Category: Economics

Regulations Support Car Incumbents and Undermine Tesla Profitability

(p. A13) . . . governments everywhere have decided, perversely, that electric cars will not be profitable. In every major market–the U.S., Europe, China–the same political dispensation now applies: Established auto makers effectively will be required to make and sell electric cars at a loss in order to continue profiting from gas-powered vehicles.
This has rapidly become the institutional structure of the electric-car industry world-wide, for the benefit of the incumbents, whether GM in the U.S. or Daimler in Germany. Let’s face it, the political class always had a bigger investment in these incumbents than it ever did in Tesla.
Tesla has a great brand, great technology and great vehicles. To survive, it also needs to mate itself to a nonelectric pickup truck business. . . .
We’ll save for another day the relating of this phenomenon to Mr. Musk’s recently erratic behavior and pronouncements. . . . Keep your eye on the bigger picture–the bigger picture is the global regulatory capture of the electric car moment by the status quo. And note the irony that Tesla’s home state of California was the original pioneer of this insiders’ regulatory bargain with its so-called zero-emissions-vehicle mandate.
Electric cars were going to remain a niche in any case, but public policy is quickly ruling out the possibility (which Tesla needed) of them at least being a profitable niche.

For the full commentary, see:
Holman W. Jenkins, Jr. “BUSINESS WORLD; A Tesla Crackup Foretold; The real problem is that governments everywhere have ordained that electric cars will be sold at a loss.” The Wall Street Journal (Saturday, June 23, 2018): A13.
(Note: ellipses added.)
(Note: the online version of the commentary has the date June 22, 2018.)

In a Robustly Redundant Labor Market Most “Will Find New Jobs Quickly”

(p. A1) Tesla Inc. on Tuesday [June 12, 2018] said it will cut about 9% of its workforce in an effort to deliver its first profit during a make-or-break period of building a mass-market electric car.
The layoffs of about 3,500 employees come as Chief Executive Elon Musk reorganizes Tesla’s management structure to make it flatter, and as the company tries to ramp up production of the all-electric Model 3 compact sedan.
In a memo to employees, Mr. Musk said the job cuts are mostly aimed at salaried staff and won’t affect production workers assembling the company’s vehicles. “This will not affect our ability to reach Model 3 production targets in the coming months,” he wrote.
. . .
(p. A8) “What drives us is our mission to accelerate the world’s transition to sustainable, clean energy, but we will never achieve that mission unless we eventually demonstrate that we can be sustainably profitable,” Mr. Musk wrote in the email to employees Tuesday. “That is a valid and fair criticism of Tesla’s history to date.”
. . .
On Twitter, Mr. Musk acknowledged that he was losing good people. “I think they will find new jobs quickly,” he said.

For the full story, see:
Higgins, Tim. “Tesla to Cut Workforce by 9%, In Bid for Sustainable Profit.” The Wall Street Journal (Wednesday, June 13, 2018): A1 & A8.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the story has the date June 12, 2018, and has the title “Tesla Cutting About 9% of Global Workforce.”)

Libertarian Peter Thiel Predicts Communist China’s Tech Success (What?)

(p. B1) The Trump administration gave ZTE, which employs 75,000 people and is the world’s No. 4 maker of telecom gear, a stay of execution on Thursday. ZTE, which had violated American sanctions, agreed to pay a $1 billion fine and to allow monitors to set up shop in its headquarters. In return, the company — once a symbol of China’s progress and engineering know-how — will be allowed to buy the American-made microchips, software and other tools it needs to survive.
China’s technology boom, it turns out, has been largely built on top of Western technology.
The ZTE incident, as it is called in China, may be the country’s Sputnik moment. Like the United States in 1957, watching helplessly as the Soviet Union launched the first human-made satellite, many people in China now see how far the country still has to go.
“We realized,” said Dong Jielin, an adjunct professor at the Research Center for Technological Innovation at Tsinghua University in Beijing, “that China’s prosperity was built on sand.”
. . .
(p. B3) . . . many in China — and many cheerleaders of the Chinese tech scene — . . . found themselves in a feedback loop of their own making. The powerful propaganda machine flooded out rational voices, said Ms. Dong of Tsinghua University. The tech boom fits perfectly into Beijing’s grand narrative of a national rejuvenation. Innovation and entrepreneurship are top national policies, with enormous financial backing from the government. Even now, some articles critical of China’s lagging semiconductor industry have disappeared from the internet there.
And it wasn’t just Chinese people. Michael Moritz, the American venture capital investor, warned that China “is leaving Donald Trump’s America behind.” Peter Thiel, a PayPal co-founder, wondered how long it would take for China to overtake the United States. Three to four years, he concluded.
The boom kept many from asking hard questions. They promoted China’s surge in patent filings without looking at whether the patents were any good. They didn’t ask why China still imports 90 percent of its semiconductor components even though the industry became a national priority in 2000.

