Category: Economics

Brynjolfsson Made “Long Bet” with Gordon that A.I. Will Increase Productivity

(p. B1) For years, it has been an article of faith in corporate America that cloud computing and artificial intelligence will fuel a surge in wealth-generating productivity. That belief has inspired a flood of venture funding and company spending. And the payoff, proponents insist, will not be confined to a small group of tech giants but will spread across the economy.

It hasn’t happened yet.

Productivity, which is defined as the value of goods and services produced per hour of work, fell sharply in the first quarter this year, the government reported this month. The quarterly numbers are often volatile, but the report seemed to dash earlier hopes that a productivity revival was finally underway, helped by accelerated investment in digital technologies during the pandemic.

The growth in productivity since the pandemic hit now stands at about 1 percent annually, in line with the meager rate since 2010 — and far below the last stretch of robust improvement, from 1996 to 2004, when productivity grew more than 3 percent a year.

. . .

(p. B6) The current productivity puzzle is the subject of spirited debate among economists. Robert J. Gordon, an economist at Northwestern University, is the leading skeptic. Today’s artificial intelligence, he says, is mainly a technology of pattern recognition, poring through vast troves of words, images and numbers. Its feats, according to Mr. Gordon, are “impressive but not transformational” in the way that electricity and the internal combustion engine were.

Erik Brynjolfsson, director of Stanford University’s Digital Economy Lab, is the leader of the optimists’ camp. He confesses to being somewhat disappointed that the productivity pickup is not yet evident, but is convinced it is only a matter of time.

“Real change is happening — a tidal wave of transformation is underway,” Mr. Brynjolfsson said. “We’re seeing more and more facts on the ground.”

It will probably be years before there is a definitive answer to the productivity debate. Mr. Brynjolfsson and Mr. Gordon made a “long bet” last year, with the winner determined at the end of 2029.

For the full story see:

Steve Lohr. “Why Isn’t A.I. Increasing Productivity?” The New York Times (Wednesday, May 25, 2022): B1 & B6.

(Note: ellipsis added.)

(Note: the online version of the story was updated May 27, 2022, and has the title “Why Isn’t New Technology Making Us More Productive?”)

Log4j Open Source Bug Created “Endemic” Risk for “a Decade or Longer”

Continuing worries about the Log4j software bug are consistent with my skepticism of open source software, Openness to Creative Destruction. You can find a brief discussion in the chapter defending patents.

(p. A6) WASHINGTON—A major cybersecurity bug detected last year in a widely used piece of software is an “endemic vulnerability” that could persist for more than a decade as an avenue for hackers to infiltrate computer networks, a U.S. government review has concluded.

. . .

“The Log4j event is not over,” the report said. “The board assesses that Log4j is an ‘endemic vulnerability’ and that vulnerable instances of Log4j will remain in systems for many years to come, perhaps a decade or longer. Significant risk remains.”

. . .

Security researchers uncovered last December a major flaw in Log4j, an open-source software logging tool. It is a widely used piece of free code that logs activity in computer networks and applications.

For the full story, see:

Dustin Volz. “‘Endemic’ Risk Seen In Log4j Cyber Bug.” The Wall Street Journal (Friday, July 15, 2022): A6.

(Note: ellipses added.)

(Note: the online version of the story has the date July 14, 2022, and has the title “Major Cyber Bug in Log4j to Persist as ‘Endemic’ Risk for Years to Come, U.S. Board Finds.”)

My book, mentioned above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

Insurers Claim Curing Obesity Is “Vanity”

(p. A17) Maya Cohen’s entree into the world of obesity medicine came as a shock.

In despair over her weight, she saw Dr. Caroline Apovian, an obesity specialist at Brigham and Women’s Hospital, who prescribed Saxenda, a recently approved weight-loss drug. Ms. Cohen, who is 55 and lives in Cape Elizabeth, Maine, hastened to get it filled.

