Category: Economics

Automation Raises Productivity, Consumer Spending, and Creates New Jobs

(p. B1) Since the 1970s, when automated teller machines arrived, the number of bank tellers in America has more than doubled. James Bessen, an economist who teaches at Boston University School of Law, points to that seeming paradox amid new concerns that automation is “stealing” human jobs. To the contrary, he says, jobs and automation often grow hand in hand.
Sometimes, of course, machines really do replace humans, as in agriculture and manufacturing, says Massachusetts Institute of Technology labor economist David Autor in a succinct and illuminating TED talk, which could have served as the headline for this column. Across an entire economy, however, Dr. Autor says that’s never happened.
. . .
(p. B4) . . . a long trail of empirical evidence shows that the increased productivity brought about by automation and invention ultimately leads to more wealth, cheaper goods, increased consumer spending power and ultimately, more jobs.
In the case of bank tellers, the spread of ATMs meant bank branches could be smaller, and therefore, cheaper. Banks opened more branches, and in total employed more tellers, Mr. Bessen says.

For the full commentary, see:
CHRISTOPHER MIMS. “KEYWORDS; Automation Actually Can Lead to More Job Creation.” The Wall Street Journal (Mon., Dec. 12, 2016): B1 & B4.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Dec. 11, 2016, and has the title “KEYWORDS; Automation Can Actually Create More Jobs.”)

Bessen more fully presents his ATM example in his book:
Bessen, James. Learning by Doing: The Real Connection between Innovation, Wages, and Wealth. New Haven, CT: Yale University Press, 2015.

Flaws in Early Tech, Solved by Later and Better Tech

(p. A2) Mr. Mokyr says innovators gravitate to society’s greatest needs. In previous eras, it was cheap and rapid transport, reliable energy, and basic health care. Today, seven of the top 10 problems he says are most in need of innovative solutions are instances of bite-back. They include global warming, antibiotic resistance, obesity and information overload. Fixing these problems may weigh heavily on growth. Yet Mr. Mokyr argues past productivity was overstated because it didn’t include those costs.
Nonetheless, he’s an optimist. For every unintended consequence one innovation brings, another innovation will find the answer. Fluoridation cured tooth decay, and automotive engineers found alternatives to leaded gasoline. And distracted driving? Driverless cars may take care of that plague before long.

For the full commentary, see:
GREG IP. “CAPITAL ACCOUNT; When Tech Bites Back: The Cost of Innovation.” The New York Times (Thurs., Oct. 20, 2016): A2.
(Note: the online version of the commentaty has the date Oct. 19, 2016, and has the title “CAPITAL ACCOUNT; When Tech Bites Back: Innovation’s Dark Side.”)

Venture Capitalists Expect Future Successful Entrepreneurs to Look Like Recent Successful Entrepreneurs

(p. 4) In recent months, the fund-raising atmosphere has cooled as venture capitalists react to the poor stock market performance of some public tech companies and question whether the recent fast pace of investment is sustainable. Venture capitalists are making fewer investments at lower valuations.
“There is this delusion that it’s easy to raise money in Silicon Valley,” said Sam Altman, president of Y Combinator, a mentorship and investment program for start-ups. “Raising money is incredibly hard.”
. . .
Venture capitalists, who hold the keys to success in Silicon Valley by providing start-up money, are even more likely to be white and male than tech company employees are. Theirs is an insular business. Most investors accept pitches only from entrepreneurs who come through an introduction, and they tend to finance people who have succeeded before, or who remind them of those who did.
According to a 2014 study published by the National Academy of Sciences, investors prefer pitches by men, particularly attractive men, to those by women, even when the content of the pitch is the same. In addition to studying the results of three entrepreneurial pitch competitions, the researchers conducted two experiments in which a representative sample of working adults heard identical pitches in male and female voices. Sixty-eight percent of people preferred to finance the company when it was pitched by a male voice, while 32 percent chose the female.
. . .
At the gender discrimination trial last year against Kleiner Perkins Caufield & Byers, which the venture capital firm won, female employees said they were excluded from a ski trip, denied credit for deals they brought to the firm, and told they both didn’t speak up enough and talked too much.
“I feel like it’s a lot more nuanced and sometimes it’s subconscious,” said Julia Hu, the founder and chief executive of Lark, which makes a health and weight-loss app. “V.C.s are pattern matchers, and they’re just used to seeing men like themselves.”
Many women convey confidence and leadership in a different way than men do, she said. As an Asian woman, she said, she was raised to be humble and quiet and felt uncomfortable promoting her skills. “To try to be who I thought they wanted me to be, which was another Mark Zuckerberg, was actually very difficult for me without feeling inauthentic.”