For the full commentary, see:
Li Yuan. “China’s Sputnik Moment.” The New York Times (Monday, June 11, 2018): B1 & B3.
(Note: ellipses added.)
(Note: the online version of the commentary has the date June 10, 2018, and has the title “THE NEW NEW WORLD; ZTE’s Near-Collapse May Be China’s Sputnik Moment.”)

A.I. Assists, but Does Not Replace, Humans

(p. B4) Some Phoenix-area residents have been hailing rides in minivans with no drivers and no human safety operators inside. But that doesn’t mean they’re on their own if trouble arises.
From a command center, employees at Alphabet Inc.’s Waymo driverless-car unit monitor the test vehicles on computer screens, able to wirelessly peer in through the minivan’s cameras. If the robot brain maneuvering the vehicle gets confused by a situation–say, a car unexpectedly stalled in front of it or closed lanes of traffic–it will stop the vehicle and ask the command center to verify what it is seeing. If the human confirms the situation, the robot will calculate how it should navigate around the hazard.

For the full story, see:
Tim Higgins. “Driverless Autos Get Help From Humans Watching Remotely.” The Wall Street Journal (Monday, June 7, 2018): B4.
(Note: the online version of the story has the date June 5, 2018, and has the title “Driverless Cars Still Handled by Humans–From Afar.”)

Rats, Mice, and Humans Fail to Ignore Sunk Costs

(p. D6) Suppose that, seeking a fun evening out, you pay $175 for a ticket to a new Broadway musical. Seated in the balcony, you quickly realize that the acting is bad, the sets are ugly and no one, you suspect, will go home humming the melodies.
Do you head out the door at the intermission, or stick it out for the duration?
Studies of human decision-making suggest that most people will stay put, even though money spent in the past logically should have no bearing on the choice.
This “sunk cost fallacy,” as economists call it, is one of many ways that humans allow emotions to affect their choices, sometimes to their own detriment. But the tendency to factor past investments into decision-making is apparently not limited to Homo sapiens.
In a study published on Thursday [July 12, 2018] in the journal Science, investigators at the University of Minnesota reported that mice and rats were just as likely as humans to be influenced by sunk costs.
The more time they invested in waiting for a reward — in the case of the rodents, flavored pellets; in the case of the humans, entertaining videos — the less likely they were to quit the pursuit before the delay ended.
“Whatever is going on in the humans is also going on in the nonhuman animals,” said A. David Redish, a professor of neuroscience at the University of Minnesota and an author of the study.
This cross-species consistency, he and others said, suggested that in some decision-making situations, taking account of how much has already been invested might pay off.

For the full story, see:
Erica Goode. “‘Sunk Cost Fallacy’ Claims More Victims.” The New York Times (Tuesday, July 17, 2018): D6
(Note: bracketed date added.)
(Note: the online version of the story has the date July 12, 2018, and has the title “Mice Don’t Know When to Let It Go, Either.”)

Human Intelligence Helps A.I. Work Better

(p. B3) A recent study at the M.I.T. Media Lab showed how biases in the real world could seep into artificial intelligence. Commercial software is nearly flawless at telling the gender of white men, researchers found, but not so for darker-skinned women.
And Google had to apologize in 2015 after its image-recognition photo app mistakenly labeled photos of black people as “gorillas.”
Professor Nourbakhsh said that A.I.-enhanced security systems could struggle to determine whether a nonwhite person was arriving as a guest, a worker or an intruder.
One way to parse the system’s bias is to make sure humans are still verifying the images before responding.
“When you take the human out of the loop, you lose the empathetic component,” Professor Nourbakhsh said. “If you keep humans in the loop and use these systems, you get the best of all worlds.”

