Category: Economics

“People Come to This Country to Build Amazing Businesses”

(p. 1) WASHINGTON — ADW Capital Partners would appear to be the kind of hedge fund that Democrats on the Senate Finance Committee would like to tax more heavily: small but growing fast, with $330 million in assets, an incorporation in Delaware but doing business in Florida, and an offshore “feeder” corporation shielding some of its clients from U.S. taxation.

No wonder, then, that its owner, Adam Wyden, has come out as a vocal and vociferous critic of the tax increases being pushed by the committee’s chairman, Senator Ron Wyden of Oregon — his father.

. . .

(p. 25) “The issue is bigger than my father. I’m not interested in discussing anything personal,” he said in a brief phone call before declining to go further. He said he was “not a Trumper” and “not an Ocasio” — referring to Representative Alexandria Ocasio-Cortez of New York, an icon of the Democratic left. He is a libertarian, he said, raised in Washington, D.C., who moved to Florida “to get away from the food fight.”

But he has gone public with his grievances against his father’s proposals, in an appearance last month on CNBC that he recommended for viewing, and in a tweet responding to the elder Mr. Wyden’s assertion that Elon Musk and other billionaires should not get to decide whether to pay taxes based on a Twitter poll.

“Why does he hate us / the American dream so much?!?!?!?!” Adam Wyden said in the Twitter post last month. “Reality is: most legislators have never built anything … so I guess it’s easier to mindlessly and haphazardly try and tear stuff down.”

. . .

“Thankfully, I think I can compound” investment gains “faster than my dad and his cronies can confiscate it,” Adam Wyden wrote.

Lauded on CNBC’s “Squawk Box,” he elaborated on air. “Amazon, Netflix, Google, Tesla: I mean, we are the envy of the rest of the world,” he said. “People come to this country to build amazing businesses, and I want that to continue.”

Without referring to his son, the elder Mr. Wyden suggested a possible reason for his stance: “Many millionaires perhaps may consider themselves tomorrow’s billionaires.”

For the full story, see:

Jonathan Weisman. “Rift Between Senator and Son Shows Challenge of Taxing the Ultrarich.” The New York Times, First Section (Sunday, December 12, 2021): 1 & 25.

(Note: ellipses added.)

(Note: the online version of the story was updated Dec. 11, 2021, and has the title “Rift Between Senator and Son Shows the Challenge of Taxing the Ultrarich.” The online version says that the article appeared on p. 24 of the New York edition of the print version.)

Federal Covid-19 Stimulus Subsidies Reduced Labor Force Participation

(p. A2) . . ., home prices and stocks have soared, in part because of stimulus from the Fed. From the start of 2020 through Sept. 30 this year, U.S. households’ total assets soared 22% to nearly $163 trillion, Fed data show.

At the same time, the labor-force participation rate fell sharply and has remained stubbornly low. At 61.8% in November [2021], it was 1.5 percentage points below its pre-pandemic level. Many older workers retired early. But even among prime-age workers—those between 25 and 54—participation remains down more than a percentage point.

Some economists believe the extra cash is one reason for this. In part, that is based on research showing declines in wealth seem to have had the opposite effect. Falling housing and stock values from 2006 and 2010 led many who otherwise would have fallen out of the labor force to stay in, according to the Federal Reserve Bank of Chicago. The study found that participation was 0.7 percentage point higher than otherwise as a result.

Families that win at least $30,000 in the lottery tend to earn less in the next five years, according to a National Bureau of Economic Research working paper released in July by four University of Chicago scholars. The more a person wins, the bigger the effect that the award has on earnings and employment, the paper found. Upper-income winners are more likely to reduce their hours, while lower-income winners are more likely to drop out of the labor market entirely, the paper found.

In Austria, workers who received severance payments worth two months of pay were far less likely to find a job within 20 weeks compared with those who received no such lump sum, according to a 2006 paper released by the NBER. The researchers also found a similar effect among workers whose unemployment benefits were extended from 20 weeks to 30 weeks.

For the full commentary, see:

Josh Mitchell. ” THE OUTLOOK; New Hope for Easing Labor Shortage.” The Wall Street Journal (Monday, Dec. 20, 2021): A2.

