the dollar value of their pile declines, but the percentage of global wealth they control increases, as the poor and less wealthy get hurt proportionately more.
I’m willing to bet he has more cash on hand than we will make in our entire lifetimes… what’s the point of arguing how much it is? the point is that he has so much money that nothing really matters.
The point is exactly what I said in the rest of the comment. He has already paid taxes on the cash he has in hand. The only assets he has not paid taxes on are the shares in AMZN that he has not realized the gains on.
You're right about that. My point isn't about his overall wealth, or whether it's socially good that he has it. A few comments up the tree, someone asserted that Bezos wasn't strongly incentivized by the value of his Amzn shares because he had already "cashed out", though. That's what I responding to.
Yes, but your property tax rate is a much lower recurring rate than the capital gains tax rate. In fact, a tax like that on unrealized gains would probably be a much better way to structure things. You pay 1% a year on unrealized gains until they are realized, at which point you can deduct what you've already paid. I guess this would be annoying to calculate, though.
In large portions of the united states people who own homes have their property taxes go up most every year based on the value of their home. Seems a bit strange to me to treat, in this respect, peoples homes differently.
That’s because you pay those taxes in exchange for services from your municipality. And let’s admit it, it’s stupid that your payment is proportional to the value of your house. How is the city budget correlated with house values?
And they pay taxes in exchange for services as well. And it isn't stupid as if the cost was, for example, divided up equally between all residents a very large portion of them would be unable to live in cities due to the increase in cost.
if you're measuring outcomes by relative income/wealth, then you can also argue that the "Even Greater Depression" wouldn't affect the average person either, because everyone would stay in the same place (on average).
>probably even more powerful than he already is right now thanks to how Amazon and AWS would get to take over more failing social institutions.
We just had a huge pandemic and recession. Did he take over "failing social institutions" did he "take over"?
>It's a setback for Bezos, and maybe he wants to avoid it in order to maximize profit and utility and whatever, but it's an existential threat to him in the same way spilling a glass of milk or losing a round in a video game are. Even extreme social unrest has been priced in, at however much a bunker in New Zealand costs.
Surely he'd prefer to be the leader of a global megacorp, travel anywhere in the world, partake in various space-related adventures, and not be trapped in a bunker? You're right he won't ever have to worry about his basic needs, but I wouldn't characterize it as "spilling a glass of milk or losing a round in a video game". I'd be pretty pissed if the US government somehow revoked by right to leave the country.
>Other people, when the Big Crash arrives, will -- in a totally economically rational way! -- commit suicide in order to ensure their spouses and children aren't bankrupted by their medical bills. Uh, in greater numbers than they already do.
I'm not sure why this is being brought up, other than for the shock value.
>I mean. Should be a good time for the owner class to buy up all the housing stock for cheap, too.
Similar to your fears about amazon taking over, this seems to be unsupported by the data. The great recession lasted from Q1 2008 to Q3 2009, according to the fed. However, this doesn't seem to correlate with institutions buying up houses?
>I'm not sure why this is being brought up, other than for the shock value.
I suspect that you don't understand why I'm bringing up the human consequences for the same reason you've claimed that "the "Even Greater Depression" wouldn't affect the average person either, because everyone would stay in the same place (on average)". Bezos and his peers can lose hundreds of thousands of dollars of abstract net worth every day for decades before they even notice, let alone have the material conditions of their lives change in the least; the modal person will be dead of exposure in a few days. It's somewhat incredible that you'd even try to make the argument, actually.
>Surely he'd prefer to be the leader of a global megacorp, travel anywhere in the world, partake in various space-related adventures, and not be trapped in a bunker?
Aww, shucks, I'm confident Bezos will be able to continue his worldly lifestyle until things go very poorly indeed. That said, the very existence of the owner class's anxiety-bunkers is a sign that they're not entirely behind keeping the global economy running and serving the people, don't you think? If there's only one escape pod and it's for the command staff, only us crew need suffer the consequences of their tactical decisions.
>I'd be pretty pissed if the US government somehow revoked by right to leave the country.
I never mentioned this, and I'm not sure what relevance this has to anything either of us has said. I'm beginning to believe you're not arguing in good faith.
>Similar to your fears about amazon taking over, this seems to be unsupported by the data
AWS didn't even need a pandemic to achieve running most of the DoD. Not sure if you've been following the housing market, but Zillow didn't need an economic crash to go all in to rent(al)-seeking behaviour. At least they seem to be dropping the ball on that one, but think of how much more effective buying up all the houses will be once everyone's underwater on their mortgage and unemployed? I'm also a little surprised that you'd show me a chart that shows that this historical low of landlord house purchasing represents a fall to 20%. Since you're so familiar with CoreLogic's data sets regarding this, I'm sure you're aware that in 2000 it was between 5 and 10%, and trended upward until only recently. Unsupported by the data, my eye; you're just closing yours to the important parts of the story.
>The great recession lasted from Q1 2008 to Q3 2009, according to the fed. However, this doesn't seem to correlate with institutions buying up houses?
The other way to phrase this, of course, is "having ballooned in the past eight years, the proportion of home sales to landlords snaffling up housing stock continued to rise, even during an economic crisis, and rose precipitously after the crisis was 'over'".
> He'd still be the richest man alive, and probably even more powerful than he already is right now thanks to how Amazon and AWS would get to take over more failing social institutions.
Bezos isn't even the richest person alive today. That would be Musk.
Feh, you're right -- I hadn't looked at the leaderboards lately. While that mistake makes me look stupid, I don't think it detracts significantly from what I was trying to say.
I guess my read is that if Bezos got his title from a company that didn't exist, in modern, sell-everything form, until 22 years ago... (and in +AWS form, until 19 years ago)
And if the current holder got his title from a company that didn't have a physical product until 12 years ago...
It's probably a bad bet to say "Obviously, these people are going to be the richest forever."
>It's probably a bad bet to say "Obviously, these people are going to be the richest forever."
Obviously, but again, the point isn't who's at the very top of the leaderboard. The point is that the material situations of the top, say, 500 richest easily allow for what we plebes would parse as insane economic loss in real wealth, and they'd be basically OK with it. Perhaps they'd no longer be in the top two digits, but they have only really lost in the sense of a high score, not lost in the sense of total dispossession and now your life's over.
If SpaceX was somehow destroyed, reputationally and materially, Musk would still have Tesla, and all his other ventures and economic instruments. Likewise Amazon could go belly-up due to a sudden locavore craze and a drone uprising, and AWS would continue making money hand over fist. My point is that the owner class is thus not actually seriously incentivized to prevent an economic crash, and in fact their apocalypse-bunkers indicate that they're pricing in the clearly non-zero chance of it happening.
Lastly, the numbers you're using about the ages of these mega-corps? Good point about that -- the Hudson's Bay Company once owned more land than any other company ever, acted as first contact to uncontacted Natives, and now they are a department store. That said, I don't think Amazon or Tesla will fall from grace in the near term. Blithely assuming that the HBC, like many a corporation, would have a 20 year lifespan or even just wane in power in 20 years, would have been a bad bet in 1700.
He didn't seem to freak out then and kept chugging along.
Short of the (zombie) apocalypse happening, I doubt it will ever drop that much again, and so I doubt Bezos would care about any kind of draw down that could realistically happen.
There was an article yesterday pointing out the perverse incentive that freight companies have to allow the supply chain problems top get worse.
If you own a shipping port, it's in your best interests for thing to get worse right now and not better. You end up being able to charge premiums to jump queues, and end up making more profit by doing less work. Those guys are incentivised to ride the crashing economy all the way to the bottom, and not to lift a finger to slow it down.
And Bezos might be as well. Amazon quite likely could profit handsomely off a freight crunch that sees container prices go through the roof. There are very few retailers or wholesalers who'd have the bargaining power to get those queue jumping premium services for lower prices than their competitors, and when Amazon Prime becomes the only way to buy manufactured goods out of China, they can push the margins higher that other importers who either can't negotiate rates the way Amazon can, or who just can't get stock into the country at all.
My point is not to nitpick (I actually agree with your post) , but to show that even in a tiny country like Switzerland (smaller than Chicago), it is hard to do that.
No, my point about Switzerfy is to mean that we need to distribute power and assets more evenly just as the Swiss distribute power more evenly politically. We've left too much to float to the top of the economy where those who have enough wealth which they can roll over interest with little effort on their part.
> GM and the rest of Detroit got their rear ends handed to them by the Japanese and their application of JIT
GM and the rest of Detroit got their rear ends handed to them because they'd underinvested in fuel-efficient engine designs (the lost 70s) and grown lazy in reliability.
Lean manufacturing may have allowed Japanese manufacturers to price more competitively and be more agile, but at the end of the day, they increased their sales because they made better cars.
>"GM and the rest of Detroit got their rear ends handed to them because they'd underinvested in fuel-efficient engine designs (the lost 70s) and grown lazy in reliability."
You're leaving out some pressures which caused Detroit to be un-competitive in the small car space, including high labor costs.
I owned a 79 Ford Mustang in 1986. By 1988 and 88k miles the engine was shot because it was an underpowered 2liter 4 cylinder with a turbo. Detroit was uncompetitive because they made sucky cars. To this day I haven’t owned another Ford and never will.
R&D in 20 small companies is less effective than in 3 big ones due to less diverse teams and more inefficient double spending, e.g. twenty $5M microscopes utilized at 15% versus three at 90%.
If only we could overcome the negatives of the bureaucracy of a large company with a mere double-spend on equipment. It would be cheap at 10x that price.
The whole point of the startup culture is that they can do things better than a large company.
And, quite often, they can. But not always.
A semiconductor plant, for example, is not a startup thing because the capital cost is so gigantic.
However, most fields are not that bad. Even bio equipment just isn't that expensive relative to the cost of the people to use that equipment.
The bigger problem, right now, is that investors don't want to fund anything which requires more than 18 months before flameout/unicorn. That blocks startups that have a 5+ year horizon.
The obsession with RoE is really just a major form of efficiency. Having things sitting around unused is a huge reason that US car companies got their asses handed to them by Toyota and their TQM/LEAN system they developed.
People writing articles like this forget that it's not just Wall Street, but competitors who created the huge pressures for adopting JIT inventory systems. There's also the consumer. Are you willing to spend the additional money required to buy a car from a company who wastes tons of $ on excess inventory?
The Toyota system got a lot of attention in the DevOps world because basic principles such as empowering workers resonated with the movement. Reducing waste throughout the system doesn't get as much attention--given that computer software doesn't really have inventory as such (at least not literally)--but inventory/WIP reduction was an important motivation behind Toyota's system.
> Having things sitting around unused is a huge reason that US car companies got their asses handed to them by Toyota and their TQM/LEAN system they developed.
It didn’t help but I think that’s more of a symptom of building shoddy products: part of why inventory backed up is that Detroit was producing cars which simply weren’t as good. Toyota didn’t have a shortage of demand, and neither did Saturn. If you make shoddy, poor-handling gas guzzlers, yes, you’ll underperform on sales. That doesn’t meant the only option is less inventory.
There's an entire book (I've read it) about this called "The Machine That Changed The World" published in the early 90's. It goes into great depth as to the issues that were plaguing GM/Ford etc. The excess inventory was absolutely not driven by too little demand. It was simply inefficiency in the manufacturing process and inability to rapidly reconfigure the shop floor or reallocate labor towards bottlenecks.
The book is a deep, academic examination of the roots of lean production, and is a must read for any engineer who wants to get the Agile cultists to shut up and go away. I'm a hardcore believer in the ACTUAL Agile philosophy, which is rooted in lean, and I despise the cult of clerics that have risen up around it and turned it into management consulting BS. That book helps to know real agile from consultant billing hours agile.
I'm a fan of anything that is rooted in reality and has been battle-tested. If it's theoretical, I don't care about it. Toyota didn't will lean into thin air out of nothing. It was evolved, tested, and refined in the harsh economic realities of post WW2 Japan. Bullshit wasn't capable of surviving that environment, just things that actually worked.
A lot of the Demming types are pure theory, or just garbage in the modern age.
This. Also, the tweets complain about not having excess capacity due to the "obsession with return on investment", but that's really just an abstraction around the fact that extra capacity means using more limited real-world resources to supply people with the same amount of stuff - more land, more steel and concrete and construction labour and equipment to build the extra factory and shipping capacity that goes unused - which then can't be used for other things. The tweets frame it as though it's only finance types and investors that benefitted from this, but in reality everyone was better off in real, "what can I afford to buy with my money" terms due to it.
Indeed. It blows my mind how many intelligent, articulate, and privileged people in our modern society fail to realize how much their privilege insulates them from understanding the basics of supply and demand. Anyone who has ever worked on a factory floor, or a construction site, or even a kitchen (I doubt the tweeter has ever worked a job like this in their entire life) intuitively understands excess inventory as waste. They also intuitively understand that this waste translates to money needlessly spent earlier than it needed to be, or even worse, spent and then lost due to reality changing, demand shifts, etc.
It really feels like a lot of these folks go to university, embrace a quasi-religious ideology where large companies are the devil and are therefore the root of all things bad, and profits are a sign of greed. Meanwhile, the douchenozzle is sitting there writing that tweet on a piece of electronics that was made possible by the things he's complaining about.
I think his statement is that founder (and family) led businesses are the only businesses capable of building the shock absorbers necessary to weather hundred-year storms; not that they always will. By comparison, committee-appointed CEOs rarely, if ever, will, because they cannot.
It's not that they cannot. They don't have an incentive to do it.
If I'm being paid for my performance while I'm a CEO, why would I spend money today (and hurt my performance today) to fix a problem that MIGHT affect the company in 20 years
It just that it is more likely that founders genuinely care about their baby, so they have more incentive to make the company more resilient to long term risks. I don't think this is an absurd claim. It's not that every founder is the same, there are founders who behave just like most CEOs.
No, they literally cannot. Because if they try to, they will be fired by the board for failing to perform and replaced with someone who will undo their work.
Because you aren't actually being paid for your performance as CEO. You are being "paid" by increasing the value of the company you mostly own. Its up to you to play the long game or the short game. Ivy MBAs don't even have the option.
