Dan Davies on Warren Buffett as miseducator & value-subtracting business activities; þe end of þe quit boom; Byzantine-era mosaics; & Beatty, Smith, Sandbu, & Orzel on fearing & hiding history, San...
COVID provided a lot of people with a locus poenitentiae, a time to think and evaluate. People were laid off. They had money in their pockets. They had time to think. A lot of people were considering a career change or even just a job change but didn't have the resources for the transition. It costs money to move. It costs money to quit working and hunt for a new job. It's hard to pay one's bills when one has to show up at work every day for as many hours as you can get. COVID gave a whole class of people breathing room. It's no surprise the quit rate soared. A lot of people stuck in jobs they hated got the resources to move to jobs they hated at least somewhat less.
Agree with everything you say. But there is more to the story about quit rates. An essential element of the COVID shock was retirement/early retirement. Plus, a lot of people left the labor force for various reasons (childcare etc.) This suddenly created a scarcity of workers. A lot of vacancies opened up. One can see that in the job openings segment of the JOLTS survey. Nominal wage rates increased. Some of the boom in the quit rates is probably also a response to those vacancies; people switched jobs for a better pay package or for a higher rank elsewhere, a career move, so to speak. Unfortunately, such quits likely do not enhance productivity at the aggregate level (one firm's gain is another firm's loss). But they most likely added to the labor costs in aggregate. Thus, unit labor costs rose, decreasing profit margins as well as increasing the temptation for businesses to raise prices further (to maintain their profit margins). The Fed has been vigilant for just that reason. It would prefer not to see those second-round price increases.
I've been trying to figure it out myself. If someone moves from Company A to Company B to doing the same work at higher pay, what is the overall effect? You could argue that it helps productivity, because Company A is willing and able to pay more and so must be making better use of the employee. We had an apparent COVID productivity boom when all the low productivity service workers were laid off. It's company B's loss, but company A is producing higher output or they wouldn't have offered more pay. This is kind of neoliberal or Panglossian. You could also see it from a Marxian lens with the worker capturing more of the surplus his or her work generated and merely hurting the boss class. A New Deal liberal / demand-side economist would argue that this would increase aggregate demand since the worker involved would be more likely to spend the salary bump than either boss A or boss B. Of course, if it is exactly the same work with the same mechanical output, then company A would be tempted to raise prices, or perhaps it already works upmarket. If A does raise prices or aggregate demand rises, then that generates inflationary pressure.
All this reasoning reminds me of the problem of firing up a naval ship engine from "cold iron". This was a problem back in the 1980s because the US Navy was building a lot of ships and losing a generation of sailors, especially long serving engineers. The Navy funded an AI system called Boiler that tried to give advice to rookies full of book learning. The problem was that ship engines had all sorts of pipes, wires, mechanical parts and interdependencies. Was the water temperature more important than the fire temperature, and, if so, under which circumstances. It was like the employee movement problem. Which effect was dominant? Which gauge(s) should the engineer be watching at which phase? They had hoped to use a rules based system, but they wound up having to build an engine simulator because it was differential equations don't always act in ways that make sense. We have the same problem with economics. Should we be watching pay or profit? Should we be measuring output or input? There are no easy answers, so the usual analysis depends on who is signing the economist's paycheck.
I always take issue with "best for the job" type arguments because they're always misdirection. We lack the ability to pick "the best" for any job without putting candidates through the exact rigor of the specific work that needs doing, and while the nature of that work may be largely consistent, the "best" will always change between specific work under specific constraints.
Thus most of our attempts at choosing "the best" are just entertainment by another name. We get a thrill from watching people compete with one another. It allows us to cast aside the responsibility of picking qualified candidates and weighing difficult trade-offs (while avoiding some altogether for legal reasons) to choose just one candidate among many, putting the onus of a mistake on our own shoulders from our own choices we don't have full confidence in making.
If competition gets us a qualified candidate or if it doesn't, it is a fault of the system and the "combatants," not those that ran the show.
Some people are better at job interviews than others. Guess who gets the job? Does that skill have anything to do with them being good at the job? Why would it, unless the job is to be interviewed for jobs. How many jobs are filled by the best person for the job? I'd say maybe 5-10%. Can we do better? Maybe a bit.
Thanks for the video of San Vitale. I recently read an excellent book about Ravenna by Judith Heffrin. Recommended, if you have time for recreational reading.
"Business leaders who focus on making money by figuring out a way to grab a greater share of user value at the price of degrading it are a public curse."
4. What is the alternative to meritocracy? AA ought to seek to make selection MORE meritocratic by reducing the important of the luck of the race/ethnicity. As for the difference between first and second place, That's mainly what progressive taxation is for.
