The Fall of The Uber Menschen

Unless you've been living under a rock these last few years, you know that Uber is angling to Go Public and make a handful of folks really rich. At least, on paper. This missive has been germinating for some time, and began to gel a few days ago when I read that An Analyst finally said that the emperor has no clothes:

"The problem that Uber or any other incumbent faces is that the barriers to entry are very small," said Bob Hancké, an associate professor of political economy at the London School of Economics.

Finally, a quant with an ounce of sense.

It's clear that Uber, et al, represent a case of tech overwhelming good sense. There really is no intrinsic benefit to innterTube taxi service. Really. It should not surprise that the whole idea loses money. Taxi service is a local enterprise, everywhere.

And, of course, one must ask how Uber, et al, propose to make money? Well, let's go back to (at least) David Ricardo, who proposed a labor theory of value. LTV is most often conflated with Marx, but it wasn't his idea, and he didn't base his writings on it. There is an ultimate LTV, which does a thought experiment: how is physical capital created? The answer, of course, is that the process starts with some raw material, extracted by labor, which act is the value add. Each subsequent step is exactly the same: value add comes only from labor. Not a widely held idea, naturally.

But, in practical terms, how does Uber actually make money? If it ever does. Consider the cost structure of a generic business. All but labor, sans unions, are costs which are not easy unilateral by the business. Materials are gotten by contract. Land is gotten by contract. And so on. In other words, the only flexible cost is labor. So, of necessity, that's where the profit is: pay less than the value add.

In the case of Uber, there's also the gambit of escaping externality-enforcing regulation. You know, like the local taxi commission, which exists for reasons, if only to avoid clogging streets with empty taxis. Now, some may consider those reasons onerous, but on the other hand, it is never optimal to allow capitalists to impose externalities. Just ask the folks living in the vicinity of factory pig farms Down South.

So, also not too surprising is today's news that the Uber menschen have lowered the IPO share price. I bet they do again, and may be yet again. It's a nonsense business.

The only dumber 'service' of this transportation type is Turo. For all the same reasons.

The Easy 80 Percent

I think it was Dr. McElhone who introduced me to the old saw (didn't know it was old, at the time), "Don't think you're really good just because you've mastered the Easy 80 Percent!". Truer words were never spoken.

Today brings yet another example. Pharma had been dining out on filet and caviar for decades with the Easy 80%. Now, the impossible 20% is all that's left. They, we now know, are frauds. They don't work miracles. They don't conjure all these compounds out of their own pockets. They depend on the Damn Gummint for the smarts.

Another spectacular failure!

In the 802-patient study, about 9.3 percent of patients treated with an 18 mg dose of selonsertib, and 12.1 percent of patients treated with a lower dose of the drug achieved an improvement of fibrosis by at least one stage, the company said.

However, 13.2 percent of patients treated with a placebo showed an improvement in fibrosis.

When your drug gets hosed by placebo...!!!

WWJD

So, it's Easter. Sri Lanka has killed a bunch of Christians. Pence, at least, is trying to make hay of it. The Manchurian President has said that our country will never be socialist.

What would Jesus do? About capitalism vs. socialism, that is. To start to answer the question, we need to decide what those two mean. Capitalism is generally agreed on: private ownership of the means of production.

Socialism, not so much. The Manchurian President and his cabal use the word as synonymous with Communism. Note the capital; old time Russia and such. Which wasn't the spot on the planet that Marx had in mind with "Das Capital", by the way.

Here are a few ways to define.
- yes, the same as communism (small c) with The State owning all means of production
- The State owns some means of production, those associated with generally agreed to be social goods
- The State owns some means of production, those associated with universally agreed to be social goods
- The State owns no means of production, but enforces laws regarding production/distribution of some social goods
- The State owns no means of production, but enforces laws to pay for externalities generated by production
- The State owns some infrastructure that is generally/universally agreed to be common
- The State provides some degree of protection from economic catastrophes experienced by citizens

If you have not one of those, you have early 19th century USofA; a time and place of widespread poverty, morbidity, and mortality. And not much else for the 99%. Darwin, whom the bible thumpers despise, in full flower. And, as Boeing is proving by the bucket load these days, just because you're a capitalist doesn't necessarily mean you're the Smartest Guy in The Room. Unless your definition of Smart is 'Fuck the Public'.