I’m not sure this is the case. The problem is that RoE is a metric that can be gamed for short term gains while incurring long term risks. This is more likely to be an issue with short term career-oriented leadership. Founders are more likely to have a concern for the long-term success of the business. Simply put, founders are not the people sacrificing their own companies’ long term success in exchange for enhancing their personal careers.
A lot of the JIT fashion came from Toyota, and yet Toyota doesn’t seem to suffer from these issues as much as others. I don’t think it’s any coincidence that most of the senior executives of Toyota have all been at Toyota for longer than many of us have been alive, and that the company president is the grandson of the company founder.
JIT works nicely in isolation--when everyone relies on it is when it starts to break down. It basically offloads the responsibility of forecasting your inventory needs to the supplier, who has absolutely no knowledge of your inventory needs.
Toyota has over the years adjusted how their JIT operates, and are now known to stockpile certain critical parts.
This is pure speculation, but I also wonder if Japan’s geography + slightly more diverse economic landscape (lots of small businesses that do nothing but make components) help make their JIT more resilient to shocks. With Osaka, Tokyo, and Nagoya all within an area less than the length of California, it’s far easier to “in-time” material.
Toyota became significantly less JIT after the 2011 earthquake and tsunami, which severely disrupted their supply chain. That said, JIT involves many useful lessons for organizations with higher inventory levels as well.
This is exactly right. It's about the term length of incentive alignment. Most founders have a long term reputational stake in the company they founded. Hired CEOs generally do not.
JIT works just fine with stuff that's simple to make or close by geographically. Car seat covers? Many textile firms around you? Sure, do it JIT... if one of them fails or gets wiped out by a tsunami, there are ten more than can take over the production.
Computer chips? Made only in one company in china? Trying to get someone else to make them, means weeks or months of production line changes + waiting time + other customers... good luck. If they're far away (eg. china), and the transport system is fucked up, you're basically fucked up too. Even a huge company like toyota can't make a chip factory "overnight" anywhere.
If I estimate a model to predict an anomaly using data that never has any realized anomalies, how well will that model do out-of-sample? While framing this as a bad unrestricted ROE maximization problem is a nice simplification, it's not clear that having everyone move to a restricted ROE maximization subject to keeping assets large enough to insure against some unforecastable shock is welfare enhancing. That could be a lot of wasted insurance.
I will give him credit for cleverly spinning this logic all into a pitch to kill the unrealized cap gains tax proposal!
> He's wrong to suggest that the billionaire class and founders
What? How did you get billionaire class and founders? He specifically says founder led companies and family owned businesses. Unless you reduce that group to the Waltons, how does family owned businesses equate to the billionaire class?
"Only founder led companies and family owned businesses can stand up to the immense pressure from the dogmas of modern finance."[1]
There was a book published a couple of years ago (before the pandemic) which was "demonstrating" (so to speak) that going back through history real financial/economic levelling at a reasonable scale only happened as a result of violent means (wars, revolutions etc).
I think what those violent means do (among other, more nasty things like people getting killed) is that (in some cases) they obliterate the societal/institutional structures on which a specific rent-seeking system is based, which gives the majority of the people a chance to "level up" until a new rent-seeking system takes shape.
This would be true if lockdowns didn't happen. As it is most of the wealth-owning class was told to shut themselves inside, isolate, then we got the vaccine and they manage to live on and keep their wealth. So not even plagues can save us anymore.
No, it's Piketty's controversial book, one of his points was his analysis of historical data showed that the only time the ratio of wealth between capital and labour R decreased was during wartime, especially the two World Wars when incredible amounts of wealth was destroyed, seized or simply reverted to states because there was nobody left who could claim it.
You don't need a book on economics to understand this. Just read some real, actual history books to see that after a war or revolution of any kind _nobody_ is better off. Start with the French revolution and just go over all of them in order. A hundred million people who died at the hands of the fascist or communist governments in the past century are, one would hope, a sufficient proof of that.
I think that many of us still believe that real, wide-scale economic levelling is still possible in normal times, there aren't that many history books that actively refute that (or at least I haven't read that many), that's why I mentioned that book and its conclusions.
That part of the Twitter thread actually made me laugh out loud. In the middle of talking about how modern finance is messed up he has a kind of unprompted little aside about how “taxes are bad!!!”
Dear lord the amount of smug “wE aRe ThE mOSt EfFicIEnt wAY Of AllOCaTinG CaPitAl” arguments from very wealthy founders that would prefer to become more wealthy is frankly ridiculous. I get it, you went to Stanford and they taught you some fancy words to trick people into giving you money instead of investing in public infrastructure and services.
Especially since it's easy for founders of such large companies to sell their shares, but give themselves fewer shares with greater voting rights… thereby maintaining control while spreading the wealth.
> “wE aRe ThE mOSt EfFicIEnt wAY Of AllOCaTinG CaPitAl” arguments from very wealthy founders
"most" does a lot of work here since it's a relative term. I'm not sure I'd exactly call them efficient but I'm not sure there's a _more_ efficient way that I've seen.
>> He's wrong to suggest that the billionaire class and founders will solve the problem if we only trust them and let them keep their money.
He didn't say they'd solve the problem. He said they're the only ones who can be resilient in hard times. OK I think he said the ARE resilient, I say "can be" because it's still a choice.
"I think economists call it rent-seeking." That's what the incumbents are after, and so are a lot of the startups - at least the startups seeking round after round of investment. If they're not seeking rent, they're trying to set up infrastructure (manufacturing or cloud this-or-that) and collecting returns (rent) on that investment. Nobody talks about profit on goods sold, they talk about return on capital (or RoE) and that seems a lot more like rent.
> Founders have just as much incentive to optimize the excess out of the system, they just call it "disruptive innovation" by which they mean tweaking how the system works so that they can squeeze out profit for themselves.
>I think economists call it rent-seeking.
Are you saying all "disruptive innovation" rent-seeking? Or only certain kinds? If a founder was able to "optimize the excess out of the system" by providing a better consumer-facing experience (eg. amazon), why shouldn't they be rewarded with profits? Is there any room for profits without being called a rent-seeker?
There are genuine "disruptive innovations" that are not rent seeking, but by and large that is not what we've seen.
Picking on Amazon for a moment, their original "innovation" was a sales and use tax dodge: based in Washington, they were able to sell books to California without having to charge the relevant sales tax upfront. That margin gave huge room to provide free shipping and other customer conveniences. Technically customers were supposed to pay a self-reported use tax but many did not.
The relevant laws have changed since then, but the general point still stands. Does mere tax and legal arbitrage count as rent-seeking? Absolutely.
>Picking on Amazon for a moment, their original "innovation" was a sales and use tax dodge: based in Washington, they were able to sell books to California without having to charge the relevant sales tax upfront. That margin gave huge room to provide free shipping and other customer conveniences.
Sales tax in california was 7.25%. While not having to charge tax was a competitive advantage, I'm skeptical that was the defining factor that led to amazon's success. This is further compounded by how prices work in the US (taxes are not included), so I doubt this even made a conscious difference to most people. Finally, the exemption isn't limited to e-commerce sites. According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone". Why did amazon dominate while sears languished?
> Finally, the exemption isn't limited to e-commerce sites.
It isn't really an exemption, anyway, it is a limitation under then-existing federal law on the power of states to impose taxes.
> According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone".
That's misleading.
What it actually applied to, at the time, was companies without physical presence in the state into which the sale was being made. So companies that exclusively did those things would be covered (except in the State they operated from, but they could operate in a no sales tax state), but companies that did them alongside physical operations would not, and before the web, those other models alone had so much less access to customers that the sales tax hack wasn't worthwhile.
> Why did amazon dominate while sears languished?
Because while Sears also had mail order business, it was a ubiquitous brick-and-mortar retailer, and thus was paying sales tax on its mail order sales, because they had retail everywhere.
1. What changed with the internet? When amazon was started in the 90s, was the ubiquity of computer+internet access anywhere close to the ubiquity of the sears catalog?
2. I'm not really convinced that "the sales tax hack wasn't worthwhile". How expensive would it be to spin off your mail order division? Lawyers might be expensive, but 7.25% of your revenue is also a lot of money.
Someone could click a link on an ad and be on your “catalog” and able to order with very low friction, rather than seeing an ad, ordering a catalog, getting the catalog, then calling in or mailing an order.
(Also, Amazon was initially specifically in books, and got started just after a few giants like B&N and Borders had crushed local independent bookstores and replaced them with giant, discounting, but more impersonal and on average more distant from the customer big box stores, so they were hitting a market uniquely (or at least particularly) primed for a convenient to access heavily discounting remote seller; not only was the internet a sea change
Yeah, this guy has clearly read about the theory of constraints but his pivot into criticizing the wealth tax on the basis "founders will lose control of their company" is simply bullshit.
I think a lot of people just read emotional language and turn off their minds. So let's expand out what you said to make it a bit easier for others to reason about what you said.
We're talking about founder owned companies owned by billionaires. So let's use an example of one: SpaceX. You're maligning "disruptive innovation" so let's expand out your claim with the specific example: an order of magnitude reduction in the cost of space flight and the introduction of competition in rural internet service.
So you're saying enabling access to other planets and the moon while providing people in isolated areas with internet service is an example of squeezing out profits and you're saying that you think it is rent seeking. Rent seeking is defined as an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs. We already had programs to access space. They were an order of magnitude more expensive. We already had programs to provide internet. They didn't serve well the subset of people that are in remote areas. So in both cases it just isn't the case that the company is doing rent seeking.
In other words, you are completely wrong when we use a specific example.
This applies to more specific examples. Lets use the specific example of Flexport. It is owned by a founder and you're replying to things posted by them so it's even less of a reach than before.
They are introducing computers to an industry that has competitors from the 1400s era. These competitors sometimes have legacy processes built on physical paper and for some of them excel is an example of the use of cutting edge technology. You're saying that doing better than that for people using modern technology is an example of rent seeking.
The billionaires' tax he mentioned is dead anyway, so that part of the discussion is moot. It was floated a couple of days ago as a possible addition to the reconciliation bill, but it's not in the framework announced this morning.
> Founders have just as much incentive to optimize the excess out of the system ... tweaking how the system works so that they can squeeze out profit for themselves.
So do workers, to be fair. The goal of workers in purchasing departments and HR isn't to make the business more efficient but to propagate a cushy lifestyle for themselves and their mates.
To an extent, that same misalignment exists in all classes of worker, including engineers.
SWEs are probably the worst at this; so many of the problems that we solve don't have anything to do with squeezing the most performance out of the hardware or reducing technical debt. Instead, a huge chunk of our time is spent on man-made bullshit that sysadmins don't solve properly because otherwise they'd be out of a job.
why blame the players rather than the game? It's the government's job to prioritize long term health of the nation
Plenty of people warned about the hazards of allowing these companies to outsource everything, government did nothing. Mostly because they are bought off by lobbyists. This could have pretty easily been prevented by putting tariffs on key industries to keep manufacturing here or at least in North America
Is this even still true in a super low interest rate environment?
Yeah in the 80s and 90s, tying your resources into inventory would have cost a lot in terms of missed opportunity to invest the money elsewhere. But with financing rates near zero or even sometimes negative in real term, wouldn't even the wall street guy be like: sure keep some inventory, cash is cheap right now.
Economists would say that companies are willing to accept higher risk, the 'return on equity' isn't the only driving force. The question here is who shoulders the risk, the company or the consumer. With JIT, the consumer may bear more of the risk. It may not be a bad thing either.
New companies aren't all trying to be rent-seekers, they also try to dodge existing regulation or actually innovate.
The problem isn't RoE itself, it's the focus on short-term RoE.
You can juice RoE in the short term by removing slack and shock absorbers, because increasing the brittleness of the supply chain probably won't show up in this quarter's returns.
The supply chain for fuel is brittle. There isn't sufficient inventory in tanks to buffer even short disruptions. A pipeline offline for a couple days is enough to make a crisis.
People catch wind of the crisis and start filling their tanks at three-quarters full instead of one-quarter full, and the brittle supply chain breaks with the accelerated demand.
Same thing we're seeing with the global supply chain which was already brittle, now individuals and companies are putting in bigger orders sooner to compensate, and it fails in the face of accelerated demand.
It's a policy problem. Truth is hard to determine because the delays are the effect of upstream decisions. There were internet anecdotes about California port policy preventing drivers from picking up loads (allegedly the owner operator law changes that hit Uber also hit truck drivers as well), federal policy changes reducing the time drivers can spend at the ports and number of loads they can take each day, but it was hard to separate these from partisan criticisms, even if the problems seem to have appeared overnight. Covid was around all last year, and between the availability of vaccines and the number of cases in cities being in the low hundreds, it's not like people working on supply chains are suddenly home sick with it.
It's getting more challenging to not interpret the destruction of independent business (such as owner operators of trucks, retail, restaurants and bars, and other policies) as an intentional soft-dekulakization of western economies, which is a necessary step in an old playbook. It would be helpful toward demonstrating a better explanation if there were some other economic factor that has appeared in the last year that was not just clumsy application of policy.
The buried lede is an assertion that a tax on unrealized capital gains will cause reduced private ownership of large companies, resulting in a reduced ability to handle 100-year flood events.
Along the way, there are a bunch of other assertions that serve as prerequisites, like the idea that these companies can cultivate better employee loyalty and plan for longer horizons.
How much do we know about how true that is, though? Do privately-owned companies disproportionately survive these sorts of events historically?
“cause reduced private ownership of large companies, resulting in a reduced ability to handle 100-year flood events.”
How the market speculation on the value of a company can affect its resiliency ? If tomorrow everyone sold Apple stock for 1 cent, why would Apple the company care ? Same revenue, same costs. Give me a break with the importance of the stock casino.
For example, to buy some company to improve their business. They can do that in cash or they can issue more shares, e.g. with their Beats acquisition.
> On May 28, 2014, Apple officially announced its intention to acquire Beats Electronics for $3 billion—with $400 million to be paid in Apple stock and the remainder in cash.
The assumption that stock prices don't matter, because company ABC doesn't necessarily depend on it 'for now' - is just wrong I'm afraid.
If Apple crashed to 1 cent it would gut the entire market. Even just that crash alone, the amount of money wiped out, retiree savings etc., other companies would be valued lower and then the mass selloff would crush them as well.