For the full story, see:
Paul Sullivan. “WEALTH MATTERS; Can Artificial Intelligence Keep Your Home Secure?” The New York Times (Saturday, June 30, 2018): B3.
(Note: the online version of the story has the date June 29, 2018.)

The “recent study” mentioned above, is:
Buolamwini, Joy, and Timnit Gebru. “Gender Shades: Intersectional Accuracy Disparities in Commercial Gender Classification.” Proceedings of Machine Learning Research 81 (2018): 1-15.

Earned Income Matters More Than Equal Income

(p. A13) The concept of a universal basic income, or UBI, has become part of the moral armor of Silicon Valley moguls who want a socially conscious defense against the charge that technology is making humanity obsolete.
. . .
We need policies that encourage job creation and working, not policies that pay people not to work.
In the mid-1960s, about 5% of men aged 25 to 54 were jobless. For 40 years that share has risen, and for much of the past decade the rate has remained over 15%. Suicide, divorce and opioid abuse are all associated with nonemployment, and many facts suggest that the misery of joblessness is far worse than that of a low-paying job. According to the most recent data, only 7% of working men in households earning less than $35,000 report being dissatisfied with their lives. But that share soars to 18% among the nonemployed of all incomes. This suggests that promoting employment is more important than reducing inequality.
. . . 50 years of evidence about labor supply in the U.S. suggests that giving people money will lead them to work less.
The Negative Income Tax experiments of the 1970s–when poorer households in a number of states received direct cash payments to keep them at a minimum income–are the closest America has come to a UBI. But they did not show “minimal impact on work,” as Mr. Yang suggests. Rather, they produced a quite significant work-hours reduction of between 5% and 25%, as well as “employment rate reductions . . . from about 1 to 10 percentage points,” according to one capable study.

For the full review, see:

Edward Glaeser. “‘BOOKSHELF; ‘Give People Money’ and ‘The War on Normal People’ Review: The Cure for Poverty? A guaranteed income does nothing to address the misery of joblessness, nor the associated plagues of divorce, opioid abuse and suicide.” The Wall Street Journal (Tuesday, July 10, 2018): A13.
(Note: first two ellipses added; third ellipsis in original.)
(Note: the online version of the review has the date July 9, 2018, and has the title “BOOKSHELF; ‘Give People Money’ and ‘The War on Normal People’ Review: The Cure for Poverty? A guaranteed income does nothing to address the misery of joblessness, nor the associated plagues of divorce, opioid abuse and suicide.”)

Entrepreneur Mackay Deserved to Be Dealt Four Aces

(p. C9) One evening sometime in the 1850s, John Mackay, a prospector, was playing poker with his fellow silver miners in Virginia City, Nev. The wagering was furious, and Mackay was playing well. In one hand, he was dealt an improbable three aces. The man next to him was “betting like a cyclone,” when Mackay drew the astonishing fourth ace, whereupon he laid down his cards and walked away without picking up the pot. “Leave me out, boys,” he said. He didn’t need it. At this point in his life, he had more money than he could ever spend.
. . .
With not a cent to his name, Mackay began swinging a pick ax for subsistence wages on other peoples’ claims, eventually working his way up to mine supervisor. “Mackay tried to cast his imagination into the rock,” Mr. Crouch says, “looking for clues that would lead him to a greater understanding of what wealth lay underground.” By 1865 he had acquired enough cash to buy a stake in a promising mine called the Kentuck. At first the investment looked to be another bust, but it suddenly hit big, paying out $1.6 million of the “precious needful,” as miners called valuable ore, over the next two years.
. . .
The author saves for last an account of the delicious comeuppance Mackay delivered to the American businessman Jay Gould –“the most hated man of the age.” Gould had secured a monopoly on trans-Atlantic telegraphy. Without competition, he gouged users, prompting Mackay, a believer in private enterprise, to lay his own undersea cable, thus breaking Gould’s stranglehold and winning public admiration on both sides of the Atlantic.
Mr. Crouch clearly admires his protagonist, at times nearly to distraction. He portrays Mackay throughout this well-written and worthwhile book as a man of high principle–kind, charitable and fair, dependably doing the noble thing. Strong and silent, he is the Gary Cooper of the sagebrush set. It ever so lightly strains credulity, however, to believe that Mackay didn’t harbor a little larceny in his heart, like nearly everybody on the Comstock during the mad rush. But readers may well want to take the author’s word that a man of such humility and generosity was exactly that. Nowhere will you read John Mackay’s name among the robber barons of his era. Some men who are dealt four aces in life deserve them.