For the full story, see:
Miller, Claire Cain. “The Venture Capital Ceiling.” The New York Times, SundayBusiness Section (Sun., FEB. 28, 2016): 1 & 4-5.
(Note: ellipses added.)
(Note: the online version of the story has the date FEB. 27, 2016, and has the title “What It’s Really Like to Risk It All in Silicon Valley.”)

The National Academy of Sciences study mentioned above, is:
Wood Brooks, Alison, Laura Huang, Sarah Wood Kearney, and Fiona E. Murray. “Investors Prefer Entrepreneurial Ventures Pitched by Attractive Men.” Proceedings of the National Academy of Sciences of the United States of America 111, no. 12 (March 25, 2014): 4427-31.

Pope Francis Has “a Great Allergy to Economic Things”

(p. A7) ABOARD THE PAPAL AIRPLANE — Pope Francis has dedicated his papacy to the plight of the poor and delivered severe critiques of economic systems that benefit the rich. But flying back to Rome from his eight-day visit to Latin America, Francis admitted he had overlooked a group.
He has delivered few messages for the global middle class.
“Thank you,” he replied, after a German journalist, Ludwig Ring-Eifel, asked about the omission. “It’s a good correction, thanks. You are right. It’s an error of mine not to think about this.”
. . .
In fact, the pope expressed “a great allergy to economic things,” explaining that his father had been an accountant who often brought work home on weekends.
“I don’t understand it very well,” he said of economics, even though the issue of economic justice has become central to his papacy.
. . .
“Then, on the middle class, there are some words that I’ve said — but a little in passing,” he said, musing. “But talking about the common people, the simple people, the workers, that is a great value, no? But I think you’re telling me about something I need to do. I need to delve further into this.”

For the full story, see:
JIM YARDLEY. “In His Focus on Rich and Poor, Pope Admits to Overlooking the Middle Class.” The New York Times (Tues., JULY 14, 2015): A7.
(Note: ellipses added.)
(Note: the online version of the story has the date JULY 13, 2015, and has the title “Pope Francis Says He’s Overlooked the World’s Middle Class.”)

1.87 Births Per U.S. Couple in 2015

(p. A2) The U.S. is experiencing a baby lull that looks set to last for years, a shift demographers say will likely ripple through the U.S. economy and have an impact on everything from maternity wards to federal social programs.
. . .
Demographic Intelligence, a Charlottesville, Va., firm that forecasts birth trends, projects there were about 4 million babies born in the U.S. in 2015, up slightly from the 3.99 million babies born the previous year. The total fertility rate–a snapshot that measures the number of births the average woman will have during her lifetime–is expected to rise to 1.87 in 2015 from 1.86 the previous year, according to the firm. It says its projections, which rely on unemployment rates, consumer-confidence measures and other variables, have been about 99% accurate in recent years.
That is well below the relatively strong fertility rates that started during the late 1980s and lasted until 2007, when the total fertility rate peaked at 2.12 babies per woman.

For the full story, see:
JANET ADAMY. “Low Birth Rate Poses Economic Challenge.” The Wall Street Journal (Weds., May 11, 2016): A2.
(Note: ellipsis added.)
(Note: the online version of the story has the date May 10, 2016, and has the title “Baby Lull Promises Growing Pains for Economy.” The passages quoted above include a sentence (at the end of the second quoted paragraph) that appears in the online, but not in the print, version.)

Kahneman Was “Consumed with Despair” Over Writing “Thinking, Fast and Slow”

(p. C23) Mr. Lewis has always had a knack for identifying eccentrics and horde-defiers who somehow tell us a larger story, generally about an idea that violates our most basic intuition. In “Moneyball,” he gave us Billy Beane, who rejected the wisdom of traditional baseball scouts and rehabilitated the Oakland A’s through statistical reasoning. In “The Big Short,” he gave us an assortment of jittery misfits who bet against the housing market.
In “The Undoing Project,” Mr. Lewis has found the granddaddy of all stories about counterintuition, because Dr. Kahneman and Dr. Tversky did some of the most definitive research about just how majestically, fantastically unreliable our intuition can be. The biases they identified that distort our decision-making are now so well known — like our outsize aversion to loss, for instance — that we take them for granted. Together, you can safely say, these two men made possible the field of behavioral economics, which is predicated on the notion that humans do not always behave rationally.
. . .
In a remarkable note on his sources, Mr. Lewis reveals that for years he watched Dr. Kahneman agonize over his 2011 book, “Thinking, Fast and Slow,” which became both a critical and a fan favorite. “Every few months he’d be consumed with despair, and announce that he was giving up writing altogether — before he destroyed his own reputation,” Mr. Lewis writes. “To forestall his book’s publication he paid a friend to find people who might convince him not to publish it.”