Apple may not need to 'raise money now' but it very well could in the future - and - every company is somewhat of a proxy for every other company.
If there is no ROI, there is no investment, and there is no economy outside the government, it's that simple.
Taxes on unrealized gains are a separate thing, and probably a bad idea - just contemplate that they would have to be paired with tax-sheilds on unrealized losses as well. Due to speculation, it would open up the door to all sorts of shenanigans.
It's just a bad idea all around.
Elon Musk is a 'paper zillionaire' that's very, very different than someone with a zillion in the bank.
There are probably some very boring, old, already established ideas for increasing taxes on the ultra-wealthy that would probably work very well. Including getting rid of loopholes etc..
1) The market value of a company is true, aka the owners of this company must be taxed for the real value growth in their portfolio (since it constitutes income), even if they do not sell
2) It’s a casino, a share is just a ticket that may worth nothing or a billion. In that case we don’t need tax protections. The owners of the tickets must be taxed only when they cash out. The governments should actively disincentivize gambling into this and ensure the pensions of its citizens by funding public projects and enabling future growth.
If the underlying asset is real (not speculative) and it grows, then it is income. So it should be taxed whether you spend it or not.
But nobody wants this because we all know it’s pure speculation. That is why we call it “unrealized gains”.
If everyone tomorrow tries to cash out their Apple stock, except from the first few, all the rest will get 1 cent each. There is no value in these tickets, just the power of combined speculation.
The thing is, there is no need for people to be inventing their own accounting standards, particularly in the area of tax accounting. These debates about accrual versus cash based accounting have been hashed out long ago. Nothing material has changed just because there is a new tax initiative proposed.
There is such great risk in that to create self-serving definitions that the industry as a whole decided these terms needed standardization and definition.
Now we already have these standards, so let's just stick with them and all use the same meaning of "income" rather than switching to something based on personal intuition. If you want to change the tax code, change the tax code, don't try to redefine "income".
“ Also, you'd have to provide a tax shield for the losses as well.”
Not really. My car is losing 10% of its value each year but nobody is returning me the sales tax I paid for the full price. Let alone returning me some of lost value.
Why if your stock depreciates do I have to compensate you?
Say you bought a vintage car -- do you have to pay more sales tax each time the car appreciates? I know some owners of FJ Cruisers that would be pretty upset.
Depends on what you decide on the question I asked.
Personally I believe that your claimed cars value is speculative since you don’t mass produce and sell it widely. As a result, it makes no sense to tax you for the unrealized gains.
When you actually find a loser to buy it for the asking higher price then you should be taxed for your lottery earnings.
>Say you bought a vintage car -- do you have to pay more sales tax each time the car appreciates?
Some states and countries actually do tax personal property like cars. Virginia and Rhode Island, for example.
In those jurisdictions, if you have a vintage car in 2021 worth $100k, then you pay $100k * TAX_RATE in 2021. If the value of your car jumps up to $200k in 2022 (due to a movie or something), then you pay $200k * TAX_RATE in 2022. As long as the property is still in your possession, you pay property tax on it.
Property tax taxes an asset that doesn't move, literally and figuratively. Before financial markets exploded, and especially in agrarian societies like the United States at its founding, a property tax was effectively a wealth tax. (It still is a wealth tax, technically speaking, it just no longer reaches the wealth of the richest in society.)
> In what intervals would you do this?
In whatever interval you'd like. Presumably yearly. But don't companies have to "mark-to-market" for their quarterly reports?
> Your bank account would go to zero.
This is already the case with inflation, very deliberately so.
I can't say I'm a fan of a wealth tax. And in any event I don't think it'll ever happen in the U.S. But the reasons for disliking a wealth tax are more complicated than the above.
In a capitalist society money (investments, etc) produces money. "Returns on investment" are like rents. And like rents, the government can choose to tax the asset itself rather than or in addition to the rents.
> The market value of a company is true, aka the owners of this company must be taxed for the real value growth in their portfolio (since it constitutes income)
well, if you follow this logical conclusion, why are you not taxing a baby because the baby's value is the future income of that person's job. Sure, it's unrealized, but you're still considering it income even though it's unrealized.
Not really. My thesis is that IF the stock market is NOT a casino, then the capital gains are real income, thus they need to be taxed. For example if the stock prices were set by the companies and they were obligated to buy back shares at that price if asked, then indeed you have a valuable asset on hand. If the company increases the asking / paying price for the stock then you have real tangible income that you can realize. Similar to the interest you accrue from savings.
But if we agree it is a casino, then we should not tax air, only the ones who cash their earnings and walk out of the casino. And goes without saying that we should stop incentivizing people to gamble their money and pensions on this. 401k, Roth and all these need to go.
The board of directors would almost certainly buy back all their shares if that happened, and find a time to resell once the mass insanity ended for insane profit.
The problem would be if tomorrow everyone sold Apple stock for $1000, and the government took that as a reason to tax every Apple shareholder for “income” of over $800 per share in the stock casino, forcing Apple’s current shareholders to divest themselves to new shareholders and hence lose control of the company.
As well as the fact that taxing unrealized gains would have to come with _issuing tax rebates_ for unrealized losses - something the government would find difficult to do in the case of a systemic economic downturn a-la 2008. And then there's the fact that you aren't really creating any new revenue by taxing unrealized gains if they are going to be, at some point, realized. Last I checked shares of stock aren't very useful as a payment instrument in the general case, nor would IRS accept them as taxes.
This is a cynical ploy to the part of the populace that can't tell a portfolio from a hole in the ground, and there seem to be surprisingly many of such people.
Also, to address GP's comment - Apple would then buy back all outstanding stock and destroy it, dramatically driving up the share price for folks who haven't sold.
Ah but see, they'd already be printing trillions. This could get them into tens of trillions which would exacerbate the issue. This is sort of like the problem the guy alludes to: this would remove what few shock absorbers this system has.
Behind every big corp is a well armed government and police apparatus
Given how many Fortune 500 companies have died even in prosperous times since the list started, I’m gonna file this away as “manufacturing consent to maintain the status quo.”
Corporations are not literal machines or organisms. They’re a social acquiescence given the reality of biological need at scale. The logistics are necessary; the behavior is necessary; the ownership angle is propaganda.
Well, publicly owned companies have, in the last 20+ years, been very bad at keeping spare capacity around. Lots of "rationalizations" and "rightsizing" and so on have cut all the reserves.
That said, this does read like someone with a personal axe to grind, leading to motivated reasoning.
But it's critical to note that the proposal has different rules for privately held stock & real estate. So the tweet author's buried argument doesn't hold water.
I believe those assets would mostly be treated the same as they currently are, e.g. sold or death.
For the 700 or so people who are targeted it basically creates a tax on the collateralized loans they get to avoid selling stock/cap gains in the first place. While not doing that directly, that's the effect of it.
And they get 5 years to pay the initial bill. 23.8% / 5 = 4.7% growth a year to be even (well something like 6 or 7 adding the new annual 23%). Most of these guys will likely generate more on paper profit than and they get deductions for any losses if they don't
It's what pisses me off most about the proposed Purdue Sackler settlement. Giving billionaires such long lead times to pay off fines and taxes allows them make more money than they owe.
The last graph on the WSJ article though says “Smart investment bankers and asset managers are already thinking about how to financially engineer products that will emulate existing stocks but be hard to value”
Check out the 2nd link for Pandora Paper reporting showing one egregious example of how they take advantage of this.
The owner of Nike puts millions of nike stock into a GRAT, which is privately held, and then the government gives that grat a 15% discount before it's passed along to his children.
Shouldn't get tax benefits for something that you claim is harder to sell (privately held stock) when in actuality the assets are 100% publicly traded nike stock.
The Wyden tax bill is a 100 pages long so maybe it goes after some of that crud, but there will always a scheme to lower your taxes.
after a very short period of time after a major disruption, there ceases to be a simple cause and the answer rapidly becomes "well, it's the gibbs phenomenon, it's gonna ring for a while now".
How big of a spike and a spike in what? Consider the size of the import market in its entirety and how much of a spike would be needed to disrupt it. Don't think more PPE is clogging up ports.
If service sector is and was disrupted by lockdowns it is logical that goods spiked in demand. Demand shifted from services/goods to only goods or only goods and little bit of services. I'm speaking about aggregate demand. Goods like consumer electronics, home appliance etc.
This is communication 101. If you start internalizing that form of storytelling, you'll see it everywhere - literally all of our public discourse has this structure, from the Build Back Better plan to "Immigrants are taking our jobs" to "Flatten the curve" to the right-wing school-board stuff to fluff pieces on local restaurants to top-ranked HN comments. It's so prevalent because it works - it taps into fundamental cognitive & emotional biases that humans hold, so the ideas that spread are the ones expressed in that form.
If you want to be rational about this, judge the plan (and this one too) on its own merits rather than on the fact you're being manipulated. You're being manipulated - you are always being manipulated, every time someone communicates with you, and you can't escape that. It's good to understand how, but then your job is to tease out the rhetoric and understand the underlying proposal enough to judge it on its own merits.
Seriously, it's looking like he pretty quickly is looking to start an influence/propaganda channel.
Following the exact same playbook. A bunch of easily agreeable "Rah, Rah bad Wall st. Short term over long term bad" to get everyone nodding, then an incredible leap to push his actual argument.
This guy is falling very quickly from "interesting how he got that thread picked up everywhere", to "somethings fishy here".
The logic presented is "The cause for the port slowdown is a future policy proposal I want people to oppose."
Obviously he isn't literally saying that, but that's the logic path he walks the reader down.
What? If this is manipulation then I'm a manipulator as is every other parent (and teacher, and every customer service worth their salt) aren't we?
Yep, we simplify. Yes, we tell stories. We don't lie. (No, teaching Newtonian mechanics without mentioning Relativity isn't a lie, and neither is simplifying the container explanations until even bureaucrats can understand it ;-)
That said, having
1. seen the email that circulated with my customers ten years ago about how container ships transport goods from Asia to US and American air back
2. and having recently listened to "The Goal" by Eliyahu M. Goldratt
I've heard Ryan speak at a dozen or so company meetings. He's genuine, knowledgeable, and has a long term focus not just on Flexport but on the whole freight industry and the global economy.
I'm not saying he's right about everything, but trusting his integrity and industry knowledge is a very safe first step.
I can speak from a trucking perspective. it was a cascade failure for professional drivers.
when covid first hit, supply chains either had too much or too little almost instantly. Things like raw supplies based on JIT ordering either ground to a halt because demand died and so did the modelling, or because demand was too high for the computer model (think a bell curve.) low-boy trucks shipping things like construction equipment and preform concrete werent affected as governments in most cases stepped in with works projects to keep people employed, but trucks in the supply-side chain of things like toilet paper and frozen pizzas ran into trouble in almost the first few hours of the pandemic.
It helps to keep in mind all these things in JIT are connected. they work like a slinky, and anything that holds up the line will only amplify problems later.
frozen pizza is the best example. for example if things like bell peppers and onions could be delivered, but dough could not, then trucks for dough would idle in the yard until their yard-pay expired and they moved to the next job. yard-pay is the money you earn idling after X minutes in a lot waiting for a hookup, and it can be rather substantial. Anyhow, once dough can be shipped again, peppers cannot because the peppers have spent too much time in transit and now theres loss. pepper trucks then go offline for cleanup and you have too much dough and surprise, the onion trucks just automatically dropped you as a customer because you didnt meet a monthly required minimum.
this doesnt even cover the hell of intermodal port shipping. containers full of perishables rot because cranes are frantically unloading COVID masks, and now those containers are offline for cleaning. containers full of COVID masks cant be unloaded because theres a backlog of Hydrogen Peroxide for a floor tile company in Sheboygan that went out of business eight minutes ago due to shipping constraints, and if its not unloaded and chilled the entire port will explode into flames. in the yard, eighty-one trucks have been on yard-time for nearly 3 hours and a third of the trucking companies paying that yard time will be bankrupt because of it by the end of the day, but they have no choice. Trucks and drivers that went unpaid for weeks are now just taking up lot space until someone figures out how to remove them and the city will likely have to foot the tow.
Later in COVID as cities enacted mass casualty plans they basically absorbed any and all refrigerated 53' trailers they could find as a temporary morgue. now it doesnt matter how many pizzas you wanna sell, the toilet paper company has bought up all your transport market and the city just left you with no refrigerated trailers to use. Once cities are done, you generally scrap those trailers as they cant be used for food again.
Finally, you have trucking firms that went belly-up during the shutdown for any number of reasons, including over-leveraged in JIT style software or a single customer. these truck drivers either left the job to do something else because professional driving is a pretty thankless gig, or retired because the average age of a professional driver is in the 50's. now that we need drivers we have no one to perform necessary training, so it doesnt matter how much cash we throw at highschool kids.
yard conditions also play a role. factories that manufacture bacon might be running at 10% capacity due to covid infections, so trucks show up and idle because the past 3 logistics managers either died or went home sick and nobody in the front office knows what to do. these factories cant or wont shut down because theyre considered supply chain critical (s/bacon/disinfectant/), with "hero" workers and whatnot. shipping companies might also decide to drop you as a customer due to insufficient COVID precautions or an overwhelming amount of COVID infection.
Rules and heuristics built for normal times and a specific set of expectations and constraints fail when those expectations and constraints are no longer valid.
Odd, that.
In my household, we started making our own pizza, from scratch (save canned / bottled Pizza sauce). Flour keeps and is shelf-stable. Most toppings survive refrigeration. Those best served fresh are bought as available, menu rotated as needed.
If your supply chain can't guarantee delivery of complex sets of fresh time-sensitive product, drop constraints such that the product mix is less time-sensitive. Sourdough substituted for dry yeast, unavailable at any price.
(This works well at the household level. It works less well at industrial-scale production where flexibility is greatly reduced.)
> Sheboygan that went out of business eight minutes ago due to shipping
Even before covid I used to read about consumer companies that have a shipping problem right before Christmas and go out of business. So I can believe that shipping problems on a scale this large will take time to fix. Thank you for your comment.
>it was a cascade failure for professional drivers.
California ports suffered from AB5 and EPA rules more than other states, and with California controlling like 40% of the containers, they shot themselves.