Then she saw the price her pharmacy was charging: $1,500 a month. Her insurer classified it as a “vanity drug” and would not cover it.

“I’m being treated for obesity,” she complained to her insurer, but to no avail.

. . .

More than 40 percent of Americans have obesity, and most have tried repeatedly to lose weight and keep it off, only to fail. Many suffer from medical conditions that are linked to obesity, including diabetes, joint and back pain and heart disease, and those conditions often improve with weight loss.

“The evidence is now overwhelming that there are physical changes in weight regulating pathways that make it difficult for people to lose weight and maintain their weight loss,” said Dr. Louis Aronne, an obesity medicine specialist who directs the comprehensive weight control center at Weill Cornell Medicine. “It’s not that they don’t have willpower. Something physical is holding them back.”

. . .

“Access to medicines for the treatment of obesity is dismal in this country,” said Dr. Fatima Cody Stanford, an obesity medicine specialist at Massachusetts General Hospital and Harvard Medical School.

. . .

Douglas Langa, an executive vice president at Novo Nordisk, . . . said that diabetes and obesity were “separate categories, separate marketplaces” to explain the difference in price between the companies’ two drugs that were based on the same medicine, semaglutide. He said Wegovy’s price “reflects efficacy and clinical value in this area of unmet need.”

Dr. Stanford was appalled.

“It’s unbelievable,” she said, adding that it was a gross inequity to charge people more for the same drug because of their obesity. She finds herself in an untenable situation: getting excited when her patients with obesity also have diabetes because their insurers pay for the drug.

For the full story, see:

Gina Kolata. “Many Insurers Won’t Cover New Weight Loss Drugs.” The New York Times (Wednesday, June 1, 2022): A17.

(Note: ellipses added.)

(Note: the online version of the story has the date May 31, 2022, and has the title “The Doctor Prescribed an Obesity Drug. Her Insurer Called It ‘Vanity.’.”)

Well-Financed Fusion Startup Claims to Be a Year Away From Energy Break-Even Point

(p. B4) Zap Energy, a fusion energy start-up working on a low-cost path to producing electricity commercially, said last week that it had taken an important step toward testing a system its researchers believe will eventually produce more electricity than it consumes.

. . .

While many competing efforts use powerful magnets or bursts of laser light to compress a plasma in order to initiate a fusion reaction, Zap is pursuing an approach pioneered by physicists at the University of Washington and Lawrence Livermore National Laboratory.

It relies on a shaped plasma gas — an energized cloud of particles that is often described as a fourth state of matter — that is compressed by a magnetic field generated by an electrical current as it flows through a two-meter vacuum tube. The technique is known as “sheared flow Z-pinch.”

. . .

Advances in stabilizing the magnetic field that is generated by the flowing plasma made by physicists at the University of Washington led the group to establish Zap Energy in 2017. The company has raised more than $200 million, including a series of investments from Chevron.

Recent technical advances in fusion fuels and in advanced magnets have led to a sharp increase in private investment, according to the Fusion Industry Association. There are 35 fusion companies globally, and private funding has risen above $4 billion, including from well-known technology investors like Sam Altman, Jeff Bezos, John Doerr, Bill Gates and Chris Sacca. Mr. Gates and Mr. Sacca invested in Zap’s most recent funding round.

. . .

The Zap Energy physicists and executives said in interviews last week that they believed they were within a year of proving that their approach was capable of reaching the long-sought-after energy break-even point.

If they do, they will have succeeded where an array of research efforts — going back to the middle of the last century — have failed.

The Zap Energy physicists said they had made the case for the “scaling” power of their approach to produce a steep increase in neutrons in a series of peer-reviewed technical papers that documented computer-generated simulations they would soon begin to test.

For the full story, see:

John Markoff. “A Seattle Start-Up Claims a Big Step For Fusion Energy.” The New York Times (Thursday, June 23, 2022): B4.

(Note: ellipses added.)