The most important one, and that I'd considered the sine qua non, is one which penalizes profit-making externalities. I've never been there, but factory hog farms are an excellent example of such bad behavior. And, you don't need a hurricane to experience externalities.

So, right-wing bible thumpers, tell me. What would Jesus do?

Treason

if this be treason, make the most of it.
-- Patrick Henry/1765

The Manchurian President certainly considers himself a revolutionary, but I doubt that Henry would approve of his version. The Manchurian President and his minions are making the most of the wishy-washy Mueller Report, and I saw a headline (haven't read up the story, yet) where Guiliani claims that consorting with Russians is just fine and dandy.

Well. Thanks to some reporting in the NYT, and elsewhere, we find that the vaunted private sector is pushing us into War. How can that be? Isn't the Congress the sole arbiter of War? May be not.

When the United States government assigned responsibility for NotPetya to Russia in 2018, insurers were provided with a justification for refusing to cover the damage. Just as they wouldn't be liable if a bomb blew up a corporate building during an armed conflict, they claim not to be responsible when a state-backed hack strikes a computer network.

If, as the insurance industry is claiming, the USofA government is asserting that cyberattacks by Russians (or others) are, in fact, acts of war, then isn't consorting with such enemies an act of Treason? Isn't, therefore, The Manchurian President and his minions, committing acts of Treason?

If Treason isn't an impeachable offense, then what is?

A Public Service Message

I saw a comment stream on a blog, which discussed beautiful words (the comments, not the blog's content). One suggestion was 'syphilis' being the most beautiful word in the English language.

Imagine my surprise to see this story in my newsfeed. Syphilis has returned to God's Country; Missouri specifically in the story. And, of course, the Bible Thumpers are in Da Nile over yet another scourge.

Compared with urban hubs, rural populations tend to have less access to public health resources, less experience with syphilis and less willingness to address it because of socially conservative views toward homosexuality and nonmarital sex.

And, not at all surprising,

In Missouri, restrictions on Planned Parenthood's Medicaid reimbursements that were passed last year in the legislature, and are again under debate, mean the nonprofit organization cannot be reimbursed for STD treatment for some patients.

Can't let PP mess with religious retribution.

Ouch! That Smarts

There was a time, mostly post WWII into the 70s when the mantra was, "Let's work smarter, not harder!"

The term "work smarter ... not harder" originated in the 1930's. Allen F. Morgenstern, an industrial engineer, the creator of the work simplification program, coined the term. The program's intent was to increase the ability of people to produce more with less effort.

This was later picked up by the cartoon character Scrooge McDuck, created in 1947 by Carl Banks. Scrooge McDuck always told his three nephews, Hewey, Dewey, and Louis, "Work smarter than the smarties and tougher than the toughies."

Scrooge McDuck!! Who knew?

Now we get a proto-fascist declaring that the best way forward is to regress to the 19th century. Good for him.

It's also worth noting that W. Edwards Deming (a hero), post WWII, took this seriously. Here's one of his principles:

Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.
Eliminate work standards (quotas) on the factory floor. Substitute with leadership.
Eliminate management by objective. Eliminate management by numbers and numerical goals. Instead substitute with leadership.

Does anyone seriously believe:
1 - that assembly workers have 'pride' of work such that they're driven to create more value by working 12 hours a day 6 days a week? Really?
2 - that 'creative' workers will innovate ever more vigorously if they're shackled to their seats at the table for that long? Really?

When would either have any time to spend their wages? Really? Didn't the middle class come into existence after the end of compulsory labor, and the protections of unions? And the 40 hour work week? No market, no profit. Yes, yes, that's what happened. OTOH, if you're a slave wages exporter, then you've no choice but to continue to grind labor. After all, physical capital has to be paid for (and the cost is the same for everybody). Materials have to be paid for (ditto). So where does the profit come from? Squeezing the worker. It's no coincidence that these wage slave producers exist in totalitarian states. It's also no coincidence that they all have to export to high wage states. To the extent that Red states co-opt Blue states (whether state or State), the market seen by wage slave producers contracts. It's in their best interest to protect their TAM. But, as we can see, they're just too stupid to figure it out.

