Wednesday, November 28, 2018

China From Above

Monday night I watched an episode of China From Above subtitled Dynamic Coast on the Smithsonian Channel. It was fascinating.

There were aerial views of the big cities with rising populations along the east and south coast.

Part of the episode was about fishermen on icy Chagan Lake. They caught fish from under ice using a huge net, catching several tons of fish in one haul. They have been doing this for many generations.

Part of it was about erecting offshore wind turbines for power generation.

I recommend watching the series. The whole episode of Dynamic Coast is online here, but it seems you have to be a subscriber to a streaming service or have cable TV service including the Smithsonian Channel to get online access. As a Spectrum cable TV subscriber, I am able to see it and two episodes from Season 1. 

Monday, November 26, 2018

Mass shootings

There was an article in yesterday's print edition of the Cleveland Plain-Dealer about mass shootings written by John Lott. When I looked for it on the Plain Dealer website moments ago, it wasn't there. Maybe it will appear later. Anyway, it repeated the article I did find here. It is about left-wing liberals' biased claims about mass shootings.

Of course, mass shootings are tragic. So are the biased claims.

Sunday, November 25, 2018

Bohemian Rhapsody

My wife and I saw the movie Bohemian Rhapsody on Nov. 17. We enjoyed it very much. The main character in the movie is Freddie Mercury, the band Queen's lead vocalist. I thought the movie was a little long in the part before Queen's performance at Live Aid. The part showing their Live Aid performance was terrific.

A philosophy professor, and an acquaintance many years ago, wrote a blog-post about the movie, which is here. He enjoyed it as much as I did, maybe more, but his thoughts about the experience of seeing it were very different from mine. I made some comments to his blog-post.

There are some videos on YouTube showing Queen's performance at LiveAid. One of them, this one, has a comical introduction for Queen.

Friday, November 23, 2018

Amazon HQ2 & HQ3 #3

Yesterday at a Thanksgiving celebration I asked a guy who works in information technology about Amazon HQ2 and HQ3, assuming there has been office buzz about it where he works. Part of his reply was that Amazon employees have bought residential real estate near the future new location(s). He didn't say how long ago this started.

So this morning I did a Google search {"Amazon employees" bought "real estate"}. There were lots of hits. Examples:  BoingBoing    Wall Street Journal (pay-walled)

The stories are mostly about Long Island City (HQ3).

Wednesday, November 21, 2018

Amazon HQ2 & HQ3 #2

This post will be about the reported tax breaks that Virginia and New York will give to Amazon. On Wikipedia there is heavy criticism of the tax breaks. One professor calls the tax breaks overly generous. Another professor says that Amazon's search for other locations was a ruse and a con. It was done to solicit bids from places that they never intended to move to solely to gain tax breaks. However, none of the critics quantify the overly generous tax breaks that they allege.

To take a "stab" at it I did some rough calculations comparing (a) the extra income taxes that Virginia and New York will collect assuming 25,000 employees at both HQ2 and HQ3 to (b) the reported tax breaks.  My calculations say that it will take nearly 4 years for Virginia and nearly 6 years for New York to recoup the tax breaks via income taxes. Call these "number of years to recoup" (Y). Such simple assumptions likely under-estimate Y.


The above assumed all the new Amazon employees will come from out-of-state, and they will all be added immediately. Both are obviously false. So let's assume that only half of the employees will come from out-of-state and the average number of employees over the first several years will be about half of the numbers shown above. Adjusting for both of these factors implies that Y will be nearly 16 years for Virginia and nearly 24 years for New York!

Arguably Y could be reduced some for favorable side effects like income to local businesses and rents. On the other hand, there will be unfavorable side effects. The presence of HQ2 and HQ3 will increase other costs to local people for things such as paying more for teachers, food, rent, infrastructure, and so forth. These are, of course, very difficult to quantify. But if the net effects were to reduce Y 1/8th, the result is still nearly 14 years for Virginia and nearly 21 years for New York! I'm inclined to agree with the professors.

I am confident that not many people in the general public do the above kind of analysis. Therefore, politicians can hand out tax breaks to Amazon or whoever, and most people in the affected community will swallow whole whatever the politicians say about it being a great deal for the local economy. Even if some of the people are skeptical about how good a deal it is for the community, there is little or nothing they can do once the tax breaks have been finalized.

Tuesday, November 20, 2018

Amazon HQ2 & HQ3 #1

According to several news stories Amazon is near announcing its new headquarters. That's two of them, not one as first announced. They are being called HQ2 and HQ3. HQ1, as I'll here call it, will remain in Seattle. HQ2 will be in Crystal City, VA very near Washington, D.C. and Reagan Airport. HQ3 will be in Queens, NY, near LaGuardia Airport but not far from JFK Airport. Some stories say HQ3 will be in Long Island City, which is not on Long Island but adjacent to Queens.