(Note: the online version of the story has the date June 22, 2022, and has the title “A Big Step Toward Fusion Energy Is Hailed by a Seattle Start-Up.”)

Union Blocks Automation That Would Make Ports More Resilient and Efficient

(p. B6) The companies that transport and handle the cargo say the automation is one solution to the congestion at ports, particularly the Los Angeles and Long Beach sites at the heart of America’s supply chain woes. The spare use of robotics at U.S. ports leaves them uncompetitive with big gateways in China and Europe that are packed with automation, they say.

Jeremy Nixon, chief executive of Singapore-based container line Ocean Network Express, told the TPM22 Conference produced by The Journal of Commerce in Long Beach earlier this year that European and Asian ports can clear backlogs quickly because they have automated cargo-handling equipment that operates around the clock. “Here, we just don’t have that resilience,” he said.

. . .

A port performance index created by the World Bank and S&P Global Market Intelligence ranked the Los Angeles and Long Beach port complex dead last in efficiency among the world’s ports last year, trailing Luanda, Angola, and the Port of Ngqura, South Africa. The world’s most efficient ports were in the Middle East and Asia.

For the full story, see:

Paul Berger. “Port Union Talks Center on Automation.” The Wall Street Journal (Friday, June 10, 2022): B6.

(Note: ellipsis added.)

(Note: the online version of the story has the date June 9, 2022, and has the title “A Deep Divide on Automation Hangs Over West Coast Port Labor Talks.”)

“For the Foreseeable Future We Cannot Feed the World Without Relying on Fossil Fuels”

(p. 16) The title’s pleonastic fourth word is the giveaway. It announces the tone of Vaclav Smil’s 49th book: vinegary scorn for the irresponsible declarations of self-proclaimed experts, particularly those guilty of innumeracy, ahistoricism and other forms of wishful thinking that Vaclav Smil would never, ever fall for. You’ve heard a lot of prognostications about the state of the world. They’re bunk. Here, at last, is how the world really works.

. . .

. . . every fundamental aspect of modern civilization rests overwhelmingly on fossil fuel combustion. Take our food system. Readers of Michael Pollan or Amanda Little understand that it’s morally indefensible to purchase Chilean blueberries or, God forbid, New Zealand lamb. But even a humble loaf of sourdough requires the equivalent of about 5.5 tablespoons of diesel fuel, and a supermarket tomato, which Smil describes as no more than “an appealingly shaped container of water” (apologies to Marcella Hazan), is the product of about six tablespoons of diesel. “How many vegans enjoying the salad,” he writes, “are aware of its substantial fossil fuel pedigree?”

It is best to eat local, but we do not have enough arable land to support our population, even in our vast continent, at least not without the application of obscene quantities of natural-gas-derived fertilizer. One must further account for the more than three billion people in the developing world who will need to double or triple their food production to approach a dignified standard of living. Then add the additional two billion who will soon join us. “For the foreseeable future,” writes Smil, “we cannot feed the world without relying on fossil fuels.” He performs similar calculations for the world’s production of energy, cement, ammonia, steel and plastic, always reaching the same result: “A mass-scale, rapid retreat from the current state is impossible.”

Smil’s impartial scientist persona slips with each sneer at the “proponents of a new green world” or “those who prefer mantras of green solutions to understanding how we have come to this point.” Still, his broader point holds: We are slaves to fossil fuels.

. . .

Smil’s book is at its essence a plea for agnosticism, and, believe it or not, humility — the rarest earth metal of all. His most valuable declarations concern the impossibility of acting with perfect foresight. Living with uncertainty, after all, “remains the essence of the human condition.” Even under the most optimistic scenario, the future will not resemble the past. We will have to navigate seemingly impossible conditions, relying on instinct and imperfect assumptions and our old familiar flaws (chiefly “our never-failing propensity to discount the future”). This may not be a particularly galvanizing conclusion, but it is, yes, how the world works.