Older trucks banned on roads and ports (CARB) and Owner Operator trucks (AB5) gig workers banned, they relocated their llc's outside california to keep their businesses running.
The CA EPA/DOL CARB rules also expanded fire seasons, as older logging companies closed down due to the state not renewing licenses on trucks. Mom/pop companies couldn't afford to buy very expensive trucks, new engines, or licenses. Less companies logging = more fuel.
CA just banned gas generators, as most construction sites use them power their tools. Work arounds will be people buying ford f150's with onboard generators as a quick work around, and most likely will raise costs even further.
When the climate crisis begins to hit, this kind of a system will rapidly collapse the world economy way before climate change even starts to wipe humans out.
While I agree that a lot of companies have been screwing up the supply chains and their providers (cough automotive cough), maybe we should not build extra widgets just to support events that happen 1 out of every 100 years.
Not every system is a critical system, not all systems require spare capacity.
Maybe we should not build extra widgets just to support events that happen 1 out of every 100 years.
Except the COVID pandemic is probably not a 1 in 100 year event, the last SARS epidemic was less than 20 years ago (and fortunately was not as disruptive as the current one). I wouldn't be surprised if the next one is within a decade. And we've done little to prepare for it.
I believe the claim is completely defensible and ultimately correct.
A) This was a multi-factoral event certainly but all of these other factor are "immediate causes" which can themselves be traced to absolute maximum return on equity as a more final cause.
B) No doubt "hard to restart" process are were involved. But the world relies on single-source, hard to restart, large scale production of many things today because these produce the highest returns for those who invest in them and the lowest prices for those who buy from them. And both kinds of actors have been willing to just stop producing rather than doing something that might be costly to keep production going (and they decided they didn't want backup before this for the same reason).
C) Supply lines that stretch around world exist as a combination of economies of scale and "labor market arbitrage" and both these are driven by return, even though "labor market arbitrage" doesn't increase efficiency or robustness.
D) Chip manufactures put money into "up-date" chip processes, notably leaving the sorts of chips actually used in cars woah fully under-invested and generally many sorts of lack of robustness can be traced down to money flowing only to the normally profitable. Shutting down production isn't necessarily that bad for a company - they don't wages and they can start back up once things stabilize. It's much less disastrous than making a bunch of stuff and not being able to sell it. Clearly, that thinking is guiding a lot of decisions.
But people have been buying these necessities before the pandemic. If spending shifted from services to goods, that implies that it's non-essentials that people are increasing consumption of. Unless people started eating more?
I great term I came across in the retail gas industry is "hostile purchase"... as in no one "wants" to buy gas in the sense that you wake up one day and think "Oh boy, I can hardly wait to go out and get some 87 octane today" and after the purchase, "wow, that was awesome gas!"...
I think your first mistake was saying 'I believe.'
Chip manufacturing has a clear start/end date for the product lifetime. This is necessary when you are incorporating a product into a design and product lifetime. Sometimes they will 'oops' you and send it out of print early. Generally, they have a 'b' product that "meets" your needs or product engineering just scrambles and tries to guess how many we need for a final run for our EOL. Much like the guy above me, the former requestor and probably his boss... I pad my estimates. Thank the baby Jesus I don't deal with the complicated world of sales and cocaine.
I want to put a big asterisk on "meets" because one man's performance metric is another man's failure. In discrete circuits this can be harmonics and in more complicated topology this could be tuned for an entirely different (but potentially acceptable) set of characteristics.
Enter the hardware qualification rounds where people like me make people cry and deadlines slip.
Supply lines work in months of advancement and trust me when I say this they have been fighting with chip shortages for months.
The people who care about costs have been playing a weird game of rubiks cube and the people who don't have been buying everything for year+ production. Guess who won that game of planning competition...
Taiwan going complete Orwellian and shutting down for months screwed the market in so many ways. Short sightedness on bean counters screwed themselves in many other ways and automobile manufacturers had the brilliant idea to just 'buy it all out' and give the manufacturers a big payday.
Seriously, chip manufacturers are like shoe string manufacturing. The latter counts wartime boot string orders as a big payday and that is something a lot of us look at as a bad year in a paycheck. (well the ones with skill anyway).
Lines are created with a product if the current line cannot manufacture that product. There are cases where they have to shutdown and completely retool. This isn't remotely the case regarding components today. The line simply stopped and/or went to minimal production. It wasn't news or a surprise because this is garbage we have been fighting with for months. Taiwan simply stopped producing at the level they were because they have some severe lockdown strategy.
Taiwan didn't lockdown their factories. Their border is highly restricted for entry but they haven't really gone beyond closing indoor dining and karaoke.
In Q3 2021, TSMC shipped 12.5% more wafers year over year and +5.7% quarter to quarter during the period with the highest covid restrictions. And that's already on top of the 19% increase in shipments for the full year 2020 over 2019.
It’s hard to write 20 consecutive blog posts without seeming extremely pretentious. To the average Twitter user, massive Tweet chains means the person has something really important to say. The fact that they’re getting around the max tweet size makes things very rebellious, adding to that counterculture feel you only get on Twitter.. Add in the blue checkmark next to the name and yeah, I guess you could say Twitter users are pretty cool for using Twitter.
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[ 3.0 ms ] story [ 568 ms ] threadI figure the supply chain is like that. Under certain conditions, JIT is fine. Given sufficient disruptions, the system descends into chaos. Note that we have humans in the loop, too, so expect non-linearities.
I could be wrong. Corrections are welcome.
[1] https://youtu.be/Lx8gMBJBlP8
https://en.wikipedia.org/wiki/Bullwhip_effect
Basically - complex systems behave in complex ways. When you have a small shift in consumer demand, it gets amplified up the supply chain, such that you need potentially big shifts in the production of intermediate components. We had a big shift in consumer demand. The supply chain basically can't cope, and so we get chaotic behavior until consumer demand normalizes and revised sales forecasts get propagated up the supply chain.
It also didn't help that everyone was expecting an economic slowdown, and then the government gave trillions of dollars to corporations to juice the stonk market. The resulting price signals induced a ton of aggregate demand for production capacity that simply wasn't there.
[0] Capacity destruction: "Nobody's buying our stuff, we can't afford to keep this one ship/plant/facility/machine running anymore or we'll go out of business." But since every other player in their industry who might've bought it is in the same boat, maybe they're forced to sell to a scrapper, who promptly disassembles the ship/plant/facility/machine. I got my house this way. It was a rental property owned by a company that could no longer afford to keep it, so I bought it, took it off the rental market, and thereby slightly reduced rental capacity in this town. Compare this to an airline temporarily parking a slew of their planes in a densely-packed parking pattern at an un-busy airfield near a nice runway.
What did people think would happen?
We thought that if we didn't do that we'd run a very real risk of the entire healthcare system collapsing. We were trying to "flatten the curve" so that hospitals could deal with an ongoing roar instead of being hit with a massive explosion.
Not were, are.
The entire lockdown/restriction/mask mandate set of policies has been based on managing hospital capacity. State and local governments are still using hospital capacity to decide when to lift or reimpose restrictions.
The wave of explainers we got last year about flattening the curve were wrong about how long it would take, but the fundamental strategy and the reasoning behind it never actually changed.
https://ourworldindata.org/explorers/coronavirus-data-explor...
https://www.reuters.com/article/us-health-coronavirus-europe...
1. https://www.businessinsider.com/sweden-covid-no-lockdown-str...
Your source here is comparing two countries, one of which has 67 million people and the other which has 10 million and showing totals and not per capita, which is a worthless comparison.
Additionally, I don't consider Great Britain a neighbor of Sweden.
Compare cumulative for Sweden and UK. It's two countries away.
The UK is culturally different and not a neighbor.
The idea of Sweden has no connection at all to the topic at hand. You are using the word "Sweden" to make an argument because you believe the connection between Sweden and conversations about lockdowns is so clear that the mere mention of the word is enough to bring the entire argument into someone else's mind.
So, this demonstrates that you believe everybody reading this comment knows what you mean. Which in turn means you know your comment is adding nothing at all to the conversation.
To belabor the point, if the connection between Sweden and lockdowns was an entirely convincing argument then everybody reading your comment would already agree with you, and there would be no reason for you to remind people of the connection with this comment. Since that doesn't appear to be true, you believe your peers need to be reminded of this argument, some elaboration on your part seems to be in order!
Hacker News is a lovely community where you can learn from a large variety of people, each knowledgeable in their own particular domain. The more thoughtful and substantial we make our comments, the nicer a place it becomes for everybody else.
Lessened demand in large sections of the economy can itself create shortages in the parts that take on the load or at least stress on the supply chain to redirect to those places now in extreme demand. Take restaurants for example, people didn't stop eating but vast swaths of food supply chains had to change pretty much overnight.
Then there is also the problem of the demand of certain things being highly uncertain, like cars towards the beginning.
Then there is the extreme induced demand on certain things like webcams, laptops, or other home electronics as everyone stays home. I'm sure that also isn't an easy overnight change to make and then swing back from since it was completely unplanned. I know the area I work immediately ran out of widgets based on orders of 10s of thousands instantly coming in and it has been backed up since that time to this day.
Finally during the initial portion of the pandemic lots of factories, both in the US and China, were getting shut down. China seemingly longer. When restaurants and whatnot started to open back up was about the time you saw those shutdowns stop happening too. So on top of the above concerns for the supply chain lots of non bars and movie theatres were also affected by shutdowns, just perhaps not as long.
May be more I'm missing but I don't think GP is an empty comment by any means.
e.g., The induced demand from work from home you mention I wouldn't count as part of any 'shutdown' at all. It has been largely driven organically by the decisions of individual firms and workers. My office was ordered to work from home by company HQ, not by any government authority, and at this point staying WFH is an individual voluntary choice. Does this count as part of the 'shutdown'? Certainly my sector of the economy (software development) was not shutdown, quite to the contrary.
It's certainly true that collectively, society pushed down in some places and things popped up in others, sometimes in obvious ways (going remote creates demand for laptops and cameras and office chairs) and sometimes in surprising ones (spiking rental car prices, yet internet providers were totally unfazed). I don't think "if only we hadn't been so foolish as to shutdown a large part of the global economy" is a useful or helpful way to think about these phenomena, though.
We'll never know for sure, but I doubt that's the correct comparison. Even without government-mandated shutdowns, many areas--especially major urban cores--would still have experienced massive shocks as people voluntarily shifted to working from home, stopped going out to eat, etc. In other words, much of what the government did through law would likely have happened anyway out of fear and individuals exercising their common sense.
Sure, it wouldn't have been exactly the same, but I think the counterfactual is much less rosy than you assume. And then there are the benefits of the shutdown which helped to direct the drop in activity towards less essential parts of the economy and increased predictability, to say nothing of the benefits of reduced viral transmission.
The places which were closed were not producing things used in the supply chain.
How do you envision the time between march 2020 and the point where herd immunity through vaccines / infection would have been sufficient would have gone without a lockdown?
I'll take a lack of a few non-essential luxury goods for a year or two over a world where everywhere looked like that, any day of the week.
https://apnews.com/article/new-york-andrew-cuomo-us-news-cor...
But New York also has a subway system that (approximately) everyone uses to get around. That turned out to be a perfect spreading ground for a respiratory virus. If I understand correctly, that's a big part of why New York got hit so hard. You can't just pin it on Cuomo's criminal irresponsibility.
Given the 'hundred year crisis', I think we have fared relatively well from a purely economic point of view... So, yes, some problems may exist but I think we have witnessed a surprisingly resilient system, given how optimized everything is and how unprecedented the issue is.
I don't know if a slight price increase in graphics cards is the key issue to worry about at this point.
Keeping tons of spare capacity is neither economical nor environmentally friendly. Also, it would probably only shift the problem elsewhere.
There's no reason to think this is over yet. We might just be getting started.
There go our semiconductors, this time for real.
We know what the system looked like before, and post-pandemic, there's no reason to believe it wouldn't return to that state. Aside from some ongoing pandemic measures, by and large, we should see things mostly settle into the system that already works.
It's just going to take some time to clear. In the meantime, most things are working well enough.
Much of the inflation we are seeing is a function of 12 years of mass money printing and pandemic response, if it were not for that, the pricing issue wouldn't be so acute.
If there is a 'new normal' it will due to monetary issues - the adjustments in supply chains I think will be incremental, with a few strategic changes i.e. TSMC in Austin etc..
1. https://en.wikipedia.org/wiki/Investigations_into_the_origin...
2. https://en.wikipedia.org/wiki/History_of_HIV/AIDS
or more likely, it happens, but because of prior experience, the event is no longer as calamitous as the first time.
Looking at the GFC in 2008, the monetary policy back then was too tight (hindsight 20/20 and all that of course), causing the recession to be extended longer than it would've.
This covid disaster would've caused a similar problem, imho, if the Feds did not loosen up like never before. It "solved" that same problem the GFC produced. Had the GFC not occured, the pandemic would cause a double wammy - a medical problem, and also a monetary problem.
Sure, it affects everything and given the complex interconnections and dependencies within production chains / networks, the cause-and-effect relationships are hard to understand and cause for concern. But given how complex and decentralized things are, I am still amazed we haven't seen worse effects (yet). I doubt that spare capacity in logistics alone would make a huge difference, because you'd also need spare parts, materials and manufacturing capacity, all of which are part of the same network.
The spiral is in its early innings right now. Hold on tight!
They check real-time shipping costs and choose the cheaper option. It takes a few dollars worth of cardboard to turn a shipping container into a suitable container for corn or soybean shipping (really!).
The price increase in graphics cards isn't related to this.
GMs trouble selling cars because they don't have enough chips to finish off the cars is a problem related to the pandemic and planning like the posts on Twitter note. The lack of new cars available has driven up prices on used cars. This is all supply chain driven.
> how unprecedented the issue is.
How unprecedented is it? In the last 130 years there have been two world wars and two global pandemics.
The US has now outsourced most of the production of goods to places in other countries. So, if something changes there (like the mask issues we had early in the pandemic) we have limitations here. And then there is the changes in posture of China where many of our things are manufactured. It wouldn't be unheard of, historically speaking, for that to impact businesses in the future.
I think that is the point (or one of the points): it's not just logistics and spare capacity - it's a much more complex set of issues.
