Month: October 2018

Low Interest Rates Increased Zombie Firms After Economic Crisis of 2008

ZombieFirmsIncreaseGraph2018-10-03.png

Source of graph: online version of the WSJ article quoted and cited below.

(p. A1) Italian clothing maker and retailer Stefanel SpA became famous for its knitted coats and cardigans.

Many economists, investors and bankers know Stefanel as something starkly different: a zombie company. It has posted an annual loss for nine of the last 10 years and restructured its bank debt at least six times, including several grace periods when Stefanel only had to pay interest on what it owed.
After booming during Italy’s post-World War II expansion, Stefanel and its lumbering factories were overwhelmed by Spanish fast-fashion giant Zara and then battered by the economic slowdown that hit Italy in 2008.
Stefanel is still alive but staggering. So are hundreds of other chronically unprofitable, highly indebted companies being kept afloat with new infusions from lenders and shareholders, especially in Southern Europe.
Economists and central bankers say zombies undercut prices charged by healthier competitors, create artificial barriers to entry and prevent the flushing out of (p. A10) weak companies and bad loans that typically happens after downturns.
Now that the European economy is in growth mode, those zombies and their related debt problems could become a drag on the entire continent.
“The zombification of the corporate sector and banks [is] a risk for future living standards,” Klaas Knot, a European Central Bank governor and the head of the Dutch central bank, said in an interview.
. . .
In some ways, zombie firms are an unintended side effect of years of easy money from the ECB, which rolled out aggressive stimulus policies, including negative interest rates, to support lending and growth. Those policies have been sharply criticized in some richer eurozone countries for making it easier for banks to keep struggling corporate borrowers alive.

For the full story, see:
Eric Sylvers and Tom Fairless. “Zombie Companies Haunt Europe’s Economic Recovery.” The Wall Street Journal (Thursday, November 16, 2017): A1 & A10.
(Note: ellipsis added.)
(Note: the online version of the article has the date Nov. 15, 2017, and the title “A Specter Is Haunting Europe’s Recovery: Zombie Companies.”)

Drug Middlemen Create “Perverse Incentive” for Higher List Prices

(p. B1) The Department of Health and Human Services is scrutinizing the system of rebates and discounts paid to middlemen as medicine flows from manufacturers to patients. Those middlemen, such as drug wholesalers, pharmacies, and pharmacy-benefit managers, are often compensated as a percentage of a drug’s list price. That creates a perverse incentive for higher list prices throughout the system.
. . .
Pfizer , which made headlines earlier this month by pausing a slate of planned price increases due to White House criticism, sounds ready for reform. Chief Executive Ian Read on a conference call with analysts last week predicted that rebates are “going away” over the long term. Mr. Read added that the larger gaps between list and net prices amounted to a “subsidy” for companies in the drug supply chain and blamed those subsidies for the relatively weak sales of certain lower-priced versions of blockbuster drugs.

For the full commentary, see:
Charley Grant. ” HEARD ON THE STREET; Skies Darken for Drug Middlemen.” The Wall Street Journal (Wednesday, Aug. 8, 2018): B1.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Aug. 7, 2018.)