For the full review, see:

Nathaniel Rich. “The Theory of Nothing.” The New York Times Book Review (Sunday, May 29, 2022): 16.

(Note: ellipses added; italics in original.)

(Note: the online version of the review has the date May 11, 2022, and has the title “Everything You Thought You Knew, and Why You’re Wrong.”)

The book under review is:

Smil, Vaclav. How the World Really Works: The Science Behind How We Got Here and Where We’re Going. New York: Viking, 2022.

Maine Oyster Harvest in 2021 Was Largest in History, Up 50% from 2020

(p. D9) BRUNSWICK, Maine — Maine is producing more oysters than ever due to a growing number of shellfish farms that have launched off its coast in recent years.

The state’s haul of oysters, the vast majority of which are from farms, grew by more than 50% last year to more than 6 million pounds.

. . .

. . ., the growth of oysters is great news for a state that has been trying to diversify marine industries, said Dan Devereaux, one of the owners of Mere Point Oyster Company in Brunswick.

For the full story, see:

Whittle, Patrick, Associated Press. “‘Like a Wild West Gold Rush’: Maine Oysters Boom.” Omaha World-Herald (Sunday, June 26, 2022): D9.

(Note: ellipses added.)

Wealthiest Resident of Illinois Moving His Business to Florida for Lower Taxes and Less Crime

(p. B1) Billionaire Ken Griffin is relocating his hedge-fund firm Citadel from Chicago to Miami, the third major employer to announce the move of a corporate headquarters from Illinois in the past two months.

In a letter to employees Thursday [June 23, 2022], Mr. Griffin said he had personally moved to Florida—a state that doesn’t collect personal income tax—and that his market-making business, Citadel Securities, would also transfer. He wrote that he views Florida as a better corporate environment and though he didn’t specifically cite crime as a factor, company officials said it was a consideration.

Mr. Griffin has been the wealthiest resident of Illinois, so his departure will hurt state tax collections on both the individual and corporate side. It could also be a blow to Chicago’s philanthropic scene. Mr. Griffin has given more than $600 million in gifts to educational, cultural, medical and civic organizations in the area, spokesman Zia Ahmed said.

For the full story see:

John McCormick and Juliet Chung. “Citadel Plans to Relocate to Florida.” The Wall Street Journal (Friday, June 24, 2022): B1-B2.

(Note: bracketed date added.)

(Note: the online version of the story was updated June 30 [sic], 2022, and has the title “Ken Griffin Moving Citadel From Chicago to Miami Following Crime Complaints.”)

New York City Hurt as Wealthy Residents Move to Miami

(p. A1) When roughly 300,000 New York City residents left during the early part of the pandemic, officials described the exodus as a once-in-a-century shock to the city’s population.

Now, new data from the Internal Revenue Service shows that the residents who moved to other states by the time they filed their 2019 taxes collectively reported $21 billion in total income, substantially more than those who departed in any prior year on record. The IRS said the data captured filings received in 2020 and as late as July 2021.

Many new or returning residents have since moved in. But the total income of those who had initially left was double the average amount of those who had departed over the previous decade, a potential loss that could have long-term effects on a city that relies heavily on its wealthiest residents to support schools, law enforcement and other public services.

The sheer number of people who left in such a short period raises uncertainty about New York City’s competitiveness and economic stability. The top 1 percent of earners, who make more than $804,000 a year, contributed 41 percent of the city’s personal income taxes in 2019.

About one-third of the people who left moved from Manhattan, and had an average income of $214,300. No other large American county had a similar exodus of wealth.

Early in the pandemic, Sam Williamson, 51, a white-collar defense lawyer living on the Upper West Side of Manhattan, first relocated to Utah, then to Long Island. After a return to the city, he and (p. A19) his family permanently moved to Miami last year when his law firm opened an office there.

“I love New York City, but it’s been a challenging time,” Mr. Williamson said. “I didn’t feel like the city handled the pandemic very well.”