This isn't something accounting practices or "less greed" would solve, as seems to be implied in the Twitter thread.
Would you have voted for a party that spent $1b annually on mask manufacturing subsidies for masks nobody even bought? Who could have foreseen that demand spike?
Are you seriously trying to say that production being moved to China, et al. is not because of greed generally, and ROE specifically?
There is only so much discrepancy in prices that global markets will allow before buyers start rewarding the lower priced sellers for taking advantage of the arbitrage.
I would have voted for a party with a program of "bring the manufacture of strategically crucial items back to the US and make it robust". This seems like it would even be Republican "bread and butter" and I don't see why either party had an issue with it.
i think a lot of people would not want such a subsidy.
The entire industrial capacity of USA, country of 300 million people, could produce zero Meltblown, so it could make zero masks. Do you think it's acceptable?
People talk about conflict with China while we depent on them for toilet paper to wipe out butts, it's like a mentall ilness.
Many people did (only at the $450MM level/annually). It was considered standard practice to have the federal government purchase large quantities of N95 masks to have in case of an emergency. GWB started the program, and Obama distributed 100,000,000 masks during the H1N1 crisis from the stockpile. I will say that restocking the pile took a cut after 2010, Congress cut its funding and Obama's team didn't fight for it. And what funding they did get didn't seem to get prioritized into masks.
China & Co. did a big over-correction during the start of the pandemic, and that put a lot of things into chaos.
You now have chip speculators entering the foray, jacking up prices, not very helpful in letting the market clear.
10% padding in US operations I don't think would have made up for anything, the problems exist in shipping and on key/acute issues from the suppliers in Asia really.
I don't think it's reasonable to imply 'We should build all the stuff here to avoid delays during 1 in 50 years pandemics'.
I'm not blaming so much as pointing out that's where the underlying issues are.
Of course exacerbated by other things.
I think working out solutions to transportation, buyers paying for things like guarantees, plant and supply chain risk analysis etc. will become a thing now.
CEOs will hire consultants and firms to measure the likelihood in supply chain failure and make ammends.
I actually think we'll get adapt past most of this.
Delays on intercontinental shipping and lack of availability of a few durable goods is a perfectly fine price to pay on that frequency. Optimizing to surviving a global pandemics without any problem would be ridiculous expensive.
Yes, specifically on the subject of cars, the manufacturers seem to be accepting way more risk than what is sensible. But that's their decision to make. If they were just left to face the costs of their decisions, they would stop making bad ones quite quickly.
(By the way, there were 2 flu pandemics similar or worse than this one on the last 100 years. That's one more than you are counting.)
I count 13 global pandemics: https://en.wikipedia.org/wiki/List_of_epidemics#Chronology
Let me count again, while leaving out relatively minor pandemics like Zika:
* Fifth cholera pandemic
* Third plague pandemic (multiple outbreaks are listed)
* Sixth cholera pandemic
* 1915 encephalitis lethargica pandemic
* Spanish flu
* 1957-58 "Asian flu"
* Seventh cholera pandemic
* 1968-70 "Hong Kong flu"
* 1977 Russian flu
* HIV/AIDS pandemic
* 2009-10 swine flu
* COVID-19
That's 12 and doesn't count stuff like Zika, SARS, or MERS. It also doesn't count any of the Ebola epidemics.
I don't know if cases or deaths are a good proxy for expected supply chain impact. SARS, for instance, had relatively few cases and deaths because it mostly broke out in well-functioning developed East Asian countries that were capable of responding to it effectively, but those same countries have outsized effects on global supply chains.
An epidemic usually starts within a particular country and if it becomes a pandemic it will grow rapidly and spread to other countries, but the WHO definitions are only based on the number of cases compared to normal and how fast the number of cases is rising.
It is not deadly global pandemics that are unprecedented, it’s the lockdown response to them that is.
One rationale behind the push for global integration after WW2 and later on with China and the former Soviet Bloc was the idea that such integration would create incentives against a resurgence of war between great powers. It is precisely because another world war would be so disruptive in light of global economic integration that global integration was promoted and pursued in the first place by many policy makers—in order to make such wars less likely to occur.
I suppose the thinking was that the obvious downside—that if a great-power war were to occur, the global economy would be in shambles—was irrelevant given that another world war would likely amount to Armageddon.
In other words, preparing for the contingency of a world war is worse than useless, because the only viable path (both from a utilitarian and from a moral perspective) is to do what is most effective to prevent the occurrence of such a war (which pursuant to this line of thinking includes, of course, making significant investments in defense).
> One rationale behind the push for global integration after WW2 and later on with China and the former Soviet Bloc was the idea that such integration would create incentives against a resurgence of war between great powers. It is precisely because another world war would be so disruptive in light of global economic integration that global integration was promoted and pursued in the first place by many policy makers—in order to make such wars less likely to occur.
That's a topic explored a bit in The Interdependency Series by John Scalzi. I found it am amusing read (and actually liked Wil Wheaton as a narrator for it... though not everyone agrees on that point).
The teaser for the first book of the series:
> Our universe is ruled by physics, and faster-than-light travel is not possible - until the discovery of The Flow, an extradimensional field we can access at certain points in space-time that transports us to other worlds, around other stars.
> Humanity flows away from Earth, into space, and in time forgets our home world and creates a new empire, the Interdependency, whose ethos requires that no one human outpost can survive without the others. It's a hedge against interstellar war - and a system of control for the rulers of the empire.
is it possible that our global economic system, international relations etc are not yet evolved enough to keep such a system functioning stably (in geo-political terms)?
The US has clearly emerged as the one superpower in the aftermath of the soviet dissolution. But China has now emerged as a potential competitor to the superpower status (they've basically replaced the soviets in this model). They haven't yet reached the same level, but will soon according to all modeling and prediction.
I do believe that it is the US's hope, in the clinton administration, to have china's market economy open up, and thus, allow western "democratic" culture seep in (ala, like japan and korea - but without having a war to start with). This certainly, and clearly has failed now. China do not want to be "subservient" to the US superpower like the other westernized asian nations.
So this was a once ever event.
It's stunning how much knowledge and wisdom has been lost about simple things like how to deal with plagues. This is not a new thing facing humanity.
Nuclear war is also a once-ever event, so wr shouldn't worry about it,right?
https://www.pbs.org/newshour/show/pandemic-could-mean-260-mi...
I'm very confident the real numbers of starved people since then is vastly lower.
* There some things that are people simply need for survival. At a certain point, having no spare capacity and cascading failures means people die. Lack of masks last arguably killed people last year.
* It's quite possible to excess capacity and be good to the environment while present production is often terrible despite the lack of excess capacity.
* Sure, a complete lack of excess capacity is economical. Which is the OP's point in different words. Robustness to failure has been traded for immediate returns.
I think that was the least of the problem. At the beginning of the pandemic in the US, hospitals, nursing homes, and many other companies would not allow their workers to bring in their own PPE. This continued for upwards of six months. Several outbreaks occurred in my area because management refused to allow their workers to use PPE. Fast food operators also had several outbreaks because they were not testing their employees temperatures until it was far too late.
As late as April, we had dental offices across the country refusing to allow receptionists to wear masks. Same went for supermarkets and restaurants. Upwards of 30% of lives could have been saved if corporate and management hadn’t setup major roadblocks for worker protections. One of the most common arguments I heard was, “we don’t want the customer to see our people behind a mask”. For companies, this wasn’t a pandemic with real health risks, this was a front-facing visibility problem for the organization. These people should all lose their jobs for the suffering they caused.
Covid was essentially "Sars II". If Sars1 had had the qualities needed to be a world wide epidemic, we'd be looking 10-100x the casualties. Sars1 happened a decade ago. Calling this a "hundred year crisis" seems wholly disingenuous. This event was forecast by quite a few people, the world was terribly unprepared and there's every reason to think the same factors that created this virus will create others much sooner than a hundred years from now.
Viruses conform to the distribution of deadliness-vs-reproduction rate. For Sars 1 to spread widely, it has to be less deadly. There are limits to how a virus can both be deadly and contagious.
But just a tidbit on this statement.
That leaves out the whole question of incubation time. The scary thing about COVID is that it gives you several days to a week or more to walk around spreading the infection before you even know you have it.
That's why the reaction in the public health sector was so dramatic. It was the sort of thing that could have easily been much worse than it has turned out to be.
And it's still only one or two mutations away from living up to the worst-case fears: a seriously-deadly virus that spreads all over the world before anyone knows what's happening. One that large sectors of the population have already been preconditioned to deprecate or ignore.
That's a fine rule of thumb but not something to literally bet your life on. When smallpox was introduced to North America, it wiped out a substantial percentage of the population of the continent (This [1] claims 90%, which might be much but it was a lot).
[1] https://www.pbs.org/gunsgermssteel/variables/smallpox.html
Also, a lot of governments did take suitable precautions in case Covid was more like the original SARS early on and just got flak for it. This was particularly visible here in the UK, where Public Health England and the government had already planned for another SARS or MERS-like virus and introduced really aggressive testing and contact tracing early on in case this was it. They just got attacked in the press for not continuing that once it became clear this wasn't like SARS and it wouldn't work - and then once they gave in and reintroduced testing and contact tracing as a measure, they were attacked again because (predicatably) it wasn't that effective and the media fuelled endless badly-informed conspiracy theories about the testing and contact tracing program only existing to funnel money to their pals.
https://news.ycombinator.com/item?id=28970983
It's basic supply/demand. If demand stays the same but supply is interrupted, production needs to increase for the same amount of time just to satisfy the demand that went unfulfilled. If supply is interrupted and 'reopening' simply means going back to initial production, you'll always be playing catch up.
That's what happened here - lockdowns led to a single change in customer demand for a wide variety of goods both on the personal side(more people at home -> snacks, food, toiletpaper that would have been used up at work started being needed at home), and on the commercial side (no people in the office: no ongoing bulk papertowels/toiletpaper/vending machines/office supplies).
[0] https://www.shmula.com/the-bullwhip-effect/310/
Consumer preferences changed slightly *because* of lockdowns in addition to supply changing drastically *because* of lockdowns.
In our just-in-time supply chain system, interruptions of the magnitude we experienced aren't accounted for.
Add lockdowns and changing, unpredictable consumption patterns (e.g buying more cars against all predictions because who wants public transport now?) and you get the perfect storm.
You could hold a years worth of inventory and you’d still have a problem.
Why would we expect there to be a perfect equilibrium immediately?
Also, low-volume items like aircraft carriers are probably a bad example. Aircraft carriers are ordered and built in small, specific quantities; I think it makes more sense to account for building a single aircraft carrier as a construction project rather than as a unit of mass production. Almost like you were building a small airport, thousands of units of housing, and a nuclear power plant.
For example, almost every successful company is valued at some multiple of book equity, because book equity doesn't (and shouldn't, and can't) incorporate any notion of growth. Tesla's book value per share is something like $27/share, which reflects the cars it has sold and the ones in process. It trades at $1077, which reflects hopes for cars that it will sell.
LIFO and FIFO are just book accounting methods for tracking costs of production. They tell financial statement readers how management puts the cost of unit production into inventory values on the balance sheet, and how inventory values are translated into Cost Of Goods Sold on the income statement. They really aren't the right basis for business decisions like pricing or production.
I don't know what he means by "companies now use FIFO or LIFO accounting" as if this is some innovation. These have been the _only_ choices under GAAP for . . . a century? Longer? Letting companies use Next In First Out for financial statements would be inviting management to manipulate its balance sheet and earnings through its cost assumptions. Of course a company will use up-to-date cost information for pricing decisions, but they've always done that.
Accounting is really a language of its own. It provides a lot of useful information, but you have to know how to use it and what to use it for.
That's why you can't just flip a switch to turn it off. But what if you stop feeding glass in and wait half a day first?
Many of the processes might require the product is pushed and/or pulled through the machinery. If there is no material behind to push it could cause problems within the machines.
Once the continuous process is broken it needs to be restarted somehow. Depending on the type of production this could be days or weeks of work just to rethread all the material through the machines and getting it going.
Now you've gone in a circle. That's what the original comment was talking about. This subthread is hinged on the idea of that specific problem not happening.
An unexpected victory: container stacking at the port of Los Angeles - https://news.ycombinator.com/item?id=29026781
The previous stack:
Long Beach has temporarily suspended container stacking limitations - https://news.ycombinator.com/item?id=28971226 - Oct 2021 (483 comments)
Flexport CEO on how to fix the US supply chain crisis - https://news.ycombinator.com/item?id=28957379 - Oct 2021 (265 comments)
The suppliers and wholesalers have moved on to different products and customers.
Absolutely scummy companies like GM,Ford,VW and Stellantis are the culprits.
Also it doesn’t help the fact that California the most corrupt state in US history is fighting with the most corrupt dock workers Union in SF port.
Corruption, inefficiency and stupidity are creating mass hysteria.
He's wrong to suggest that the billionaire class and founders will solve the problem if we only trust them and let them keep their money. Founders have just as much incentive to optimize the excess out of the system, they just call it "disruptive innovation" by which they mean tweaking how the system works so that they can squeeze out profit for themselves.
I think economists call it rent-seeking.
• https://en.m.wikipedia.org/wiki/Rent-seeking
Notably, this usage does not include "providing liquidity", so most of what hedge funds and private equity do for a living is rent seeking, by definition.
So the parent commenter's usage appears to be correct... If it's any consolation, I was under the same mistaken impression as you for a long time.
Some activities classed as renty can be economically beneficial. It’s not all pure usury, but activities that seek to increase rent revenue without increasing the value provided are a problem and that’s the ‘rent seeking’ part. I’ve no problem with fair value rents, but rents should be as low as the market can reasonably bear as excess rents are essentially a tax on production.
Re: Liquidity... The fact that a service is immediately useful to somebody (and has a willing customer) does not prove that it's a net productive behavior for the society, as a whole. That's just how the field of economics defines it, and the practioners widely agree that "providing liquidity" falls into that category.
Now, it sounds like you may be trying to defend the morality of rent-seeking behavior... If that's the case, I wish you good luck in your argument, with somebody besides me. I have no dog in that fight.