You Like Me! You Really Like Me!! - part the second

During my earlier task of letting my fingers do the walking through the Yellow Googles on the topic of DSGE, the Yellow Googles failed me in a spectacular way. For many years, I have viewed Joe Stiglitz as the Godzilla of macro analysis, yet they didn't show me this paper. The Failing Yellow Googles.

In the discussion below, I shall illustrate the inadequacies of the DSGE framework by focusing on the 2008 crisis. Some advocates of DSGE models say these models were not meant to address "once in a hundred year floods." There are several responses to this defense. The first is by way of analogy: what would one think of a medical doctor who, when a patient comes with a serious disease, responded by saying, "I am sorry, but I only deal with colds."

You really should read that paper, if you care about macro quant. I'll offer a few more salient quotes.

Those readers with good memories will remember the Viagra graph:

[...] when house prices didn't increase as expected (and it should have been clear that they couldn't increase forever at those rates) and homeowners faced constraints in refinancing, the bubble broke, and the crisis ensued.

In a later footnote, he makes the same argument made here:

The Congressional inquiry into the 2008 crisis called itself the Financial Crisis Inquiry Commission and focused on aspects of the financial sector like credit rating agencies and the role of CDS's, derivatives, and other complex financial instruments. The standard DSGE models have nothing to say about either of these: these are failings related to its inadequate treatment of the financial sector.
[my emphasis]

Once again, with vigor, I give you Blythe Masters

One of the key reasons that representative agent models fail in enhancing understanding of macro-fluctuations is the pervasiveness of macroeconomic externalities -- the actions of each agent (in the aggregate) has macroeconomic consequences which they do not take into account.

Or give a shit about! Externalities, ignoring them, is where the profit is.

And, in a footnote to this part of the text, he Drops The Big One:

Complexity in financial structures may make it even impossible to ascertain whether a system is systemically stable.

Ooops.

The bete noir of my professional existence is the notion that macro-analytic structure is just the sum of some set of micro-structures.

The micro-economics of the basic competitive model—as formulated in Arrow and Debreu-- has been shown to be flawed by forty years of economic research. Why should we expect a macroeconomic model based on such micro-foundations to work?

Well, we don't.

And, finally

Defenders of DSGE models counter that other models did little better than the DSGE models. That is not correct. There were several economists (such as Rob Shiller) who, using less fully articulated models, could see that there was clear evidence of a high probability of a housing bubble. There were models of financial contagion (described earlier in this paper, developed further since the crisis), which predicted that the collapse of the housing bubble would likely have systemic effects.

What's that about history? Does it repeat itself, or just rhyme?

You Like Me! You Really Like Me!!

Well, I know I'm not Sally Field. I've not been given the top award in my chosen field of endeavor. But, in the last week or so, a few of the main themes of this endeavor have been supported by those who have.

I do not think that the currently popular DSGE models pass the smell test. ... The advocates no doubt believe what they say, but they seem to have stopped sniffing or to have lost their sense of smell altogether.
-- Robert Solow/2010

So, it all started with a question: is there a specific version of econometrics tailored to macro? When I was in school loe those many decades ago, there was just econometrics, exemplified by Theil's Godzilla book (you know, in the sense that it conquered all). I used Kmenta. Macro folks drifted to time series analysis, again with a seminal text, this time, by Box and Jenkins.

So, I let my fingers do the walking through the Yellow Googles. Turns out there is at least one text, "Structural Macroeconometrics". I got a copy and have been browsing. I hesitated in ordering, since the ToC had that hated word, Bayesian, sprinkled throughout. But, girding my loins as Taras Bulba commanded Andrei to learn the ways of the Poles, I went ahead with it. The hubris of the text is astonishing! Now, the copyright date is 2011, more than enough time for these authors to know that The Great Recession had occurred. And to know that the method they propound, DSGE (dynamic stochastic general equilibrium), was just as much a bust in predicting as all the other quant models.

The simple fact is The Great Recession was driven by The Rich seeking low-risk, high-return instruments rather than physical investment. They, lemmings all, settled on residential (and, to a lesser degree, commercial) mortgages. That's the matter. The anti-matter was the CDS, invented at a specific time and place by one person. A woman, of course. Pandora for our times. The CDS turned the metaphorical Wall Street Casino into a real one: anyone could bet on anyone else's assets. More bets than holdings. Oops.

Here's one view of DSGE and The Great Recession.

