Innovation is a dominant ideology of our era, embraced in America by Silicon Valley, Wall Street, and the Washington DC political elite. As the pursuit of innovation has inspired technologists and capitalists, it has also provoked critics who suspect that the peddlers of innovation radically overvalue innovation. What happens after innovation, they argue, is more important. Maintenance and repair, the building of infrastructures, the mundane labour that goes into sustaining functioning and efficient infrastructures, simply has more impact on people’s daily lives than the vast majority of technological innovations…

The argument in its entirety at “Hail the Maintainers.”

* Manolo Blahnik


A guest post from (Roughly) Daily

 click here for larger version

Intrigued by the mechanisms that generate a world like ours, in which over 33% of the wealth in the U.S. is held by 1% of the population, economist Ricardo Fernholz and mathematician/statistician Robert Fernholz developed a model that might explain the high degree of income and wealth inequality we see in advanced economies.

As James Kwak notes in Baseline Scenario,

The model assumes that all households are identical with respect to patience (consumption decisions) and skill (earnings ability). Household outcomes differ solely because they have idiosyncratic investment opportunities—that is, they can’t invest in the market, only in things like privately-held businesses or unique pieces of real estate. Yet when you simulate the model, you see an increasing share of wealth finding its way into fewer and fewer hands [as illustrated in the chart above].

As the authors emphasize, “it is luck alone – in the form of high realised random investment returns – that generates this extreme divergence.”  In the absence of redistribution, either explicit or implicit, this is the kind of society you end up with…

Clearly, the world is not quite so simple; there are some redistributive mechanisms (taxes and the like), and (given, e.g., educational differences) not all peoples’ earning abilities are equal.  Still, as Kwak observes,

…this is a useful antidote to the widespread belief that outcomes are solely due to skill, hard work, or some other “virtuous” attribute. Even if everyone starts off equal, you’re going to have a few big, big winners and a lot of losers. Because we want to find order and meaning in the universe, we like to think that success is deserved, but it almost always comes with a healthy serving of luck. Bear that in mind the next time you hear some gazillionaire hedge fund manager or corporate CEO insisting that he knows how the country ought to be run.

Read a summary of the Fernholzs’ paper here; download the (rather mathematically-intense) original here.

* “A rich man is nothing but a poor man with money”  – W.C. Fields


As we ponder polarization, we might send balanced birthday greetings to Elmer Ambrose Sperry; he was born on this date in 1860.  An early exemplar of equipoise, Sperry was the engineer and inventor who devised the gyrocompass (a huge advance on traditional magnetic compasses, first tested on the U.S.S. Delaware in 1911).  His compasses and stabilizers have helped navigate and “balance level” first ships, then aircraft ever since.


Collect ’em all!

September 17, 2012

52 Shades of Greed: The oligarchs who’ve benefited from the excesses that led to the crash of 9.15.08– and from the crash itself– memorialized in a deck of cards.

Cognitive Dissonance…

January 28, 2012

The New York Times reports this morning on the latest U.S. GDP figures:

Growth Accelerates, but U.S. Has Lots of Ground to Make Up

 The American economy picked up a little steam last quarter, growing at its fastest pace in a year and a half. Whether it can sustain that momentum is critical to millions of Americans out of work — and perhaps President Obama’s re-election chances…


But Nomura Securities analysts looked at the same glass and saw it decidedly half-empty, as Business Insider reports:

Core Economic Growth Slowed Sharply In Q4

In regards to this morning’s mediocre GDP report, Nomura cuts right to the chase in a note titled ‘Core Economic Growth Slowed Sharply’ in Q4.

Here’s their commentary:

Inventory building contributed 1.9 percentage points (pp) to growth in Q4 2011 after subtracting 1.4pp in Q3. The measure of final sales, which is a “core” view of the economy that removes the effect of inventories, grew at an annual rate of just 0.8% in Q4 compared with 3.2% in Q3. Under this perspective, the US economy slowed sharply in the final quarter of the year. The choppiness in quarterly growth in the back half of 2011 is partially due to the rebound following the dampening effect on economic growth stemming from the Japan earthquake and tsunami that hit on 11 March. The second half rebound was front-loaded into Q3. The same pattern can be seen when looking at the industrial production data, which also tracks the broad economy. In Q3, industrial production rebounded to an annual growth rate of 6.3% (following 0.6% in Q2) followed by slower growth of 3.1% in Q4. To smooth the effect of the rebound from temporary factors, economic growth in H2 2011 advanced at an average annual rate of 2.2% compared with 0.8% in H1.

And here’s the chart that demonstrates the point. The gray line is what Nomura calls ‘core’.

Rich, richer…

February 14, 2011

a guest post from (Roughly) Daily

click image above, or here, for larger interactive version

One can use the interactive chart above (which is based on income tax data, and is adjusted for inflation to 2008 dollars) to see how average incomes in the U.S. have grown as between any two years from 1917 to 2008, and how that change was divided as between the richest 10% of the population and the remaining 90%.

The Wall Street Journal reports today that

A newly resilient U.S. economy is poised to expand this year at its fastest pace since 2003, thanks in part to brisk spending by consumers and businesses.

In a new Wall Street Journal survey, many economists ratcheted up their growth forecasts because of recent reports suggesting a greater willingness to spend.