For the full review, see:
JENNIFER SENIOR . “Books of The Times; Two Men, Mismatched Yet Perfectly Paired.” The New York Times (Fri., December 2, 2016): C21 & C23.
(Note: ellipses added.)
(Note: the online version of the review has the date Dec. 1, 2016, and has the title “Books of The Times; Michael Lewis on Two Well Matched (but Finally Mismatched) Men.”)

The book under review, is:
Lewis, Michael. The Undoing Project: A Friendship That Changed Our Minds. New York: W. W. Norton & Company, Inc., 2016.

To Save Administrative Costs, Health-Care Providers Give Discounts for Paying Out-of-Pocket

(p. R6) As consumers get savvier about shopping for health care, some are finding a curious trend: More hospitals, imaging centers, outpatient surgery centers and pharmacy chains will give them deep discounts if they pay cash instead of using insurance.
When Nancy Surdoval, a retired lawyer, needed a knee X-ray last year, Boulder Community Hospital in Colorado said it would cost her $600, out of pocket, using her high-deductible insurance, or just $70 if she paid cash upfront.
When she needed an MRI to investigate further, she was offered a similar choice–she could pay $1,100, out of pocket, using her insurance, or $600 if she self-paid in cash.
Rather than feel good about the savings, Ms. Surdoval got angry at her carrier, Blue Cross Blue Shield of Arizona. “I’m paying $530 a month in premiums and I get charged more than someone who just walks in off the street?” says Ms. Surdoval, who divides her time between Boulder and Tucson. “I thought insurance companies negotiated good deals for us. Now things are totally upside down.”
Deep discounts
Not long ago, hospitals routinely charged uninsured patients their highest rates, far more than insured patients paid for the same services. Now, in the Alice-in-Wonderland world of health-care prices, the opposite is often true: Patients who pay up front in cash often get better deals than their insurance plans have negotiated for them.
That is partly due to new state and federal rules aimed at protecting uninsured patients from price gouging. (Under the Affordable Care Act, for example, tax-exempt hospitals can’t charge financially strapped patients much more than Medicare pays.) Many hospitals also offer discounts if patients pay in cash on the day of service, because it saves administrative work and collection hassles. Cash prices are officially aimed at the uninsured, but people with coverage aren’t legally required to use it.
Hospitals, meanwhile, have sought ever-higher rates from commercial insurers to make up for losses on other patients. Insurers pass those negotiated rates on to plan members, and given the growth in high-deductible plans, more Americans are paying those rates in full, out of pocket, than ever before.

For the full story, see:
Beck, Melinda. “Here’s a Way to Cut Your Health-Care Bill: Pay Cash.” The Wall Street Journal (Tues., Feb. 16, 2016): R6.
(Note: bold heading in original.)
(Note: the online version of the story has the date Feb. 15, 2016, and has the title “How to Cut Your Health-Care Bill: Pay Cash.”)

Giving $10,000 to Each Adult American Would Cost 13% of GDP

(p. A2) Imagine you’re president and Congress gives you a huge chunk of money to spend as you wish. Instead of cutting taxes or splashing out more on health care, infrastructure and defense, why not send a check to every adult?
That’s the essence of universal basic income, a centuries-old idea now enjoying a revival across the political spectrum.
. . .
To send every American adult $10,000 a year would cost $2.4 trillion, or 13% of gross domestic product. Junking the current safety net wouldn’t come close to paying for this: Scrapping income support for the poor, disabled and unemployed would save just $500 billion. Get rid of health care for the poor (mostly Medicaid), and the savings rise to only $900 billion. Getting rid of Medicare and Social Security would balance the costs, but that would leave the average retiree considerably worse off–politically (and ethically) a nonstarter.