. . .

Gergana Ivanova, 28, a clothing designer and social media influencer, said her decision to move to Miami was less about taxes. The pandemic made the downsides of living in New York City more noticeable, she said, including the lack of space in her tiny Queens apartment and the trash piling up on the sidewalks. She felt less safe walking around when the streets were emptier.

“It didn’t feel happy and positive like it used to,” she said.

. . .

The exodus to Florida was especially robust, and not just for the retiree crowd. In 2020, New York City had a net loss of nearly 21,000 residents to Florida, IRS data showed, almost double the average annual net loss from before the pandemic.

. . .

Zak Jacoby was the general manager of a bar on the Lower East Side when the pandemic hit. Throughout 2020, his employment status fluctuated with the city’s changing indoor dining rules, a stressful period that put him on and off unemployment benefits.

Mr. Jacoby, 37, flew to Miami in January 2021 to see a friend — and decided to stay permanently after getting a job offer at a local restaurant group. If there was another virus surge, he said, the state would be less likely to shut down businesses, giving him more job security.

“My mind-set was, Florida’s more lenient on Covid, and there’s going to be less regulation,” he said.

For the full story see:

Nicole Hong and Matthew Haag. “Exodus of New York’s Wealthy Leaves Lasting Costs in Wake.” The New York Times (Tuesday, June 28, 2022): A1 & A19.

(Note: ellipses added.)

(Note: the online version of the story has the same date as the print version, and has the title “The Flight of New York City’s Wealthy Was a Once-in-a-Century Shock.” The online version of the story says that the print version has the title “An Exodus of New York’s Wealthy Has Left Lasting Costs,” but my National print version has the somewhat different title “Exodus of New York’s Wealthy Leaves Lasting Costs in Wake.”)

“Maverick” Chinese Entrepreneur Zhou Hang Dares Criticize Zero Covid Policy

(p. B1) China’s entrepreneur class is grappling with the worst economic slump in decades as the government’s zero Covid policy has shut down cities and kept would-be customers at home. Yet they can’t seem to agree on how loudly they should complain — or even whether they should at all.

. . .

Their approach, the equivalent of an ostrich sticking its head in the sand, doesn’t make sense to Zhou Hang. Mr. Zhou, a tech entrepreneur and a venture capitalist, has questioned how his peers can pretend it’s business as usual, given the political and economic upheaval. Stop putting up with the ridiculous reality, he urged. It’s time to speak up and seek change.

Mr. Zhou is rare in China’s business community for being openly critical of the government’s zero Covid policy, which has put hundreds of millions of people under some kind of lockdowns in the past few months, costing jobs and revenues. He’s saying what many others are whispering in private but fear to say in public.

“The questions we should ask ourselves are,” he wrote in an article that was censored within an hour of posting (p. B4) but shared widely in other formats, “what caused such widespread negative sentiment across the society? Who should be responsible for this? And how can we change it?”

He said the lockdowns in Shanghai and other cities made it clear that wealth and social status meant little to a government determined to pursue its zero Covid policy. “We’re all nobodies who could be sent to the quarantine camps, and our homes could be broken into,” he wrote. “If we still choose to adapt to and put up with this, all of us will face the same destiny: trapped.”

. . .

Mr. Zhou, 49, is known as a maverick in Chinese business circles. He founded his first business in stereo systems with his brother in the mid-1990s when he was still in college. In 2010, he started Yongche, one of the first ride-hailing companies.

Unlike most Chinese bosses, he didn’t demand that his employees work overtime, and he didn’t like liquor-filled business meals. He turned down hundreds of millions of dollars in funding and refused to participate in subsidy wars because doing so didn’t make economic sense. He ended up losing out to his more aggressive competitor Didi.

He later wrote a best seller about his failure and became a partner at a venture capital firm in Beijing. In April [2022], he was named chairman of the ride-sharing company Caocao, a subsidiary of auto manufacturing giant Geely Auto Group.