Visionary Manifesto for Driverless Cars

(p. A13) Not surprisingly, optimism leaps off the pages of Lawrence D. Burns’s “Autonomy: The Quest to Build the Driverless Car–and How It Will Reshape Our World,” a combination of memoir and visionary manifesto. In contrast to “the personally owned, gasoline-powered, human-driven vehicles that have dominated the last century,” Mr. Burns writes, “we’re transitioning to mobility services based on electric-powered and driverless vehicles, paid for by trip or through subscriptions.” These services, he says, will get us around “safely and conveniently.” Meanwhile, we will avoid the “hassles of car ownership” and the time lost in parking and pumping gas, not to mention the costs that having a car entails.
. . .
After leaving GM during its 2009 bankruptcy, Mr. Burns became an ever-more emphatic advocate for the reinvention of the automobile, soon teaming up with Mr. Urmson and other technology pioneers at Google. This front-row seat at the project that popularized autonomous cars informs some of the most lively parts of “Autonomy.” At one point, a milestone goal is thought to be needed, with a payout bonus, so when Larry Page (Google’s co-founder) says, “I want this thing on any street in California to drive one hundred percent autonomous,” the Larry1K challenge is launched. The development of Waymo’s “Firefly” low-speed driverless car takes longer than expected and teaches the Silicon Valley team a new respect for Detroit’s skills. In turned out that “designing a vehicle was comparatively easy,” Mr. Burns writes. What was difficult was ” ‘hardening’ the vehicle’s various components”–making every part work under every driving condition. This was “the process at which Detroit engineering talent excelled.” A deal with Ford Motor Co. fails, but an investment banker and analyst, inspired by one of Mr. Burns’s visionary papers, does join Ford on a driverless-car project. As Mr. Burns recounts, personality clashes eventually blew up Google’s dream team and led to a lawsuit over intellectual-property theft against Uber, which had bought a driverless-trucking company founded by a Waymo veteran.

For the full review, see:
Edward Niedermeyer. “BOOKSHELF; Fast-Tracking A Driverless Car.” The Wall Street Journal (Tuesday, August 28, 2018): A13.
(Note: ellipsis added.)
(Note: the online version of the review has the date Aug. 27, 2018, and has the title “BOOKSHELF; ‘Autonomy’ Review: Fast-Tracking a Driverless Car; A period of remarkable progress seems to be giving way to a host of challenges that can’t be solved with engineering talent alone.”)

The book under review, is:
Burns, Lawrence D., and Christopher Shulgan. Autonomy: The Quest to Build the Driverless Car–and How It Will Reshape Our World. New York: Ecco, 2018.

Natural Experiment on Consumer Effects of Net Neutrality

(p. A25) TORONTO — The Federal Communications Commission is planning to jettison its network neutrality rules, and many Americans are distraught. Such a move, the Electronic Frontier Foundation warned, “invites a future where only the largest internet, cable and telephone companies survive, while every start-up, small business and new innovator is crowded out — and the voices of nonprofits and ordinary individuals are suppressed.”
Critics worry that getting rid of neutrality regulation will lead to a “two-tier” internet: Internet service providers will start charging fees to websites and apps, and slow down or block the sites that don’t pay up. As a result, users will have unfettered access to only part of the internet, with the rest either inaccessible or slow.
Those fears are vastly overblown.
. . .
So why am I not worried? I worked for a telecommunications company for 25 years, and whatever one may think about corporate control over the internet, I know that it simply is not in service providers’ interests to throttle access to what consumers want to see. Neutral broadband access is a cash cow; why would they kill it?
. . .
The good news is that we will soon have a real-world experiment to show who is right and who is wrong. The United States will get rid of its rules, and the European Union and Canada will keep their stringent regulations. In two years, will the American internet be slower, less innovative and split into two tiers, leaving Canadians to enjoy their fast and neutral net?
Or, as I suspect, will the two markets remain very similar — proving that this whole agonized debate has been a giant waste of time? Let’s check back in 2019.

For the full commentary, see:
Ken Engelhart. “Losing Net Neutrality: Nothing to Be Afraid Of.” The New York Times (Tuesday, Dec. 5, 2017): A25.
(Note: ellipses added.)
(Note: the online version of the commentary has the date Dec. 4, 2017, and has the title “Why Concerns About Net Neutrality Are Overblown.” The online version says that the New York edition ran the commentary on p. A27, instead of the A25 page on which it appeared in my National Edition copy.)