The real issue is when owners seek benefits of ownership that are not correlated with efficiency or productivity. For example grants and subsidies, inflation of rents though monopolistic practices or opportunism. In fact all monopolistic profit inflation is renty in a way, regardless of what the business model is, because it's extracting extra profits from simply exercising control of something in excess of the economic value provided. It's exercising the power of incumbency that's the problem.
A topical example is consumer electronics companies designing devices to only last so long and actively suppressing the after market through DRM, difficult or dangerous to repair designs, restricting owner autonomy through software patents and IP law and other methods to ensure you must come back to them and purchase another one.
Another more direct example is the slow conversion of all paid as a product software into subscription services. You can't buy the adobe suite anymore. You have to subscribe to it. Sooner or later you wont be able to buy your operating system either.
Designed obsolescence is arguable though. The customer could always buy elsewhere.
Anyway tye case I was replying to is not rent seeking. Leaner businesses may be more fragile, but they are also more profitable and productive. It’s just being paid to do work.
Rather, it seems like to me the reliance of having a few owners or a few institutions with consolidated power in the form of money or assets is a recipe for disaster. If anything, it's time to disperse the wealth and responsibility of production to as many firms as reasonably as possible. I'd rather have 20 smaller companies making the same thing than 3 big ones that supposedly make them cheaper due to scales of economy which imo is wrong and that most big firms are in diseconomy of said scales now (prices imo reflect this). Basically, we need to both economically and politically Switzerfy the economy (more dispersed institutions, less central control where reasonably possible).
What if there was inflation?
As long as the capital-owning class is holding equity (stocks, real estate) they benefit from inflation.
I'm not sure that follows in extreme cases. I don't even think it follows in baseline cases (2% inflation yoy).
Raising prices leaves customers with limited resources, as wages do not follow at anywhere near the same rate.
If inflation brings prices up, consumers can only spend on specific items, prioritizing necessities over entire verticals of goods. For the vast majority of companies, it's bad.
Take a look at a sampling of the top 50 or so companies by market cap. There's computing & telecom (Apple, Google, Facebook, Microsoft, NVidia, Intel, Comcast, AT&T, Verizon, Broadcom, Cisco), which is fundamental to obtaining products & services these days. Retail (Amazon, Walmart, Costco, Target, Home Depot, and Lowe's). Financial services, necessary for paying for things (JPMorgan Chase, Wells Fargo, Visa, Mastercard, Bank of America). Critical enterprise software (Oracle, Salesforce). Health care (United Health, Johnson & Johnson, Eli Lilly, Pfizer, Abbott Labs, Merck). Oil (Exxon and Chevron).
Of the top 50, the only ones that I think would be seriously vulnerable are Tesla, Netflix, and possibly branded foodstuffs (Coke/Pepsi/McDonalds). Sure, it'll be devastating to the vast majority of companies - but it's companies like restaurants, niche hobby stores, luxury activities, etc, not the staples that make up the S&P 500.
Billionaires have relatively very little cash in hand. Their billions typically are in form of business equity, and so they very much care of the businesses go into shock.
In this situation it is almost reasonable to want a small crisis to shake out your upcoming competitors and buy some more land or other things of real value at a discount.
They don’t, though, that’s the entire point.
> and even if they lose it all it almost doesn’t make a dent in their net worth. > In this situation it is almost reasonable to want a small crisis to shake out your upcoming competitors and buy some more land or other things of real value at a discount.
A small crisis will in fact not cause them to lose significant amount of cash, but will cause them to lose significant amount of their net worth. Nobody wants that.
“ In 2014, for example, Oracle cofounder Larry Ellison disclosed he had used 250 million of his Oracle shares as collateral to secure a $9.7 billion personal line of credit.”
Source: https://www.businessinsider.com/american-billionaires-tax-av...
A credit card with a $5000 limit is not $5000 cash in hand. It's a 'line of credit' for $5000 and whether I actually have the cash to pay that back is a different story. I might actually have $0 cash in hand to pay that back and many people don't until their next paycheck arrives.
Any guesses how far the Oracle share price (of ~$100) has to drop before the bank will actually use that collateral to get their cash?
This practice also comes with all sorts of tax benefits as well.
If they really need to pay some of it back then the company might decide to buy back some shares.
And realistically, like the old adage says: If you owe the bank $1M it owns you, if you owe the bank $1B you own the bank.
The little guy had cash in hand for maybe 24 hours (and even then probably just a certified check). Maybe a little later, say 10 years in they get a home equity line of credit and the bank takes back the previously paid off part of the house as collateral again.
I don't doubt repossession of the little guy's house is easier and happens more often than a Bezos loosing his collateral :) and for every Bezos there are probably quite a few small and medium business owners that put their businesses as collateral to get that line of credit and that did get repossessed.
You do realize when we talk about jeff bezos being a billionaire, it doesn't mean he has his billions in gold/cash in a vault somewhere? The overwhelming majority of his wealth is tied in various financial assets (eg. equities) that certainly do get affected when "businesses go into shock". Sure, he'll be in a much better position to weather such "shocks", but it's still in his best interest to ensure that the economy doesn't crash.
by what metric?
Technically, yeah! Functionally, though, if the Even Greater Depression arrived tomorrow? He'd still be the richest man alive, and probably even more powerful than he already is right now thanks to how Amazon and AWS would get to take over more failing social institutions.
Sure, a falling tide lowers all boats, but Bezos will still comfortably afford his gigayacht. It's a setback for Bezos, and maybe he wants to avoid it in order to maximize profit and utility and whatever, but it's an existential threat to him in the same way spilling a glass of milk or losing a round in a video game are. Even extreme social unrest has been priced in, at however much a luxury bunker in New Zealand costs.
Other people, when the Big Crash arrives, will -- in a totally economically rational way! -- commit suicide in order to ensure their spouses and children aren't bankrupted by their medical bills. Uh, in greater numbers than they already do. Many will starve, or at least go very hungry. In greater numbers, I mean. Should be a good time for the owner class to buy up all the housing stock for cheap, too.
I don't think the owner class is worried about it. I think they actually might be excited.
Bezos does not have his cash in hand, for the most part. To the extent that he does have cash in hand, he has already paid taxes on that cash. To the extent that he has not paid taxes on his wealth, he is fully incentivized by the share price of AMZN.
Sounds good to me.
https://tenetpartners.com/top100/most-powerful-brands-list.h...
Apple, Google, Amazon, Microsoft all in the top 10.
Exxon way more popular than Netflix.
That just gives more reason to go against, there's quite a few Western comforts that could use a bit more opposition, Amazon being one of them.
You're making the case that it is virtuous to be aligned with popular sentiments on issues, which is a position that dissolves any ethical or political principles in the name of conformity.
What a lot of high wealthy individuals are doing is using their portfolios as collateral against lines of credit. The LOCs give them cash to fund their lifestyle, and they don't have to liquidate their portfolios and take the capital gains charges (at least in the short-term).
Someone can have both holdings and cash in this situation.
This has been possible lately because rates are so low, so the interest doesn't cost borrowers that much.
Generally though, most 'middle-class loans' have an end date.
But I don't feel like digging around SCF data, so this is just a hunch. Having said that, my hunch is that middle class households are much more indebted than wealthy households.
Difference is just the volume of money and when the term is due.
LOCs are often open-ended, so as long as they're at minimum paying the interest, the lender doesn't care. Presumably it will be cleared up eventually on death with the estate.
> Someone can have both holdings and cash in this situation.
Ya, I understand this. This is exactly my point, though. If he's taken out loans against his shares, he is even more incentivized by the value of those shares than if he had not done so.
To the extent that he has pure (unencumbered) cash positions, he's paid taxes. To the extent that he has unrealized gains or loans against unrealized gains, he is incentivized by share price appreciation.
This was in response to the a comment suggesting that because Bezos had already cashed out, he didn't care about the value of his shares anymore.
It's about the fraction of global wealth that they control.
That's how they benefit from crisis and catastrophe.
Maybe the dollar value of their pile declines, but the percentage of global wealth they control increases, as the poor and less wealthy get hurt proportionately more.
if you're measuring outcomes by relative income/wealth, then you can also argue that the "Even Greater Depression" wouldn't affect the average person either, because everyone would stay in the same place (on average).
>probably even more powerful than he already is right now thanks to how Amazon and AWS would get to take over more failing social institutions.
We just had a huge pandemic and recession. Did he take over "failing social institutions" did he "take over"?
>It's a setback for Bezos, and maybe he wants to avoid it in order to maximize profit and utility and whatever, but it's an existential threat to him in the same way spilling a glass of milk or losing a round in a video game are. Even extreme social unrest has been priced in, at however much a bunker in New Zealand costs.
Surely he'd prefer to be the leader of a global megacorp, travel anywhere in the world, partake in various space-related adventures, and not be trapped in a bunker? You're right he won't ever have to worry about his basic needs, but I wouldn't characterize it as "spilling a glass of milk or losing a round in a video game". I'd be pretty pissed if the US government somehow revoked by right to leave the country.
>Other people, when the Big Crash arrives, will -- in a totally economically rational way! -- commit suicide in order to ensure their spouses and children aren't bankrupted by their medical bills. Uh, in greater numbers than they already do.
I'm not sure why this is being brought up, other than for the shock value.
>I mean. Should be a good time for the owner class to buy up all the housing stock for cheap, too.
Similar to your fears about amazon taking over, this seems to be unsupported by the data. The great recession lasted from Q1 2008 to Q3 2009, according to the fed. However, this doesn't seem to correlate with institutions buying up houses?
https://cdn.vox-cdn.com/uploads/chorus_asset/file/22647043/S...
I suspect that you don't understand why I'm bringing up the human consequences for the same reason you've claimed that "the "Even Greater Depression" wouldn't affect the average person either, because everyone would stay in the same place (on average)". Bezos and his peers can lose hundreds of thousands of dollars of abstract net worth every day for decades before they even notice, let alone have the material conditions of their lives change in the least; the modal person will be dead of exposure in a few days. It's somewhat incredible that you'd even try to make the argument, actually.
>Surely he'd prefer to be the leader of a global megacorp, travel anywhere in the world, partake in various space-related adventures, and not be trapped in a bunker?
Aww, shucks, I'm confident Bezos will be able to continue his worldly lifestyle until things go very poorly indeed. That said, the very existence of the owner class's anxiety-bunkers is a sign that they're not entirely behind keeping the global economy running and serving the people, don't you think? If there's only one escape pod and it's for the command staff, only us crew need suffer the consequences of their tactical decisions.
>I'd be pretty pissed if the US government somehow revoked by right to leave the country.
I never mentioned this, and I'm not sure what relevance this has to anything either of us has said. I'm beginning to believe you're not arguing in good faith.
>Similar to your fears about amazon taking over, this seems to be unsupported by the data
AWS didn't even need a pandemic to achieve running most of the DoD. Not sure if you've been following the housing market, but Zillow didn't need an economic crash to go all in to rent(al)-seeking behaviour. At least they seem to be dropping the ball on that one, but think of how much more effective buying up all the houses will be once everyone's underwater on their mortgage and unemployed? I'm also a little surprised that you'd show me a chart that shows that this historical low of landlord house purchasing represents a fall to 20%. Since you're so familiar with CoreLogic's data sets regarding this, I'm sure you're aware that in 2000 it was between 5 and 10%, and trended upward until only recently. Unsupported by the data, my eye; you're just closing yours to the important parts of the story.
>The great recession lasted from Q1 2008 to Q3 2009, according to the fed. However, this doesn't seem to correlate with institutions buying up houses?
The other way to phrase this, of course, is "having ballooned in the past eight years, the proportion of home sales to landlords snaffling up housing stock continued to rise, even during an economic crisis, and rose precipitously after the crisis was 'over'".
Bezos isn't even the richest person alive today. That would be Musk.
https://www.msn.com/en-us/money/companies/elon-musk-is-now-n...
I guess my read is that if Bezos got his title from a company that didn't exist, in modern, sell-everything form, until 22 years ago... (and in +AWS form, until 19 years ago)
And if the current holder got his title from a company that didn't have a physical product until 12 years ago...
It's probably a bad bet to say "Obviously, these people are going to be the richest forever."
Obviously, but again, the point isn't who's at the very top of the leaderboard. The point is that the material situations of the top, say, 500 richest easily allow for what we plebes would parse as insane economic loss in real wealth, and they'd be basically OK with it. Perhaps they'd no longer be in the top two digits, but they have only really lost in the sense of a high score, not lost in the sense of total dispossession and now your life's over.
If SpaceX was somehow destroyed, reputationally and materially, Musk would still have Tesla, and all his other ventures and economic instruments. Likewise Amazon could go belly-up due to a sudden locavore craze and a drone uprising, and AWS would continue making money hand over fist. My point is that the owner class is thus not actually seriously incentivized to prevent an economic crash, and in fact their apocalypse-bunkers indicate that they're pricing in the clearly non-zero chance of it happening.
Lastly, the numbers you're using about the ages of these mega-corps? Good point about that -- the Hudson's Bay Company once owned more land than any other company ever, acted as first contact to uncontacted Natives, and now they are a department store. That said, I don't think Amazon or Tesla will fall from grace in the near term. Blithely assuming that the HBC, like many a corporation, would have a 20 year lifespan or even just wane in power in 20 years, would have been a bad bet in 1700.
When the DotCom Bubble burst AMZN's stock when down 90%:
* https://www.cnbc.com/2018/12/18/dotcom-bubble-amazon-stock-l...
He didn't seem to freak out then and kept chugging along.
Short of the (zombie) apocalypse happening, I doubt it will ever drop that much again, and so I doubt Bezos would care about any kind of draw down that could realistically happen.
If you own a shipping port, it's in your best interests for thing to get worse right now and not better. You end up being able to charge premiums to jump queues, and end up making more profit by doing less work. Those guys are incentivised to ride the crashing economy all the way to the bottom, and not to lift a finger to slow it down.
And Bezos might be as well. Amazon quite likely could profit handsomely off a freight crunch that sees container prices go through the roof. There are very few retailers or wholesalers who'd have the bargaining power to get those queue jumping premium services for lower prices than their competitors, and when Amazon Prime becomes the only way to buy manufactured goods out of China, they can push the margins higher that other importers who either can't negotiate rates the way Amazon can, or who just can't get stock into the country at all.