For the full commentary, see:
Ip, Greg. “CAPITAL ACCOUNT; Payout Proposal Ignores Labor Needs.” The Wall Street Journal (Thurs., July 14, 2016): A2.
(Note: the online version of the commentary has the date July 13, 2016, and has the title “CAPITAL ACCOUNT; Revival of Universal Basic Income Proposal Ignores Needs of Labor Force.”)

Doctors Lack Incentives to Use Best Ovarian Cancer Treatment

(p. 22) In 2006, the National Cancer Institute took the rare step of issuing a “clinical announcement,” a special alert it holds in reserve for advances so important that they should change medical practice.
In this case, the subject was ovarian cancer. A major study had just proved that pumping chemotherapy directly into the abdomen, along with the usual intravenous method, could add 16 months or more to women’s lives. Cancer experts agreed that medical practice should change — immediately.
Nearly a decade later, doctors report that fewer than half of ovarian cancer patients at American hospitals are receiving the abdominal treatment.
“It’s very unfortunate, but it’s the real world,” said Dr. Maurie Markman, the president of medicine and science at Cancer Treatment Centers of America. He added, “The word ‘tragic’ would be fair.”
Experts suggest a variety of reasons that the treatment is so underused: It is harder to administer than intravenous therapy, and some doctors may still doubt its benefits or think it is too toxic. Some may also see it as a drain on their income, because it is time-consuming and uses generic drugs on which oncologists make little money.

For the full story, see:
DENISE GRADY. “Ovarian Cancer Treatment Is Found Underused.” The New York Times (Tues., AUG. 4, 2015): A1 & A13.
(Note: the online version of the story has the date AUG. 3, 2015, and has the title “Effective Ovarian Cancer Treatment Is Underused, Study Finds.”)

Winemakers Adapt to Global Warming with Owls and Technology

(p. 7) As California heats up, winemakers are confronting new challenges large and small — some very small.
Mice, voles and gophers love vineyards. “We’re seeing more pest pressures due to warmer winters,” Ms. Jackson said, walking through rows of cabernet grapes. Another emerging issue: Grapes ripen earlier, and swallows and crows are eating fruit before the harvest. “It’s a big problem,” she said.
That explains the owls. Sixty-eight boxes are occupied by hungry barn owls; during the harvest, a falconer comes to some vineyards every day, launching a bird of prey to scare away other birds with a taste for grapes.
The Jacksons have also begun analyzing their crops with increasingly sensitive tools. Ms. Jackson recently installed devices that measure how much sap is in the vines. They transmit the data over cellular networks to headquarters, where software calculates how much water specific areas of vineyards do or don’t need. “Data-driven farming,” Ms. Jackson said.
The Jacksons are also monitoring their crops using drones equipped with sensors that detect moisture by evaluating the colors of vegetation. The wrong color can indicate nutritional deficiencies in the crops, or irrigation leaks.
“Previously, it would require an experienced winemaker to go and look at the grapes,” said Clint Fereday, the company’s director of aviation. “Now we can run a drone, tag an area of the vines with GPS, and go right to the spot that has a problem.”
The drones have other uses, too. An infrared camera can scan for people guarding illicit marijuana operations on nearby lands.
Not all the changes being made on the Jackson vineyards involve advanced technology. Some are simply ancient farming techniques that the drought has made increasingly relevant.
Field hands plant cover crops, like rye and barley, between every second row of vines, to help keep the soil healthy. The family is stepping up its composting program. Pressed grapes are composted, then placed beneath rows of vines, since the organic matter is better at retaining moisture than soil.
Ms. Jackson’s husband, Shaun Kajiwara, is a vineyard manager for the company, overseeing the grapes that go into many of the upscale labels.
. . .
Ultimately, Mr. Kajiwara believes that with the right mix of new rootstocks, cover crops and fortuitous rainfall, some of the Jackson vineyards might not need irrigation at all. “In a few years, I think we could be dry-farmed up here,” he said. “Our reservoir will just be insurance.”
It is a snapshot of the future for the Jackson family: a vineyard north of traditional wine country, where natural features might offset some of the deleterious effects wrought by climate change. And, in combination with the adaptations Ms. Jackson has put in place, it might just be enough to allow the company to keep making fine wines for many years to come.

For the full story, see:
DAVID GELLES. “A Winery Battles Warming.” The New York Times, SundayBusiness Section (Sun., JAN. 8, 2017): 1 & 6-7.
(Note: ellipsis added.)
(Note: the online version of the story has the date JAN. 5, 2017, and has the title “Falcons, Drones, Data: A Winery Battles Climate Change.”)