Wrecking Ball for Bureaucracy That “Is Killing the Country”

(p. B4) America’s big tech companies are facing some of their toughest political challenges as they flirt with or surpass trillion-dollar valuations. Before lawmakers try to rein them in, Reid Hoffman argues government officials better be careful what they wish for.
Mr. Hoffman was chief operating officer of PayPal while it was still a small payments startup before he co-founded the professional social-network LinkedIn.
. . .
WSJ: You’re vociferously opposed to President Trump and even commissioned an anti-Trump card game. Does Silicon Valley have a problem with liberal bias?
Mr. Hoffman: I do think that there is a reflexive bias to liberalism that causes discomfort. I think you have that kind of left bias within the Silicon Valley culture, too, which is, “I’m so convinced that’s idiotic, I’m not listening to anything about it.” And that’s the problem. The problem is not actively listening. But that’s human. It’s not only here. Part of the reason [for strong negative reactions] to Trump is the flat-out lies.
WSJ: When you talk politics with Peter Thiel, PayPal’s co-founder and a well-known Trump supporter, what are those conversations like?
Mr. Hoffman: He’s a friend of mine, but we’ve disagreed about politics since we were college undergraduates. One thing we argue about is how much does Trump lie? I’ve been trying to advance him the case that there’s always been some lying around politicians, but Trump is one or two orders of magnitude worse than ever before. He says Obama is a bigger liar than Trump–based on, for example, the claim that under Obamacare you’d be able to spend as much time with your primary doctor as you did before Obamacare.
Peter thinks that the bureaucracy is killing the country and that you need a wrecking ball to shake it up, and maybe Trump is the only wrecking ball you get. His pro-Trump arguments are that someone needed to stand up to China. Trump at least is, [while] everyone else gave it lip service.

For the full interview, see:
Rolfe Winkler, interviewer. “A Silicon Valley Warning.” The Wall Street Journal (Thursday, Sept. 27, 2018): B4.
(Note: ellipsis added; bolded and bracketed words in original.)
(Note: the online version of the interview has the date Sept. 26, 2018, and the title “LinkedIn’s Co-Founder Warns of Perils in Regulating Big Tech.” The last question and answer quoted above, is included in the online, but not the print, version of the interview.)

Free Trade Benefits Harley-Riding Econometricians (and All Other Consumers Too)

Roughly 40 years ago, I completed a very useful econometrics course at the University of Chicago taught by the author of the commentary quoted below. Life is hard to predict, with or without econometrics. Who could have predicted that Eddie Lazear would end up on a Harley?

(p. A15) When I served in the George W. Bush administration, a group of Harley-Davidson -riding cabinet members and White House principals led the 2008 Memorial Day Rolling Thunder motorcycle parade. I own a 100th Anniversary Year Road King Classic. I am disappointed to see President Trump singling out the iconic American motorcycle company for harassment–a precedent that could inflict long-run damage on the U.S. economy.

. . .
Mr. Trump may genuinely believe his trade tactics will pressure other countries to reduce their tariffs, resulting in freer trade overall. This is unlikely. In the meantime his policies impose steep costs on American firms, like Harley-Davidson, and the people who want to buy from them. The best way to get others to buy American is to produce high-quality goods inexpensively. Those American products that do well abroad, Harley-Davidson motorcycles among them, succeed because consumers value them, not because tariffs and trade-war threats force them to buy American.

For the full commentary, see:
Edward Lazear. “Keep Your Tariffs off My Harley.” The Wall Street Journal (Tuesday, Aug. 28, 2018): A15.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Aug. 27, 2018.)

“I’m Alive and That’s an Extremely Good Thing”