Just off the top of my head, the Swiss:
don't make airplanes (no Boeing, Embraer)
don't make cars (no GM, Ford, Toyota, etc)
have big consolidated banks (UBS & CS)
have large trading firms (Glencore, Trafigura)
etc....
My point is not to nitpick (I actually agree with your post) , but to show that even in a tiny country like Switzerland (smaller than Chicago), it is hard to do that.
<null>.
UBS Switzerland. [1]
Glencore. [2]
[0]https://www.pilatus-aircraft.com/en
[1]https://swissfirma.com/largest-swiss-companies
[2]https://www.topmba.com/jobs/15-fortune-500-companies-headqua...
GM and the rest of Detroit got their rear ends handed to them because they'd underinvested in fuel-efficient engine designs (the lost 70s) and grown lazy in reliability.
Lean manufacturing may have allowed Japanese manufacturers to price more competitively and be more agile, but at the end of the day, they increased their sales because they made better cars.
You're leaving out some pressures which caused Detroit to be un-competitive in the small car space, including high labor costs.
The whole point of the startup culture is that they can do things better than a large company.
And, quite often, they can. But not always.
A semiconductor plant, for example, is not a startup thing because the capital cost is so gigantic.
However, most fields are not that bad. Even bio equipment just isn't that expensive relative to the cost of the people to use that equipment.
The bigger problem, right now, is that investors don't want to fund anything which requires more than 18 months before flameout/unicorn. That blocks startups that have a 5+ year horizon.
Newer, smarter Asian companies will displace stupid old American ones, just as the Americans crushed the Europeans.
Tech founders are a different breed.
Whether we believe them is another matter entirely.
People writing articles like this forget that it's not just Wall Street, but competitors who created the huge pressures for adopting JIT inventory systems. There's also the consumer. Are you willing to spend the additional money required to buy a car from a company who wastes tons of $ on excess inventory?
It didn’t help but I think that’s more of a symptom of building shoddy products: part of why inventory backed up is that Detroit was producing cars which simply weren’t as good. Toyota didn’t have a shortage of demand, and neither did Saturn. If you make shoddy, poor-handling gas guzzlers, yes, you’ll underperform on sales. That doesn’t meant the only option is less inventory.
The book is a deep, academic examination of the roots of lean production, and is a must read for any engineer who wants to get the Agile cultists to shut up and go away. I'm a hardcore believer in the ACTUAL Agile philosophy, which is rooted in lean, and I despise the cult of clerics that have risen up around it and turned it into management consulting BS. That book helps to know real agile from consultant billing hours agile.
A lot of the Demming types are pure theory, or just garbage in the modern age.
i guess what your saying is, its better to study those companies themselves, even if influenced by said person...?
It really feels like a lot of these folks go to university, embrace a quasi-religious ideology where large companies are the devil and are therefore the root of all things bad, and profits are a sign of greed. Meanwhile, the douchenozzle is sitting there writing that tweet on a piece of electronics that was made possible by the things he's complaining about.
If I'm being paid for my performance while I'm a CEO, why would I spend money today (and hurt my performance today) to fix a problem that MIGHT affect the company in 20 years
A lot of the JIT fashion came from Toyota, and yet Toyota doesn’t seem to suffer from these issues as much as others. I don’t think it’s any coincidence that most of the senior executives of Toyota have all been at Toyota for longer than many of us have been alive, and that the company president is the grandson of the company founder.
...doesnt jit work better if you have good relationships with them and they know well what your expectations are and can adjust accordingly?
This is pure speculation, but I also wonder if Japan’s geography + slightly more diverse economic landscape (lots of small businesses that do nothing but make components) help make their JIT more resilient to shocks. With Osaka, Tokyo, and Nagoya all within an area less than the length of California, it’s far easier to “in-time” material.
Computer chips? Made only in one company in china? Trying to get someone else to make them, means weeks or months of production line changes + waiting time + other customers... good luck. If they're far away (eg. china), and the transport system is fucked up, you're basically fucked up too. Even a huge company like toyota can't make a chip factory "overnight" anywhere.
I will give him credit for cleverly spinning this logic all into a pitch to kill the unrealized cap gains tax proposal!
What? How did you get billionaire class and founders? He specifically says founder led companies and family owned businesses. Unless you reduce that group to the Waltons, how does family owned businesses equate to the billionaire class?
"Only founder led companies and family owned businesses can stand up to the immense pressure from the dogmas of modern finance."[1]
1: https://twitter.com/typesfast/status/1453753942228160515
There was a book published a couple of years ago (before the pandemic) which was "demonstrating" (so to speak) that going back through history real financial/economic levelling at a reasonable scale only happened as a result of violent means (wars, revolutions etc).
I think what those violent means do (among other, more nasty things like people getting killed) is that (in some cases) they obliterate the societal/institutional structures on which a specific rent-seeking system is based, which gives the majority of the people a chance to "level up" until a new rent-seeking system takes shape.
Also plagues/disease. Currently relevant.
Dear lord the amount of smug “wE aRe ThE mOSt EfFicIEnt wAY Of AllOCaTinG CaPitAl” arguments from very wealthy founders that would prefer to become more wealthy is frankly ridiculous. I get it, you went to Stanford and they taught you some fancy words to trick people into giving you money instead of investing in public infrastructure and services.
"most" does a lot of work here since it's a relative term. I'm not sure I'd exactly call them efficient but I'm not sure there's a _more_ efficient way that I've seen.
He didn't say they'd solve the problem. He said they're the only ones who can be resilient in hard times. OK I think he said the ARE resilient, I say "can be" because it's still a choice.
"I think economists call it rent-seeking." That's what the incumbents are after, and so are a lot of the startups - at least the startups seeking round after round of investment. If they're not seeking rent, they're trying to set up infrastructure (manufacturing or cloud this-or-that) and collecting returns (rent) on that investment. Nobody talks about profit on goods sold, they talk about return on capital (or RoE) and that seems a lot more like rent.
>I think economists call it rent-seeking.
Are you saying all "disruptive innovation" rent-seeking? Or only certain kinds? If a founder was able to "optimize the excess out of the system" by providing a better consumer-facing experience (eg. amazon), why shouldn't they be rewarded with profits? Is there any room for profits without being called a rent-seeker?
Picking on Amazon for a moment, their original "innovation" was a sales and use tax dodge: based in Washington, they were able to sell books to California without having to charge the relevant sales tax upfront. That margin gave huge room to provide free shipping and other customer conveniences. Technically customers were supposed to pay a self-reported use tax but many did not.
The relevant laws have changed since then, but the general point still stands. Does mere tax and legal arbitrage count as rent-seeking? Absolutely.
Sales tax in california was 7.25%. While not having to charge tax was a competitive advantage, I'm skeptical that was the defining factor that led to amazon's success. This is further compounded by how prices work in the US (taxes are not included), so I doubt this even made a conscious difference to most people. Finally, the exemption isn't limited to e-commerce sites. According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone". Why did amazon dominate while sears languished?
It isn't really an exemption, anyway, it is a limitation under then-existing federal law on the power of states to impose taxes.
> According to wikipedia, it includes "companies doing mail order, online shopping, and home shopping by phone".
That's misleading.
What it actually applied to, at the time, was companies without physical presence in the state into which the sale was being made. So companies that exclusively did those things would be covered (except in the State they operated from, but they could operate in a no sales tax state), but companies that did them alongside physical operations would not, and before the web, those other models alone had so much less access to customers that the sales tax hack wasn't worthwhile.
> Why did amazon dominate while sears languished?
Because while Sears also had mail order business, it was a ubiquitous brick-and-mortar retailer, and thus was paying sales tax on its mail order sales, because they had retail everywhere.
2. I'm not really convinced that "the sales tax hack wasn't worthwhile". How expensive would it be to spin off your mail order division? Lawyers might be expensive, but 7.25% of your revenue is also a lot of money.
Someone could click a link on an ad and be on your “catalog” and able to order with very low friction, rather than seeing an ad, ordering a catalog, getting the catalog, then calling in or mailing an order.
(Also, Amazon was initially specifically in books, and got started just after a few giants like B&N and Borders had crushed local independent bookstores and replaced them with giant, discounting, but more impersonal and on average more distant from the customer big box stores, so they were hitting a market uniquely (or at least particularly) primed for a convenient to access heavily discounting remote seller; not only was the internet a sea change
We're talking about founder owned companies owned by billionaires. So let's use an example of one: SpaceX. You're maligning "disruptive innovation" so let's expand out your claim with the specific example: an order of magnitude reduction in the cost of space flight and the introduction of competition in rural internet service.
So you're saying enabling access to other planets and the moon while providing people in isolated areas with internet service is an example of squeezing out profits and you're saying that you think it is rent seeking. Rent seeking is defined as an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity. Typically, it revolves around government-funded social services and social service programs. We already had programs to access space. They were an order of magnitude more expensive. We already had programs to provide internet. They didn't serve well the subset of people that are in remote areas. So in both cases it just isn't the case that the company is doing rent seeking.
In other words, you are completely wrong when we use a specific example.
This applies to more specific examples. Lets use the specific example of Flexport. It is owned by a founder and you're replying to things posted by them so it's even less of a reach than before.
They are introducing computers to an industry that has competitors from the 1400s era. These competitors sometimes have legacy processes built on physical paper and for some of them excel is an example of the use of cutting edge technology. You're saying that doing better than that for people using modern technology is an example of rent seeking.
So do workers, to be fair. The goal of workers in purchasing departments and HR isn't to make the business more efficient but to propagate a cushy lifestyle for themselves and their mates.
To an extent, that same misalignment exists in all classes of worker, including engineers.
SWEs are probably the worst at this; so many of the problems that we solve don't have anything to do with squeezing the most performance out of the hardware or reducing technical debt. Instead, a huge chunk of our time is spent on man-made bullshit that sysadmins don't solve properly because otherwise they'd be out of a job.
Plenty of people warned about the hazards of allowing these companies to outsource everything, government did nothing. Mostly because they are bought off by lobbyists. This could have pretty easily been prevented by putting tariffs on key industries to keep manufacturing here or at least in North America
im pretty sure massive lobbying would incur... but maybe im not seeing the whole picture.
Is this even still true in a super low interest rate environment?
Yeah in the 80s and 90s, tying your resources into inventory would have cost a lot in terms of missed opportunity to invest the money elsewhere. But with financing rates near zero or even sometimes negative in real term, wouldn't even the wall street guy be like: sure keep some inventory, cash is cheap right now.
This RoE argument seems very last century to me.
New companies aren't all trying to be rent-seekers, they also try to dodge existing regulation or actually innovate.
You can juice RoE in the short term by removing slack and shock absorbers, because increasing the brittleness of the supply chain probably won't show up in this quarter's returns.
The supply chain for fuel is brittle. There isn't sufficient inventory in tanks to buffer even short disruptions. A pipeline offline for a couple days is enough to make a crisis.
People catch wind of the crisis and start filling their tanks at three-quarters full instead of one-quarter full, and the brittle supply chain breaks with the accelerated demand.
Same thing we're seeing with the global supply chain which was already brittle, now individuals and companies are putting in bigger orders sooner to compensate, and it fails in the face of accelerated demand.
Late entrants to a backed up queue take exponentially longer to service.
It's getting more challenging to not interpret the destruction of independent business (such as owner operators of trucks, retail, restaurants and bars, and other policies) as an intentional soft-dekulakization of western economies, which is a necessary step in an old playbook. It would be helpful toward demonstrating a better explanation if there were some other economic factor that has appeared in the last year that was not just clumsy application of policy.
Along the way, there are a bunch of other assertions that serve as prerequisites, like the idea that these companies can cultivate better employee loyalty and plan for longer horizons.
How much do we know about how true that is, though? Do privately-owned companies disproportionately survive these sorts of events historically?
How the market speculation on the value of a company can affect its resiliency ? If tomorrow everyone sold Apple stock for 1 cent, why would Apple the company care ? Same revenue, same costs. Give me a break with the importance of the stock casino.
That is in contrast to me and everyone else who just gamble collectively.
For example, to buy some company to improve their business. They can do that in cash or they can issue more shares, e.g. with their Beats acquisition.
> On May 28, 2014, Apple officially announced its intention to acquire Beats Electronics for $3 billion—with $400 million to be paid in Apple stock and the remainder in cash.
If Apple crashed to 1 cent it would gut the entire market. Even just that crash alone, the amount of money wiped out, retiree savings etc., other companies would be valued lower and then the mass selloff would crush them as well.
Apple may not need to 'raise money now' but it very well could in the future - and - every company is somewhat of a proxy for every other company.
If there is no ROI, there is no investment, and there is no economy outside the government, it's that simple.
Taxes on unrealized gains are a separate thing, and probably a bad idea - just contemplate that they would have to be paired with tax-sheilds on unrealized losses as well. Due to speculation, it would open up the door to all sorts of shenanigans.
It's just a bad idea all around.
Elon Musk is a 'paper zillionaire' that's very, very different than someone with a zillion in the bank.
There are probably some very boring, old, already established ideas for increasing taxes on the ultra-wealthy that would probably work very well. Including getting rid of loopholes etc..
1) The market value of a company is true, aka the owners of this company must be taxed for the real value growth in their portfolio (since it constitutes income), even if they do not sell
2) It’s a casino, a share is just a ticket that may worth nothing or a billion. In that case we don’t need tax protections. The owners of the tickets must be taxed only when they cash out. The governments should actively disincentivize gambling into this and ensure the pensions of its citizens by funding public projects and enabling future growth.
You cannot have it both ways.
But nobody wants this because we all know it’s pure speculation. That is why we call it “unrealized gains”.
If everyone tomorrow tries to cash out their Apple stock, except from the first few, all the rest will get 1 cent each. There is no value in these tickets, just the power of combined speculation.
There is such great risk in that to create self-serving definitions that the industry as a whole decided these terms needed standardization and definition.
Now we already have these standards, so let's just stick with them and all use the same meaning of "income" rather than switching to something based on personal intuition. If you want to change the tax code, change the tax code, don't try to redefine "income".
We 'don't want it' to be taxed because it doesn't make sense.
Also, you'd have to provide a tax shield for the losses as well.