Ahuja: An important way to contain the effects of crop failures is trade in agricultural commodities. Will some of those failures be in marginal land pressed into service in the name of "food security?"
Are you talking about commodities futures? They're good at getting a good position in the survivor lottery, but they don't increase the supply of food.
If you believe the global warming forecasts, you'd expect some marginal land, land too cold or with too short a growing season, to become more productive. Land at the warmer edge of the most productive region would be more likely to become to hot and/or dry. I doubt it's strictly north/south. There are all kinds of variables, but marginal land might be a better hedge than one thinks. (Marginal land is also more likely to survive an economic downturn since it is less likely to be mortgaged than more productive land. At least that's what happened in the 1930s.)
Nothing so sophisticated. I mean importing food from places where the crops did not fail. Of course agricultural research to adapt crops to changing conditions, better seasonal weather forecasting, etc. is one form of mitigating the effects of ACC.
Gonglof: Close but not quite. To curb net emissions of CO2. At some level of net tax on CO2 emissions shy of zero fossil fuel use Carbon capture and sequestration my become cost effective. Moreover, national net CO2 emissions targets are inefficient. We need equal taxation of net emissions. How that will play out in terms of net emissions reduction among nations depends on local factors.
The "Moats" which Buffet spoke of have a precise definition in Industrial Organization. There they are called Barriers to Entry. It is a matter of hot dispute whether firms can create barriers to shut out competitors. Buffet also like metropolitan newspapers back in the day because they appeared to be structural monopolies. I believe he referred to them as toll bridge. That eras is now gone.
Moats were good for midievel castles (at least in all the movies I've watched over the years, "hoist the drawbridge up!") but whether it's applicable to investing is largely dependent on the definition of which there are many. Warren Buffett need not be castigated for appropriating the term (disclosure: I am a Berkshire-Hathaway shareholder). If we are talking about moats, perhaps it is Apple who have the widest one and jealously guard it and maybe this is why Berkshire owns so much Apple stock.
Those who go on about moats are usually to lazy to put in the effort to figure out how much a company is worth. I discovered several on line educational programs that will teach one the fundamentals of finance (replete with lots of good secrets to effectively using Excel) and these are reasonably priced (1/100 the cost of the same course set in B school). that's where the effort needs to go.
COVID provided a lot of people with a locus poenitentiae, a time to think and evaluate. People were laid off. They had money in their pockets. They had time to think. A lot of people were considering a career change or even just a job change but didn't have the resources for the transition. It costs money to move. It costs money to quit working and hunt for a new job. It's hard to pay one's bills when one has to show up at work every day for as many hours as you can get. COVID gave a whole class of people breathing room. It's no surprise the quit rate soared. A lot of people stuck in jobs they hated got the resources to move to jobs they hated at least somewhat less.
Agree with everything you say. But there is more to the story about quit rates. An essential element of the COVID shock was retirement/early retirement. Plus, a lot of people left the labor force for various reasons (childcare etc.) This suddenly created a scarcity of workers. A lot of vacancies opened up. One can see that in the job openings segment of the JOLTS survey. Nominal wage rates increased. Some of the boom in the quit rates is probably also a response to those vacancies; people switched jobs for a better pay package or for a higher rank elsewhere, a career move, so to speak. Unfortunately, such quits likely do not enhance productivity at the aggregate level (one firm's gain is another firm's loss). But they most likely added to the labor costs in aggregate. Thus, unit labor costs rose, decreasing profit margins as well as increasing the temptation for businesses to raise prices further (to maintain their profit margins). The Fed has been vigilant for just that reason. It would prefer not to see those second-round price increases.
I've been trying to figure it out myself. If someone moves from Company A to Company B to doing the same work at higher pay, what is the overall effect? You could argue that it helps productivity, because Company A is willing and able to pay more and so must be making better use of the employee. We had an apparent COVID productivity boom when all the low productivity service workers were laid off. It's company B's loss, but company A is producing higher output or they wouldn't have offered more pay. This is kind of neoliberal or Panglossian. You could also see it from a Marxian lens with the worker capturing more of the surplus his or her work generated and merely hurting the boss class. A New Deal liberal / demand-side economist would argue that this would increase aggregate demand since the worker involved would be more likely to spend the salary bump than either boss A or boss B. Of course, if it is exactly the same work with the same mechanical output, then company A would be tempted to raise prices, or perhaps it already works upmarket. If A does raise prices or aggregate demand rises, then that generates inflationary pressure.