For the full review, see:
Patrick Cooke. “‘The Man Who Hit the Mother Lode.” The Wall Street Journal (Saturday, July 7, 2018): C9.
(Note: ellipsis added.)
(Note: the online version of the review has the date July 5, 2018, and has the title “‘The Bonanza King’ Review: The Man Who Hit the Mother Lode.”)

The book under review, is:
Crouch, Gregory. The Bonanza King: John Mackay and the Battle over the Greatest Riches in the American West. New York: Scribner, 2018.

“Meditation Is Demotivating”

(p. 6) . . . on the face of it, mindfulness might seem counterproductive in a workplace setting. A central technique of mindfulness meditation, after all, is to accept things as they are. Yet companies want their employees to be motivated. And the very notion of motivation — striving to obtain a more desirable future — implies some degree of discontentment with the present, which seems at odds with a psychological exercise that instills equanimity and a sense of calm.
To test this hunch, we recently conducted five studies, involving hundreds of people, to see whether there was a tension between mindfulness and motivation. As we report in a forthcoming article in the journal Organizational Behavior and Human Decision Processes, we found strong evidence that meditation is demotivating.

For the full commentary, see:
Kathleen D. Vohs and Andrew C. Hafenbrack. “GRAY MATTER; Don’t Meditate at Work.” The New York Times, SundayReview Section (Sunday, June 17, 2018): 6.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date June 14, 2018, and has the title “GRAY MATTER; Hey Boss, You Don’t Want Your Employees to Meditate.”)

The article by Hafenbrack and Vohs, mentioned above, is:
Hafenbrack, Andrew C., and Kathleen D. Vohs. “Mindfulness Meditation Impairs Task Motivation but Not Performance.” Organizational Behavior and Human Decision Processes 147 (July 2018): 1-15.

It No Longer Pays to Recycle

(p. B1) Oregon is serious about recycling. Its residents are accustomed to dutifully separating milk cartons, yogurt containers, cereal boxes and kombucha bottles from their trash to divert them from the landfill. But this year, because of a far-reaching rule change in China, some of the recyclables are ending up in the local dump anyway.
In recent months, in fact, thousands of tons of material left curbside for recycling in dozens of American cities and towns — including several in Oregon — have gone to landfills.
. . .
(p. B5) Recycling companies “used to get paid” by selling off recyclable materials, said Peter Spendelow, a policy analyst for the Department of Environmental Quality in Oregon. “Now they’re paying to have someone take it away.”
In some places, including parts of Idaho, Maine and Pennsylvania, waste managers are continuing to recycle but are passing higher costs on to customers, or are considering doing so.
“There are some states and some markets where mixed paper is at a negative value,” said Brent Bell, vice president of recycling at Waste Management, which handles 10 million tons of recycling per year. “We’ll let our customers make that decision, if they’d like to pay more and continue to recycle or to pay less and have it go to landfill.”
Mr. Spendelow said companies in rural areas, which tend to have higher expenses to get their materials to market, were being hit particularly hard. “They’re literally taking trucks straight to the landfill,” he said.

For the full story, see:
Livia Albeck-Ripka. “Your Recycling Gets Recycled, Right? Maybe, or Maybe Not?” The New York Times (Thursday, May 31, 2018): B1 & B5.
(Note: ellipsis added.)
(Note: the online version of the story has the date May 29, 2018.)