There are so many things wrong with taxing on 'mark to market value'.
We can barely get away with it in real estate, but that market acts more rationally, and most of it is about rent extraction.
Not really. My car is losing 10% of its value each year but nobody is returning me the sales tax I paid for the full price. Let alone returning me some of lost value.
Why if your stock depreciates do I have to compensate you?
Personally I believe that your claimed cars value is speculative since you don’t mass produce and sell it widely. As a result, it makes no sense to tax you for the unrealized gains.
When you actually find a loser to buy it for the asking higher price then you should be taxed for your lottery earnings.
Some states and countries actually do tax personal property like cars. Virginia and Rhode Island, for example.
In those jurisdictions, if you have a vintage car in 2021 worth $100k, then you pay $100k * TAX_RATE in 2021. If the value of your car jumps up to $200k in 2022 (due to a movie or something), then you pay $200k * TAX_RATE in 2022. As long as the property is still in your possession, you pay property tax on it.
Can you imagine if your Tesla was deemed to have a market value of 2x what you bought it for, because a few random idiots were trying to buy it up?
And you had a gigantic tax bill on that?
Unrealized gains are not gains.
What 'someone else' is willing to pay for your property isn't necessarily very well related to how you value it.
It might possibly work for real estate in controlled conditions but even then it's risky. For equities, it's really hard to have an asset tax.
Property tax taxes an asset that doesn't move, literally and figuratively. Before financial markets exploded, and especially in agrarian societies like the United States at its founding, a property tax was effectively a wealth tax. (It still is a wealth tax, technically speaking, it just no longer reaches the wealth of the richest in society.)
> In what intervals would you do this?
In whatever interval you'd like. Presumably yearly. But don't companies have to "mark-to-market" for their quarterly reports?
> Your bank account would go to zero.
This is already the case with inflation, very deliberately so.
I can't say I'm a fan of a wealth tax. And in any event I don't think it'll ever happen in the U.S. But the reasons for disliking a wealth tax are more complicated than the above.
well, if you follow this logical conclusion, why are you not taxing a baby because the baby's value is the future income of that person's job. Sure, it's unrealized, but you're still considering it income even though it's unrealized.
If you are certain that your baby this year is bringing home tangible income due to its TikTok page, then yes tax it.
and yet, the claim originally was that it makes sense on the speculated value of stocks.
> If you are certain that your baby this year is bringing home tangible income due to its TikTok page, then yes tax it.
so tax the dividends, or tax the capital gains that are realized - because those are certain. To own stocks is to speculate.
But if we agree it is a casino, then we should not tax air, only the ones who cash their earnings and walk out of the casino. And goes without saying that we should stop incentivizing people to gamble their money and pensions on this. 401k, Roth and all these need to go.
And, it's ridiculous to try to tax unrealized gains in most situations, it's unfeasible the moment you try t put a policy around it.
It's a non-starter and any attempt at legislating it will fail badly and make the politicos that tried to do it look like clowns.
The tools we already use are much more effective.
The problem would be if tomorrow everyone sold Apple stock for $1000, and the government took that as a reason to tax every Apple shareholder for “income” of over $800 per share in the stock casino, forcing Apple’s current shareholders to divest themselves to new shareholders and hence lose control of the company.
This is a cynical ploy to the part of the populace that can't tell a portfolio from a hole in the ground, and there seem to be surprisingly many of such people.
Also, to address GP's comment - Apple would then buy back all outstanding stock and destroy it, dramatically driving up the share price for folks who haven't sold.
Not really. They'd just print more money.
Given how many Fortune 500 companies have died even in prosperous times since the list started, I’m gonna file this away as “manufacturing consent to maintain the status quo.”
Corporations are not literal machines or organisms. They’re a social acquiescence given the reality of biological need at scale. The logistics are necessary; the behavior is necessary; the ownership angle is propaganda.
That said, this does read like someone with a personal axe to grind, leading to motivated reasoning.
But it's critical to note that the proposal has different rules for privately held stock & real estate. So the tweet author's buried argument doesn't hold water.
I believe those assets would mostly be treated the same as they currently are, e.g. sold or death.
For the 700 or so people who are targeted it basically creates a tax on the collateralized loans they get to avoid selling stock/cap gains in the first place. While not doing that directly, that's the effect of it.
And they get 5 years to pay the initial bill. 23.8% / 5 = 4.7% growth a year to be even (well something like 6 or 7 adding the new annual 23%). Most of these guys will likely generate more on paper profit than and they get deductions for any losses if they don't
It's what pisses me off most about the proposed Purdue Sackler settlement. Giving billionaires such long lead times to pay off fines and taxes allows them make more money than they owe.
The last graph on the WSJ article though says “Smart investment bankers and asset managers are already thinking about how to financially engineer products that will emulate existing stocks but be hard to value”
Check out the 2nd link for Pandora Paper reporting showing one egregious example of how they take advantage of this.
The owner of Nike puts millions of nike stock into a GRAT, which is privately held, and then the government gives that grat a 15% discount before it's passed along to his children.
Shouldn't get tax benefits for something that you claim is harder to sell (privately held stock) when in actuality the assets are 100% publicly traded nike stock.
The Wyden tax bill is a 100 pages long so maybe it goes after some of that crud, but there will always a scheme to lower your taxes.
https://archive.md/W2074 https://archive.md/yN7M7
after a very short period of time after a major disruption, there ceases to be a simple cause and the answer rapidly becomes "well, it's the gibbs phenomenon, it's gonna ring for a while now".
https://thezvi.wordpress.com/2021/10/28/an-unexpected-victor...
If you want to be rational about this, judge the plan (and this one too) on its own merits rather than on the fact you're being manipulated. You're being manipulated - you are always being manipulated, every time someone communicates with you, and you can't escape that. It's good to understand how, but then your job is to tease out the rhetoric and understand the underlying proposal enough to judge it on its own merits.
Following the exact same playbook. A bunch of easily agreeable "Rah, Rah bad Wall st. Short term over long term bad" to get everyone nodding, then an incredible leap to push his actual argument.
This guy is falling very quickly from "interesting how he got that thread picked up everywhere", to "somethings fishy here".
The logic presented is "The cause for the port slowdown is a future policy proposal I want people to oppose."
Obviously he isn't literally saying that, but that's the logic path he walks the reader down.
Yep, we simplify. Yes, we tell stories. We don't lie. (No, teaching Newtonian mechanics without mentioning Relativity isn't a lie, and neither is simplifying the container explanations until even bureaucrats can understand it ;-)
That said, having
1. seen the email that circulated with my customers ten years ago about how container ships transport goods from Asia to US and American air back
2. and having recently listened to "The Goal" by Eliyahu M. Goldratt
I do wonder if this is really the best solution.
I'm not saying he's right about everything, but trusting his integrity and industry knowledge is a very safe first step.
when covid first hit, supply chains either had too much or too little almost instantly. Things like raw supplies based on JIT ordering either ground to a halt because demand died and so did the modelling, or because demand was too high for the computer model (think a bell curve.) low-boy trucks shipping things like construction equipment and preform concrete werent affected as governments in most cases stepped in with works projects to keep people employed, but trucks in the supply-side chain of things like toilet paper and frozen pizzas ran into trouble in almost the first few hours of the pandemic.
It helps to keep in mind all these things in JIT are connected. they work like a slinky, and anything that holds up the line will only amplify problems later.
frozen pizza is the best example. for example if things like bell peppers and onions could be delivered, but dough could not, then trucks for dough would idle in the yard until their yard-pay expired and they moved to the next job. yard-pay is the money you earn idling after X minutes in a lot waiting for a hookup, and it can be rather substantial. Anyhow, once dough can be shipped again, peppers cannot because the peppers have spent too much time in transit and now theres loss. pepper trucks then go offline for cleanup and you have too much dough and surprise, the onion trucks just automatically dropped you as a customer because you didnt meet a monthly required minimum.
this doesnt even cover the hell of intermodal port shipping. containers full of perishables rot because cranes are frantically unloading COVID masks, and now those containers are offline for cleaning. containers full of COVID masks cant be unloaded because theres a backlog of Hydrogen Peroxide for a floor tile company in Sheboygan that went out of business eight minutes ago due to shipping constraints, and if its not unloaded and chilled the entire port will explode into flames. in the yard, eighty-one trucks have been on yard-time for nearly 3 hours and a third of the trucking companies paying that yard time will be bankrupt because of it by the end of the day, but they have no choice. Trucks and drivers that went unpaid for weeks are now just taking up lot space until someone figures out how to remove them and the city will likely have to foot the tow.
Later in COVID as cities enacted mass casualty plans they basically absorbed any and all refrigerated 53' trailers they could find as a temporary morgue. now it doesnt matter how many pizzas you wanna sell, the toilet paper company has bought up all your transport market and the city just left you with no refrigerated trailers to use. Once cities are done, you generally scrap those trailers as they cant be used for food again.
Finally, you have trucking firms that went belly-up during the shutdown for any number of reasons, including over-leveraged in JIT style software or a single customer. these truck drivers either left the job to do something else because professional driving is a pretty thankless gig, or retired because the average age of a professional driver is in the 50's. now that we need drivers we have no one to perform necessary training, so it doesnt matter how much cash we throw at highschool kids.
yard conditions also play a role. factories that manufacture bacon might be running at 10% capacity due to covid infections, so trucks show up and idle because the past 3 logistics managers either died or went home sick and nobody in the front office knows what to do. these factories cant or wont shut down because theyre considered supply chain critical (s/bacon/disinfectant/), with "hero" workers and whatnot. shipping companies might also decide to drop you as a customer due to insufficient COVID precautions or an overwhelming amount of COVID infection.
Odd, that.
In my household, we started making our own pizza, from scratch (save canned / bottled Pizza sauce). Flour keeps and is shelf-stable. Most toppings survive refrigeration. Those best served fresh are bought as available, menu rotated as needed.
If your supply chain can't guarantee delivery of complex sets of fresh time-sensitive product, drop constraints such that the product mix is less time-sensitive. Sourdough substituted for dry yeast, unavailable at any price.
(This works well at the household level. It works less well at industrial-scale production where flexibility is greatly reduced.)
Even before covid I used to read about consumer companies that have a shipping problem right before Christmas and go out of business. So I can believe that shipping problems on a scale this large will take time to fix. Thank you for your comment.
California ports suffered from AB5 and EPA rules more than other states, and with California controlling like 40% of the containers, they shot themselves.
Older trucks banned on roads and ports (CARB) and Owner Operator trucks (AB5) gig workers banned, they relocated their llc's outside california to keep their businesses running.
The CA EPA/DOL CARB rules also expanded fire seasons, as older logging companies closed down due to the state not renewing licenses on trucks. Mom/pop companies couldn't afford to buy very expensive trucks, new engines, or licenses. Less companies logging = more fuel.
CA just banned gas generators, as most construction sites use them power their tools. Work arounds will be people buying ford f150's with onboard generators as a quick work around, and most likely will raise costs even further.
Not every system is a critical system, not all systems require spare capacity.
Except the COVID pandemic is probably not a 1 in 100 year event, the last SARS epidemic was less than 20 years ago (and fortunately was not as disruptive as the current one). I wouldn't be surprised if the next one is within a decade. And we've done little to prepare for it.
A) This was a multi-factoral event certainly but all of these other factor are "immediate causes" which can themselves be traced to absolute maximum return on equity as a more final cause.
B) No doubt "hard to restart" process are were involved. But the world relies on single-source, hard to restart, large scale production of many things today because these produce the highest returns for those who invest in them and the lowest prices for those who buy from them. And both kinds of actors have been willing to just stop producing rather than doing something that might be costly to keep production going (and they decided they didn't want backup before this for the same reason).
C) Supply lines that stretch around world exist as a combination of economies of scale and "labor market arbitrage" and both these are driven by return, even though "labor market arbitrage" doesn't increase efficiency or robustness.
D) Chip manufactures put money into "up-date" chip processes, notably leaving the sorts of chips actually used in cars woah fully under-invested and generally many sorts of lack of robustness can be traced down to money flowing only to the normally profitable. Shutting down production isn't necessarily that bad for a company - they don't wages and they can start back up once things stabilize. It's much less disastrous than making a bunch of stuff and not being able to sell it. Clearly, that thinking is guiding a lot of decisions.
Chip manufacturing has a clear start/end date for the product lifetime. This is necessary when you are incorporating a product into a design and product lifetime. Sometimes they will 'oops' you and send it out of print early. Generally, they have a 'b' product that "meets" your needs or product engineering just scrambles and tries to guess how many we need for a final run for our EOL. Much like the guy above me, the former requestor and probably his boss... I pad my estimates. Thank the baby Jesus I don't deal with the complicated world of sales and cocaine.
I want to put a big asterisk on "meets" because one man's performance metric is another man's failure. In discrete circuits this can be harmonics and in more complicated topology this could be tuned for an entirely different (but potentially acceptable) set of characteristics.
Enter the hardware qualification rounds where people like me make people cry and deadlines slip.
Supply lines work in months of advancement and trust me when I say this they have been fighting with chip shortages for months.
The people who care about costs have been playing a weird game of rubiks cube and the people who don't have been buying everything for year+ production. Guess who won that game of planning competition...
Taiwan going complete Orwellian and shutting down for months screwed the market in so many ways. Short sightedness on bean counters screwed themselves in many other ways and automobile manufacturers had the brilliant idea to just 'buy it all out' and give the manufacturers a big payday.
Seriously, chip manufacturers are like shoe string manufacturing. The latter counts wartime boot string orders as a big payday and that is something a lot of us look at as a bad year in a paycheck. (well the ones with skill anyway).
Lines are created with a product if the current line cannot manufacture that product. There are cases where they have to shutdown and completely retool. This isn't remotely the case regarding components today. The line simply stopped and/or went to minimal production. It wasn't news or a surprise because this is garbage we have been fighting with for months. Taiwan simply stopped producing at the level they were because they have some severe lockdown strategy.
In Q3 2021, TSMC shipped 12.5% more wafers year over year and +5.7% quarter to quarter during the period with the highest covid restrictions. And that's already on top of the 19% increase in shipments for the full year 2020 over 2019.
https://investor.tsmc.com/english/encrypt/files/encrypt_file...