(p. A4) HONG KONG — When Bill Jaynes realized water was rushing into the plane, he started to panic.
Mr. Jaynes, a Micronesian journalist, was aboard a plane set to land on Weno, the tiny Pacific island that is part of the Federated States of Micronesia.
“I thought we landed hard until I looked over and saw a hole in the side of the plane and water was coming in,” he said in a Facebook video, describing the landing of a Boeing 737-800 flown by Air Niugini at Chuuk International Airport on Friday morning [September 28, 2018]. “And I thought, well, this is not, like, the way it’s supposed to happen.”
But then help suddenly arrived — from a flotilla of local boats that rushed to the plane, which landed short of the runway in the Chuuk lagoon, and all 47 passengers aboard the aircraft were evacuated, according to early statement from the airline.
“It’s just surreal,” said Mr. Jaynes, managing editor of The Kaselehlie Press, a newspaper on Pohnpei, another Micronesian island.
Matthew Colson, a Baptist missionary who lives on Weno, recorded the rescue effort and posted his interview with Mr. Jaynes on Facebook. He said the locals who rushed their boats to the scene were fisherman and construction workers, all locals.
. . .
Mr. Jaynes, reflecting on the experience, said, “I’m alive and that’s an extremely good thing.”

For the full story, see:
Austin Ramzy. “When a Plane Crashed in the Pacific, Fishing Boats Came to the Rescue.” The New York Times (Saturday, Sept. 28, 2018): A4.
(Note: ellipsis, and bracketed date, added.)
(Note: the online version of the story has the date Sept. 27, 2018, and has the title “‘Their Plane Was Set to Land. The Water Rushed In. Then, the Boats Came.”)

The passages quoted above, provide one more example of one of the main messages of:
Ripley, Amanda. The Unthinkable: Who Survives When Disaster Strikes – and Why. New York: Crown Publishers, 2008.

Higher Minimum Wages Increase Automation of Routine Tasks

(p. A11) Over the past few years, San Francisco in particular, and California in general, has increased the cost to hire and train employees at risk of being automated. The minimum wage will rise to $15 an hour in San Francisco in 2018. The rest of California will get there four years later. On top of San Francisco’s hourly wage mandate are requirements for health care, paid leave and employee scheduling.
These added costs give employers with already slim profit margins a strong incentive to automate or embrace self-service. In an interview with Forbes, the founder of a delivery robot company linked his product’s value proposition to a rising minimum wage: “At something like $10 per delivery, the majority of citizens will not use [human delivery]. It’s too expensive.”
The empirical evidence supports the anecdotes: An August [2017] study published by the National Bureau of Economic Research linked a rising minimum wage to an increase in unemployment for workers in jobs that require a large number of routine tasks. The authors reported that it wasn’t just service-industry jobs at risk. A rising minimum wage also had a negative effect on job opportunities for older, less-skilled employees in manufacturing.

For the full commentary, see:
Michael Saltsman. “CROSS COUNTRY; San Francisco’s Problem Isn’t Robots; It’s the $15 Wage Floor; The city fears automation will replace workers–but its own policies make low-value jobs illegal.” The Wall Street Journal (Saturday, Nov. 25, 2017): A11.
(Note: bracketed year added.)
(Note: the online version of the commentary has the date Nov. 24, 2017.)

The later published version of the National Bureau of Economic Research study mentioned above, is:
Lordan, Grace, and David Neumark. “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs.” Labour Economics 52 (June 2018): 40-53.

Closed Malls Repurposed as Distribution Centers

(p. B6) The pressure for speedy online package delivery is prompting companies to look for distribution facilities closer to residential areas or highways.
Some of the best locations, it turns out, are dead malls.
Warehouse landlords say they like former malls because the shopping centers occupy swaths of space relatively close to where consumers live or near main highways.
But it isn’t easy to convert a mall into logistics space quickly. Developers say it takes a community ready to accept that the mall has failed as well as understanding that there are viable job opportunities in logistics real estate.

For the full story, see:
Esther Fung. “The Best Location for New Warehouse Is Often an Old Mall.” The Wall Street Journal (Wednesday, Aug. 9, 2017): B6.
(Note: the online version of the article has the date Aug. 8, 2017, and the title “The Best Place for a New Warehouse? An Old Mall.”)