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

(Note: the online version of the commentary has the date December 19, 2021, and has the title ” THE OUTLOOK; Vast Household Wealth Could Be a Factor Behind U.S. Labor Shortage.”)

The July 2021 NBER working paper mentioned above is:

Golosov, Mikhail, Michael Graber, Magne Mogstad, and David Novgorodsky. “How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income.” National Bureau of Economic Research Working Paper #29000, July 2021.

The published version of the 2006 NBER working paper mentioned above is:

Card, David, Raj Chetty, and Andrea Weber. “Cash-on-Hand and Competing Models of Intertemporal Behavior: New Evidence from the Labor Market.” The Quarterly Journal of Economics 122, no. 4 (Nov. 2007): 1511-60.

Bans on Natural Gas for Cooking and Heating Could Most Hurt Low-Income Citizens

(p. A13) This week, New York City moved to ban gas hookups in new buildings, joining cities in blue states like California, Massachusetts and Washington that want to shift homes away from burning natural gas because it releases carbon dioxide, which causes global warming.

Instead, developers in New York City will have to install electric heat pumps and electric kitchen ranges in newly constructed buildings.

. . .

But the gas industry is fighting back and has lobbied in statehouses across the country to slow the shift away from gas. It argues that gas appliances are widely popular and still cost less than electric versions for many consumers. Opponents have also warned that a rush to electrify homes could strain power grids, particularly in the winter when heating needs soar, at a time when states like California and Texas are already struggling to meet demand.

Karen Harbert, president and chief executive of the American Gas Association, an industry group, said efforts to disconnect homes and businesses from the extensive network of gas pipelines would make it difficult to supply those buildings with low-carbon alternatives that might be available in the future, such as hydrogen or biogas.

“Eliminating natural gas and our delivery infrastructure forecloses on current and future innovation opportunities,” she said.

The question of whether to use natural gas in homes has become part of the culture wars, pitting climate activists against industry and other interest groups. Some chefs and restaurant owners have argued that they won’t be able to cook certain dishes as well without gas.

. . .

In a statement, Bill Malcolm, a senior legislative representative at the AARP, said the group had “supported legislative and regulatory initiatives allowing customers to continue to use the fuel of their choice to heat their homes and cook their food.” He added: “Outright bans on certain fuel options would run contrary to that choice.”

. . .

For now, natural gas remains the dominant fuel in much of the country, heating nearly half of American homes. Electric heat pumps, by contrast, satisfy just 5 percent of heating demand nationwide.

. . .

Experts have warned that as more homeowners go electric, gas utilities will still have to pay to maintain their existing network of pipelines, which could mean higher costs for the smaller base of remaining customers, many of whom may be low-income.

For the full story, see:

Brad Plumer and Hiroko Tabuchi. “Gas vs. Electric Stoves Join Partisan Battlefield.” The New York Times (Friday, December 17, 2021): A13.

(Note: ellipses added.)

(Note: the online version of the story has the date Dec. 10, 2021, and has the title “How Politics Are Determining What Stove You Use.” The online version says that the New York print edition had the title “Gas vs. Electric Stoves on a Partisan Battlefield.” My National print edition had the title “Gas vs. Electric Stoves Join Partisan Battlefield.” Where there is a slight difference in wording between the versions, the passages quoted above follow the online version.)

Elon Musk Likes Government the Referee, Not Government the Subsidizer

Here are some especially important passages from the Wall Street Journal transcript of the Elon Musk interview:

Joanna Stern

Well, I want to come back to autonomous vehicles, but wanted to just stay a little bit more on the role of government. You said at this conference, actually, a year ago, that you think the government should really just be hands off when it comes to innovation. Though with this bill, there is a lot of support for EVs and it could be the biggest change that we’ve seen throughout the country in terms of the infrastructure of EVs. And it helps Tesla. What do you think the role of government should be?

Elon Musk

I think the role of government should be that of, like, a referee. But not a player on the field. So generally, government should just try to get out of the way and not impede progress. I think there’s a general problem, not just in the U.S., but in most countries, where the rules and regulations keep increasing every year.

Rules and regulations are immortal. They don’t die. Occasionally you see a law with a sunset provision, but really, otherwise, the vast majority of rules and regulations live forever. And so if more rules and regulations are applied every year and it just keeps growing and growing, eventually it just takes longer and longer and it’s harder to do things.