The failure of economists to predict the Great Recession of 2008 - 09 has rightly come under attack. The areas receiving most criticism have been economic forecasting and macroeconomic modelling. Distinguished economists - among them Nobel Prize winner Paul Krugman - have blamed developments in macroeconomic modelling over the last 30 years and particularly the use of dynamic stochastic general equilibrium (DSGE) models for this failure.

Which is not to say that merely reading the New York Times and Wall Street Journal, looking for, to use econ jargon, 'technology shocks' in the form of dangerous changes to the rules of engagement is sufficient. But the quant approach of predicting the future based on the past, even a recent one, won't spot such problems. A good job for a grad student RA.

So, we get this reporting. The like me quote:

The problem the major economies in Japan, Europe, and the United States have today, [Richard C. Koo, chief economist at Nomura Securities] said, is that despite low interest rates, investment opportunities in domestic markets don't offer sufficient returns to lure borrowers to go into debt, using the vast pools of available savings.

IOW, nothing has changed since the lemmings' surge into residential mortgages. The CxO class is still too stupid at finding physical investment. You like me. You really like me.

Another, truly rare, observation:

[federal budget deficits aren't] necessarily a forerunner of inflation. ... [other causes are] a shortage of labor, raw materials, and factories.

IOW, cost push. Greedy union workers aren't the only cause of inflation. Again, you like me. You really like me.

Most of the front page of the Business page is taken up with Neil Irwin's reporting on Australia's 'miracle'. You should read it.

About That Statue

"Keep, ancient lands, your storied pomp!" cries she
With silent lips. "Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!"
-- Emma Lazarus/1883

Written as fund raiser to support, literally, The Statue of Liberty. Added to the monument in 1903. Widely believed to express the liberalism of the USofA. The fact is, the USofA has been hostile to the non-WASP populations of the world from inception. Today's neo-Nazis are of a piece with common 19th century practice.

So, this recent reporting should be something of an eye-opener:

According to a story published in the Washington Post, on March 14, 1891, a crowd of 8,000 assembled on New Orleans' Canal Street, "almost filling up the large space from curb to curb on each side of the boulevard." The crowd, possessed by an "ungovernable" fury, had guns and arrived at the parish prison at 10:30 that night. Prison guards let the mob into the prison, where they eventually found the Italian prisoners. "The shotguns belched forth and the slayers of Hennessy fell dead in their tracks," the story says.

Good, God fearing, Christian, Real, Americans.

How Dumb Can You Be - part the second

Dumb enough to start a NFL 'development' league without negotiating access to 'developing' NFL players. Can you believe this? And capitalists are the self-appointed Smartest Guys in the Room!!

One players' union official said it would violate the terms of the NFL's collective bargaining agreement if active players are lent to the AAF.

[update 3 April]
Well, that didn't take long.

Unfortunately, after careful consideration, the board has decided to suspend operations of the Alliance of American Football, effective immediately.
-- Aditi Kinkhabwala

War is Hell

A frequent theme over the years of these missives is the answer to the question, "why was growth and equality (modulo race) so much greater in the 50s and 60s than since?". The answer was generally in response to some nonsensical blathering from the Ayn Rand crowd. Well, Tex, this time it's different. This time a mainstream pundit has finally struck the Mother Lode. Not too surprisingly, it's David Leonhardt:

Failing New York Times
[When I got back from my greasy spoon reading of the Times, note in hand as usual, I went to the site expecting to extract a sentence or two. But, NO. They have instituted an even more foolish and Draconian access. So, starting tomorrow, I'll be typing in those few sentences. I could do with the typing practice, in any case.]

So, if you've seen his piece, he says (in his words) what has been said here. The reason for the great growth in the 50s and 60s was due to the fact that the men (and they were 99.44%) who had the hands on the levers of power in both the private and public sectors were the product of both the Great Depression and WWII, thus a pervasive "we're all in this together" attitude. Taxes on the rich were high, unions were strong, and the middle class got most of the moolah. And, thus, aggregate grew nicely. Laffer be damned, real corporations only increase output when there is clearly unmet demand. All the money printing, so called, by the Fed and ECB has gone to the 1%, thus no demand pull inflation. Commodities are in restraint, so no cost push. And, in case you haven't noticed, median income isn't going anywhere North. So, no inflation.

Those who ignore history are doomed to repeat it, and all that.