Communism Is “the Greatest Catastrophe in Human History”

(p. A17) Armed Bolsheviks seized the Winter Palace in Petrograd–now St. Petersburg–100 years ago this week and arrested ministers of Russia’s provisional government. They set in motion a chain of events that would kill millions and inflict a near-fatal wound on Western civilization.
. . .
The victims include 200,000 killed during the Red Terror (1918-22); 11 million dead from famine and dekulakization; 700,000 executed during the Great Terror (1937-38); 400,000 more executed between 1929 and 1953; 1.6 million dead during forced population transfers; and a minimum 2.7 million dead in the Gulag, labor colonies and special settlements.
To this list should be added nearly a million Gulag prisoners released during World War II into Red Army penal battalions, where they faced almost certain death; the partisans and civilians killed in the postwar revolts against Soviet rule in Ukraine and the Baltics; and dying Gulag inmates freed so that their deaths would not count in official statistics.
If we add to this list the deaths caused by communist regimes that the Soviet Union created and supported–including those in Eastern Europe, China, Cuba, North Korea, Vietnam and Cambodia–the total number of victims is closer to 100 million. That makes communism the greatest catastrophe in human history.

For the full commentary, see:
David Satter. “100 Years of Communism–and 100 Million Dead; The Bolshevik plague that began in Russia was the greatest catastrophe in human history.” The Wall Street Journal (Tuesday, Nov. 7, 2017): A17.
(Note: ellipsis added.)
(Note: the online version of the commentary has the date Nov. 6, 2017.)

“Wishing Only for More Time”

(p. A20) Walter Mischel, whose studies of delayed gratification in young children clarified the importance of self-control in human development, and whose work led to a broad reconsideration of how personality is understood, died on Wednesday [September 12, 2018] at his home in Manhattan.
. . .
In a series of experiments at Stanford University beginning in the 1960s, he led a research team that presented preschool-age children with treats — pretzels, cookies, a marshmallow — and instructed them to wait before indulging themselves. Some of the children received strategies from the researchers, like covering their eyes or reimagining the treat as something else; others were left to their own devices.
The studies found that in all conditions, some youngsters were far better than others at deploying the strategies — or devising their own — and that this ability seemed to persist at later ages. And context mattered: Children given reason to distrust the researchers tended to grab the treats earlier.
. . .
For the wider public, it would be the marshmallow test. In the late 1980s, decades after the first experiments were done, Dr. Mischel and two co-authors followed up with about 100 parents whose children had participated in the original studies. They found a striking, if preliminary, correlation: The preschoolers who could put off eating the treat tended to have higher SAT scores, and were better adjusted emotionally on some measures, than those who had given in quickly to temptation.
The paper was cautious in its conclusions, and acknowledged numerous flaws, including a small sample size. No matter. It was widely reported, and a staple of popular psychology writing was born: If Junior can hold off eating a marshmallow for 15 minutes in preschool, then he or she is headed for the dean’s list.
. . .
In 2014, Dr. Mischel published his own account of the experiment and its reception, “The Marshmallow Test: Mastering Self-Control.”
In at least one serious replication attempt, scientists failed to find the same results. Still, there is general agreement that self-discipline, persistence, grit — call it what you like — is a good predictor of success in many areas of life.
. . .
“I am glad that at the choice point at 18 I resisted going into my uncle’s umbrella business,” he wrote in the autobiographical essay. “The route I did choose, or stumbled into, still leaves me eager early each morning to get to work in directions I could not have imagined at the start, wishing only for more time, and not wanting to spend too much of it looking back.”

For the full obituary, see:

Benedict Carey. “Walter Mischel, 88, Marshmallow Test Creator, Dies.” The New York Times (Saturday, Sept. 15, 2018): A20.
(Note: ellipses, and bracketed date, added.)
(Note: the online version of the obituary has the date Sept. 14, 2018, and has the title “Walter Mischel, 88, Psychologist Famed for Marshmallow Test, Dies’.”)

Mischel’s book on delayed gratification, is:
Mischel, Walter. The Marshmallow Test: Mastering Self-Control. New York: Little, Brown and Company, 2014.