And there’s not really an effective garbage collection system for removing rules and regulations. And so gradually this hardens the arteries of civilization, where you’re able to do less and less over time. So I think governments should be really trying hard to get rid of rules and regulations that perhaps had some merit at some point but don’t have merit currently. But there’s very little effort in this direction. This is a big problem. Continue reading “Elon Musk Likes Government the Referee, Not Government the Subsidizer”

Open Source Log4j Software Bug “Poses a Severe Risk”

In Openness to Creative Destruction, I argue that open source software has severe drawbacks, compared to a system where firms receive higher profits for selling better software. The severe Log4j bug, discussed in the quoted passages below, is an example that strongly supports my argument.

(p. B1) The Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency issued an urgent alert about the vulnerability and urged companies to take action. CISA Director Jen Easterly said on Saturday, “To be clear, this vulnerability poses a severe risk.”  . . .  Germany’s cybersecurity organization over the weekend issued a “red alert” about the bug. Australia called the issue “critical.”

Security experts warned that it could take weeks or more to assess the extent of the damage and that hackers exploiting the vulnerability could access sensitive data on networks and install back doors they could use to maintain access to servers even after the flawed software has been patched.

“It is one of the most significant vulnerabilities that I’ve seen in a long time,” said Aaron Portnoy, principal scientist with the security firm Randori.

. . .

(p. B2) The software flaw was reported late last month to the Log4j development team, a group of volunteer coders who distribute their software free-of-charge as part of the Apache Software Foundation, according to Ralph Goers, a volunteer with the project. The foundation, a nonprofit group that helps oversee the development of many open-source programs, alerted its user community about the vulnerability on Dec. 9 [2021].

“It’s a very critical issue,” Mr. Goers said. “People need to upgrade to get the fix,” he said. Log4j is used on servers to keep records of users’ activities so they can be reviewed later on by security or software development teams.

Because Log4j is distributed free, it is unclear how many servers are affected by the bug, but the logging software has been downloaded millions of times, Mr. Goers said.

For the full story, see:

Robert McMillan. “Software Flaw Spurs Race to Patch Bug.” The Wall Street Journal (Monday, December 13, 2021): B1-B2.

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

(Note: the online version of the story was updated Dec. 12, 2021, and has the title “Software Flaw Sparks Global Race to Patch Bug.”)

My book, mentioned above, is:

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

“Americans Think the Economy Is in Rough Shape Because the Economy Is in Rough Shape”

(p. A12) Offices remain eerily empty. Airlines have canceled thousands of flights. Subways and buses are running less often. Schools sometimes call off entire days of class. Consumers waste time waiting in store lines. Annual inflation has reached its highest level in three decades.

Does this sound like a healthy economy to you?

In recent weeks, economists and pundits have been asking why Americans feel grouchy about the economy when many indicators — like G.D.P. growth, stock prices and the unemployment rate — look strong.

But I think the answer to this supposed paradox is that it’s not really a paradox: Americans think the economy is in rough shape because the economy is in rough shape.

Sure, some major statistics look good, and they reflect true economic strengths, including the state of families’ finances. But the economy is more than a household balance sheet; it is the combined experience of working, shopping and interacting in society. Americans evidently understand the distinction: In an Associated Press poll, 64 percent describe their personal finances as good — and only 35 percent describe the national economy as good.

There are plenty of reasons. Many services don’t function as well as they used to, largely because of supply-chain problems and labor shortages. Rising prices are cutting into paychecks, especially for working-class households. People spend less time socializing. The unending nature of the pandemic — the masks, Covid tests, Zoom meetings and anxiety-producing runny noses — is wearying.

For the full commentary, see:

David Leonhardt. “The Economy Looks Healthy, but Americans Know It’s Rough Out There.” The New York Times (Saturday, December 11, 2021): A12.

(Note: the online version of the commentary has the date Dec. 10, 2021, and has the title “Covid Malaise.”)

MIT Cancels Chicago Professor for Saying Merit Matters

(p. A13) I am a professor at the University of Chicago. I was recently invited to give an honorary lecture at the Massachusetts Institute of Technology. The lecture was canceled because I have openly advocated moral and philosophical views that are unpopular on university campuses.