One wonders how…  indeed, one wonders how long the dynamic that’s defined the last two decades is sustainable in what is fundamentally a consumer-driven economy.

[TotH to @cshirky for the lead to the tool]

As we ponder the different kinds of heart we might celebrate on Valentine’s Day, we might recall that it was on this date in 1967 that Aretha Franklin recorded “Respect” (with her sisters Carolyn and Erma singing backup).  The tune had been written and recorded by Otis Redding two years earlier, and had done well on the R&B charts.  But Atlantic Records exec and producer Jerry Wexler thought that the song was especially suited to showcase Aretha’s vocal gifts, and had the potential to be a cross-over hit.  He was, of course, right on both counts.

Waiting for Godot…

December 21, 2010


We have noted that, historically, small business has played a key role in creating the jobs and growth that have led the U.S. economy out of recession, and that the troubles besetting small business today help explain the depth and duration of our current troubles (e.g., here or here).

Now, from the Cleveland Fed (via the ever-illuminating Calculated Risk), an explanation of the connection between low home prices and stalled small business growth.  The report analyzes small business borrowing, and notes that homes equity borrowing is an “important source of capital for small business owners and that the impact of the recent decline in housing prices is significant enough to be a real constraint on small business finances.”  It concludes:

Everyone agrees that small business borrowing declined during in the recession and has not yet returned to pre-recession levels. Lesser consensus exists around the cause of the decline. Decreased demand for credit, declining creditworthiness of small business borrowers, an unwillingness of banks to lend money to small businesses, and tightened regulatory standards on bank loans have all been offered as explanations.

While we would agree that these factors have had an effect on the decline in small business borrowing through commercial lending, we believe that other limits on the credit of small business borrowers are also at play and could be harder to offset. Specifically, the decline in home values has constrained the ability of small business owners to obtain the credit they need to finance their businesses.

Of course, not all small businesses have been equally affected by the decline in home prices. While many small business owners use residential real estate to finance businesses, not all do. Those more likely do so to include companies in the real estate and construction industries, those located in the states with the largest increases in home prices during the boom, younger and smaller businesses, companies with lesser financial prospects, and those not planning to borrow from banks. These patterns are also evident in the data sources we examined.

The link between home prices and small business credit poses important challenges for policy makers seeking to improve small business owners’ access to credit. The solution is far more complicated than telling bankers to lend more or reducing the regulatory constraints that may have caused them to cut back on their lending to small companies. Returning small business owners to pre-recession levels of credit access will require an increase in home prices or a weaning of small business owners from the use of home equity as a source of financing. Neither of those alternatives falls into the category of easy and quick solutions.

No “easy and quick solutions”…  if we’re to wait for home prices to rise and conventional mortgage lending to recover, the wait could be painfully long.

But perhaps that’s not where we should be looking at all.  Perhaps we should be encouraging the emergence of a new suite of financing options for small businesses: from micro-credit (more likely in practice “micro-credit on steriods” to meet the scale of the individual needs, but the principle’s the same) to new credit unions– co-ops that would enable small businesses, in effect, to lend to each other.

In fact, both kinds of institutions (and many variations on these themes) exist already– they simply need to be scaled.

That’s not an “easy and quick solution” either.  But it has the extra benefit of building a financing structure that does not depend on the consolidating financial behemoths whose rapaciousness is a(nother) part of our problem…  and it beats the hell out of waiting for Godot.

Been down so long…

September 3, 2010

If only it looked like “up” from here…

First, viz. the U.S., the BLS reported this week:

Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).

The ever-illuminating Calculated Risk puts those numbers (which are being reported as a pleasant surprise to the extent that they weren’t as bad as many feared) into perspective:

click image to enlarge

… suggesting that any light at the end of this particular tunnel is likely a pretty distant glow at this point…  and thus that any real recovery– a restoration of employment, and the consumer purchasing power and confidence that would accompany it– may be a while in coming.

Second, lest we imagine that the disappearance of Europe and the PIIGS from the front page mean that all’s well, a chart from Clusterstock all-too-aptly titled “Europe’s Crisis Coming Back In 3…2…1…“:

click image to enlarge

While the financial problems of Europe’s periphery ‘PIIGS’ economies (Portugal, Italy, Ireland, Greece, and Spain), has receded substantially from business headlines, this doesn’t mean that their crisis is over, or even getting better.

In fact, the creditworthiness of nations such as Greece, Portugal, and Spain is looking worse than ever, as represented by % spread between the yield demanded by bondholder for ten-year PIIGS government bonds and the ten-year bonds of Germany (Germany is Europe’s version of a ‘risk-free’ yield to compare things against). For all of the PIIGS, it is worse off than before the European Unions’s one-trillion-dollar affirmations of support for the PIIGS, or before the much bally-hooed bank stress tests.

The frenzy surrounding the Eurozone crisis may have ebbed, but it’ll be back…

Japan?  Their economy, already in shaky shape, has been rocked by an unexpected rise in the value of the Yen against the dollar (and thus unanticipated– and unwanted– pressure on exports).

The governments of the developed world seem to be behaving as though this is all a kind of “hurricane season” through which they need simply to batten down.

If only…


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