All this reasoning reminds me of the problem of firing up a naval ship engine from "cold iron". This was a problem back in the 1980s because the US Navy was building a lot of ships and losing a generation of sailors, especially long serving engineers. The Navy funded an AI system called Boiler that tried to give advice to rookies full of book learning. The problem was that ship engines had all sorts of pipes, wires, mechanical parts and interdependencies. Was the water temperature more important than the fire temperature, and, if so, under which circumstances. It was like the employee movement problem. Which effect was dominant? Which gauge(s) should the engineer be watching at which phase? They had hoped to use a rules based system, but they wound up having to build an engine simulator because it was differential equations don't always act in ways that make sense. We have the same problem with economics. Should we be watching pay or profit? Should we be measuring output or input? There are no easy answers, so the usual analysis depends on who is signing the economist's paycheck.
I appreciate your comments.
I always take issue with "best for the job" type arguments because they're always misdirection. We lack the ability to pick "the best" for any job without putting candidates through the exact rigor of the specific work that needs doing, and while the nature of that work may be largely consistent, the "best" will always change between specific work under specific constraints.
Thus most of our attempts at choosing "the best" are just entertainment by another name. We get a thrill from watching people compete with one another. It allows us to cast aside the responsibility of picking qualified candidates and weighing difficult trade-offs (while avoiding some altogether for legal reasons) to choose just one candidate among many, putting the onus of a mistake on our own shoulders from our own choices we don't have full confidence in making.
If competition gets us a qualified candidate or if it doesn't, it is a fault of the system and the "combatants," not those that ran the show.
Some people are better at job interviews than others. Guess who gets the job? Does that skill have anything to do with them being good at the job? Why would it, unless the job is to be interviewed for jobs. How many jobs are filled by the best person for the job? I'd say maybe 5-10%. Can we do better? Maybe a bit.
Thanks for the video of San Vitale. I recently read an excellent book about Ravenna by Judith Heffrin. Recommended, if you have time for recreational reading.
I'll second the recommendation. It was a fascinating book about a fascinating era.
I'll third that recommendation.
"Business leaders who focus on making money by figuring out a way to grab a greater share of user value at the price of degrading it are a public curse."
So, pretty much the entire Private Equity industry? With Orlando Bravo being perhaps the aptotheosis: https://www.thebignewsletter.com/p/how-to-get-rich-sabotaging-nuclear
4. What is the alternative to meritocracy? AA ought to seek to make selection MORE meritocratic by reducing the important of the luck of the race/ethnicity. As for the difference between first and second place, That's mainly what progressive taxation is for.
Ahuja: An important way to contain the effects of crop failures is trade in agricultural commodities. Will some of those failures be in marginal land pressed into service in the name of "food security?"
Are you talking about commodities futures? They're good at getting a good position in the survivor lottery, but they don't increase the supply of food.
If you believe the global warming forecasts, you'd expect some marginal land, land too cold or with too short a growing season, to become more productive. Land at the warmer edge of the most productive region would be more likely to become to hot and/or dry. I doubt it's strictly north/south. There are all kinds of variables, but marginal land might be a better hedge than one thinks. (Marginal land is also more likely to survive an economic downturn since it is less likely to be mortgaged than more productive land. At least that's what happened in the 1930s.)
Nothing so sophisticated. I mean importing food from places where the crops did not fail. Of course agricultural research to adapt crops to changing conditions, better seasonal weather forecasting, etc. is one form of mitigating the effects of ACC.
Gonglof: Close but not quite. To curb net emissions of CO2. At some level of net tax on CO2 emissions shy of zero fossil fuel use Carbon capture and sequestration my become cost effective. Moreover, national net CO2 emissions targets are inefficient. We need equal taxation of net emissions. How that will play out in terms of net emissions reduction among nations depends on local factors.
Thanks for the link to Dan Davies on valuation. That's a great summary of my profession as an appraiser.
SF would be a great topic for you and Noah to discuss.
The "Moats" which Buffet spoke of have a precise definition in Industrial Organization. There they are called Barriers to Entry. It is a matter of hot dispute whether firms can create barriers to shut out competitors. Buffet also like metropolitan newspapers back in the day because they appeared to be structural monopolies. I believe he referred to them as toll bridge. That eras is now gone.
Moats were good for midievel castles (at least in all the movies I've watched over the years, "hoist the drawbridge up!") but whether it's applicable to investing is largely dependent on the definition of which there are many. Warren Buffett need not be castigated for appropriating the term (disclosure: I am a Berkshire-Hathaway shareholder). If we are talking about moats, perhaps it is Apple who have the widest one and jealously guard it and maybe this is why Berkshire owns so much Apple stock.
Those who go on about moats are usually to lazy to put in the effort to figure out how much a company is worth. I discovered several on line educational programs that will teach one the fundamentals of finance (replete with lots of good secrets to effectively using Excel) and these are reasonably priced (1/100 the cost of the same course set in B school). that's where the effort needs to go.