Here are those views:

I believe that every human being should be treated as an individual worthy of dignity and respect. In an academic context, that means evaluating people for positions based on their individual qualities, not on membership in favored or disfavored groups. It also means allowing them to present their ideas and perspectives freely, even when we disagree with them.

I care for all of my students equally. None of them are overrepresented or underrepresented to me: They represent themselves. Their grades are based on a process that I define at the beginning of the quarter. That process treats each student fairly and equally. I hold office hours for students who would like extra help so that everyone has the opportunity to improve his or her grade through hard work and discipline.

Similarly, I believe that admissions and faculty hiring at universities are best focused on academic merit, with the goal of producing intellectual excellence. We should not penalize hard-working students and faculty applicants simply because they have been classified as belonging to the wrong group. It is true that not everyone has had the same educational opportunities. The solution is improving K-12 education, not introducing discrimination at late stages.

. . .

. . ., the university has a duty to encourage students and faculty to offer their opinions and insight on the widest possible range of topics.

. . .

. . . hurt feelings are no reason to ban certain topics. We are all responsible for our own feelings. We cannot control things that are external to us, such as the comments of others, but we can control how we respond to them.

For the full commentary, see:

Dorian Abbot. “The Views That Made Me Persona Non Grata at MIT.” The Wall Street Journal (Saturday, Oct. 30, 2021): A13.

(Note: ellipses added.)

(Note: the online version of the commentary was updated Oct. 29, 2021, and has the same title as the print version.)

Firm Founders May Be More Innovative Than Professional Managers

(p. B11) In tech, there is often a visionary premium and it is at least somewhat justified. Tracking public companies’ performance over 25 years, Bain & Co. found the companies that best maintained profitable growth over the long term were disproportionately those at which the founder was still running the business, was still involved or where the founders’ operational focus was still in place. Based on an analysis of S&P 500 companies done in 2014, Bain found that founder-led companies generated over three times the indexed total shareholder return of other companies in the preceding 15 years. One wonders how much the study is affected by survivorship bias, though—those who flopped early aren’t in the sample.

Founders certainly are bolder. A 2016 study out of the Krannert School of Management at Purdue University found that founder CEOs are more likely to take their companies in a new technological direction, providing evidence that innovations of founder CEO-managed firms create more financial value than the innovations of professional CEO-managed firms.

Apple, which languished as a computer company in the years after its co-founder Steve Jobs was ousted, offers a twist on this phenomenon. Mr. Jobs returned as a savior. Among other things, he changed the company’s name from Apple Computer Inc. to Apple Inc., signaling an expansion of focus to a legacy that now includes the likes of the iPod, iPhone, Apple TV and more.

. . .

Mr. Dorsey’s major shortcoming at Twitter actually was a lack of such bold innovation. Activist investors who began calling for his departure years before it came have long pushed for faster product development and bigger revenue and user targets. They also took issue with the fact that Mr. Dorsey split his time as the chief of two publicly traded companies. When questioned at a shareholder meeting about his split time, Mr. Dorsey responded that it wasn’t a function of time, but of prioritization. During his second stint as chief executive over the course of more than six years, Twitter’s stock rose just one-fifth as much as the S&P 500.

Perhaps he prioritized his payments company, which is around 20 times as valuable today than it was in late 2015 when it went public. There are many current examples of tech companies still excelling with a founder or co-founder at the top. Nvidia and Shopify, which have returned more than 80,000% and nearly 6,000% to shareholders, respectively, since their public debuts, come to mind.

For the full commentary, see:

Laura Forman. “HEARD ON THE STREET; Many Tech Founders Can’t Stay Too Long.” The Wall Street Journal (Tuesday, December 7, 2021): B11.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Dec. 6, 2021, and has the title “HEARD ON THE STREET; Should Investors Ride Tech Founders to the Moon?”)

I cannot find evidence that the Krannert School of Management paper mentioned above has been published. An abstract appeared as:

Lee, Joon Mahn, Jongsoo Jays Kim, and Bae Joonhyung. “Are Founder CEOs Better Innovators? Evidence from S&P 500 Firms.” Academy of Management Annual Meeting Proceedings 2016.