A Chinese citizen with his family in Canada, Mr. Zhou said in an interview that in the past many wealthy Chinese people like him would move their families and some of their assets abroad but work in China because there were more opportunities.

Now, some of the top talent are trying to move their businesses out of the country, too. It doesn’t bode well for China’s future, he said.

“Entrepreneurs have good survivor’s instinct,” he said. “Now they’re forced to look beyond China.” He coined a term — “passive globalization” — based on his discussions with other entrepreneurs. “Many of us are starting to take such actions,” he said.

For the full story see:

Li Yuan. “A Solitary Critic on ‘Zero Covid’.” The New York Times (Saturday, June 11, 2022): B1 & B4.

(Note: ellipses, and bracketed year, added.)

(Note: the online version of the story has the date June 10, 2022 and has the title “A Chinese Entrepreneur Who Says What Others Only Think.”)

Truckers Hurt If Union Dock Workers Strike to Add to Their Six Figure Pay, and to Block Efficient Technology

(p. B1) LOS ANGELES — David Alvarado barreled south along the highway, staring through the windshield of his semi truck toward the towering cranes along the coastline.

He had made the same 30-minute trek to the Port of Los Angeles twice that day; if things went well, he would make it twice more. Averaging four pickups and deliveries a day, Mr. Alvarado has learned, is what it takes to give his wife and three children a comfortable life.

“This has been my life — it’s helped me support a family,” said Mr. Alvarado, who for 17 years has hauled cargo between warehouses across Southern California and the twin ports of Los Angeles and Long Beach, a global hub that handles 40 percent of the nation’s seaborne imports.

He weathered the blow to his paycheck early in the pandemic when he was idling for six hours a day, waiting for cargo to be loaded off ships and onto his truck. Now the ports are bustling again, but there is a new source of anxiety: the imminent expiration of the union contract for dockworkers (p. B5) along the West Coast.

If negotiations fail to head off a slowdown, a strike or a lockout, he said, “it will crush me financially.”

The outcome will be crucial not only for the union dockworkers and port operators, but also for the ecosystem of workers surrounding the ports like Mr. Alvarado, and for a global supply chain reeling from coronavirus lockdowns and Russia’s invasion of Ukraine. Inflation’s surge to the highest rate in more than four decades is due, in part, to supply chain complications.

The contract between the International Longshore and Warehouse Union, which represents 22,000 workers at 29 ports from San Diego to Seattle, and the Pacific Maritime Association, representing the shipping terminals, is set to expire on Friday. The union members primarily operate machinery like cranes and forklifts that move cargo containers on and off ships.

. . .

The negotiations have centered largely on whether to increase wages for the unionized workers, whose average salaries are in the low six figures, and expanding automation, such as using robots to move cargo containers, to speed up production, a priority for shipping companies.

“Automation allows greater densification at existing port terminals, enabling greater cargo throughput and continued cargo growth over time,” Jim McKenna, the chief executive of the Pacific Maritime Association, said in a recent video statement on the negotiations.

. . .

As he drove past the ports, Mr. Alvarado turned his truck into a warehouse parking lot, where the multicolored containers lined the asphalt like a row of neatly arranged Lego blocks.

It was his third load of the day, and for this round, he didn’t have to wait on the longshoremen to load the carrier onto his truck. Instead, he backed his semi up to a chassis, and the blue container snapped into place.

He pulled up Google Maps on his iPhone and looked at the distance to the drop-off in Fontana, Calif.: 67 miles, an hour and half.

It might, Mr. Alvarado said, end up being a four-load day after all.

For the full story see:

Kurtis Lee. “As Dockworkers Near Contract’s End, The U.S. Has a Stake.” The New York Times (Thursday, June 30, 2022): B1 & B5.

(Note: ellipses added.)

(Note: the online version of the story has the same date as the print version, and has the title “As Dockworkers Near Contract’s End, Many Others Have a Stake.”)