Demand for Oil and Gas “Will Remain Robust for Years to Come”

(p. B1) The leaders of the world’s largest oil companies said Monday [Dec. 6, 2021] that demand for the products they make will remain robust for years to come even as the world attempts to transition to lower-carbon energy sources.

The chief executives of Exxon Mobil Corp., Chevron Corp. and Saudi Arabian Oil Co., speaking at the World Petroleum Congress in Houston, said that while the world needs to address the risks posed by climate change, global economies cannot function without fossil fuels.

“Oil and gas continue to play a central role in meeting the world’s energy needs, and we play an essential role in delivering them in a lower carbon way,” Chevron CEO Mike Wirth said Monday. “Our products make the world run.”

. . .

(p. B2) Jeff Miller, chief executive of Halliburton Co., said Monday that the world’s underinvestment in oil and gas since 2014—years in which international spending was 50% below historical norms—is leading global markets to an era of scarcity.

. . .

Just a few weeks ago, some market observers had predicted crude prices could soon hit $100 a barrel for the first time in seven years, on the back of a strengthening demand recovery and sluggish growth in oil supplies.

For the full story, see:

Collin Eaton and Christopher M. Matthews. “Demand for Fossil Fuels Seen Lasting for Years.” The Wall Street Journal (Tuesday, December 7, 2021): B1-B2.

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

(Note: the online version of the story was updated Dec. 6, 2021, and has the title “Demand for Oil, Gas to Remain Robust for Years, Energy Leaders Say.”)

Solve Future Crises by Allowing the Nimble to Innovate

Donald Boudreaux, on his Café Hayek blog, quotes a passage from my Openness book, saying that the best way to prepare for unknown future crises is to sustain a society where nimble innovators are allowed to nimbly innovate. Donald posted the quote on Mon., Dec. 6, 2021.

My book is:

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

Climate Change Infrastructure Subsidies Mainly Benefit the Rich

(p. A9) Mr. Biden has insisted that at least 40 percent of the benefits of federal climate spending will reach underserved places, which tend to be low income, rural, communities of color, or some combination of the three.

But historically, it is wealthier, white communities — with both high property values and the resources to apply to competitive programs — that receive the bulk of federal grants. And policy experts say it’s unclear whether, and how quickly, federal bureaucracy can level the playing field.

. . .

The new climate provisions in the infrastructure bill inject billions of dollars into competitive grant programs. These are pots of money that towns, cities and counties can access only by submitting applications, which federal agencies then rank, with funds going to applicants with the highest scores.

That system is designed to ensure that funding goes to the most worthwhile projects.

But it also hinges on something outside the control of the federal government: The ability of local officials to use sophisticated tools and resources to write successful applications. The result is a process that has widened the gap between rich communities and their less affluent counterparts, experts say.

The disparity begins even before the application process begins. That’s because local governments must be aware of the grant programs in the first place, which means having dedicated staff to track those programs. Then they need to design proposals that will score highly, and correctly complete the reams of required paperwork.

Even if they are awarded a grant, communities are required to pay a share of the project — often 25 percent, which is unaffordable for many struggling towns and counties.

Governments that can clear those obstacles face a final hurdle: Demonstrating that the value of the property that would be protected is greater than the cost of the project. That rule often excludes communities of color and rural areas, where property values are usually lower than in white communities.

. . .

The Biden administration has touted the program, called Building Resilient Infrastructure and Communities, or BRIC, as a model that should be expanded. The infrastructure bill provides billions more to the program.

But most of the first round winners were wealthy, predominantly white areas in a handful of coastal states, federal data show.

More than half the money went to California, New Jersey and Washington State. The largest single recipient was a $68 million flood-control project in Menlo Park, Calif., where the median household income is more than $160,000, the typical home costs more than $2 million and only one in five residents are Black or Hispanic. The project is in line to get $50 million from FEMA.

For the full story, see:

Christopher Flavelle. $50 Billion Conundrum: Who Gets Climate Protection?” The New York Times (Saturday, December 4, 2021): A9.

(Note: ellipses added.)

(Note: the online version of the story has the date Dec. 3, 2021, and has the title “Billions for Climate Protection Fuel New Debate: Who Deserves It Most.”)