The following story compares real estate prices and more in the two new locations and Seattle.
How Amazon’s HQ2 and HQ3 locations compare with Seattle and the U.S. overall

I don't know how close HQ2 will be to the Crystal City Metro station, but I bet it will allow many to do a brief walk between them. Also, the Crystal City Metro station is only one stop away from the Reagan Airport Metro station (link).

Expected tax breaks for Amazon -- $573 million from Virginia and $1.525 billion from New York (link).

Sunday, November 18, 2018

Perfect Competition #3

In this post I will add some points about equilibrium and perfect competition not in Richardson’s book.

A securities market, such as for common stocks, comes closest to meeting the criteria for perfect competition. There are numerous participants. Public information is widely available. What is traded is homogeneous. The trade is impersonal and and momentary. Neither trader has any control over the character of the stock. Neither trader has any control over the aggregate supply of, nor demand for, the stock. However, other markets are much different in every way mentioned. Obviously a model of a securities market does not reduce the workings of a market economy as a whole to its essentials.

Austrian economists  have pointed out the flaws of the perfect competition model. For example: "Contrary to the perfect competition model, what gives rise to a greater competitive environment is not a large number of participants in a particular market but rather a large variety of competitive products" (link). Also see here with its entertaining narrative about shopping for turkey.

Austrian economist Ludwig von Mises’ fictitious evenly rotating economy is like the stationary state economy described in Perfect Competition #1. An equilibrium of unchanging prices and products and repeating volumes of production and consumption each time period are essential features. Mises says the unchanging evenly rotating economy leaves no room for the entrepreneurial function. See more here.

Economists often write as if an equilibrium is expressible as a set of linear equations assumed to have a solution. For example, see here. However:
1. Getting an exact solution for a set of linear equations in mathematics requires that the independent (input) variables be truly independent.
2. Producers in a market economy are very inter-dependent via supply channels and as competitors.

Accordingly, that seems to turn any solution to a set of linear equations alleged to depict a market economy, or even a small part of one, to be little more than wishful thinking. There are trial-and-error methods of finding a best fit solution to a set of linear equations. Genetic algorithms are probably the main kind. However, the degree of a solution’s fit may be very poor.

P.S. I recently saw a Wall Street Journal article that suggested inter-dependency (link with paywall). The price of Apple stock fell 5% one day after one of its suppliers, Lumentum, cut its earnings and revenue outlook. The article doesn’t explain why. I presumed that many investors assumed Lumentum’s act signaled a cut in Apple’s earnings and revenue outlook, and hence the price drop. Related stories found after seeing the WSJ article: Bloomberg, MotleyFool.

Thursday, November 15, 2018

Perfect Competition #2

Chapter 2 of Information and Investment is about information available to entrepreneurs. Richardson calls market conditions the projected activity of others – such as customers, competitors or suppliers – by which the profitability of an entrepreneur’s investment is directly or indirectly influenced. All other conditions such as production possibilities created by the existing technology are technical conditions. Corresponding to these are market information and technical information. The extent to which an entrepreneur can obtain market information depends on the nature of economic organization in a way in which access to technical information is not. The profitability of any particular investment project will depend on the investment implementation of other competitors and suppliers. “It follows from the nature of these relationships – which will be considered more fully in later chapters – that any single investment by an entrepreneur will in general be profitable only provided, first, that the volume of competitive investment does not exceed a critical limit set by the demand available, and the volume of complementary investment reaches some minimum level” (31).

[Me: The differences between competitive investment and complementary investment have not been elaborated at this point. They are in chapters 3 and 4. Meanwhile and simply, competitive investments are made by competitors and complementary investments are made by suppliers.]

It is reasonable to expect that information about these would never be quite complete or wholly lacking. Suppose entrepreneurs E1 and E2 accurately predict an increase in aggregate demand for their product, but neither knows about the other’s prediction. Both might increase production enough to satisfy the full amount of increase in demand or a large part of it. If so, there will be an excess supply and the expectations of both are not met. More than two such entrepreneurs make the outcome even less determinate. The perfect competition model even assumes there are numerous competitors. Expectations are sometimes reluctantly considered in the perfect competition model, but there is no recognition that their rational formation requires a basis of information and its availability.

Wednesday, November 14, 2018

Few, several, many, and some

I recently had a chat with another guy including about the words few and several. He believes they are interchangeable. I believe that several is more than few. This article says there are no firm rules about their meanings, but agrees with me.

The article says little or nothing about the context. Don't few and several depend on what is being referred to? If I say there have been few National Basketball Association players more than 7 feet, 2 inches tall, few means 27 according to one source. If I say there are few living people on Earth more than 7 feet, 2 inches tall, few means a lot more than 27. In a different context few may mean less than 10.

Several might mean 7 in one context, but 25 in another context, or 100's in yet another context.
Many might mean 15 in one context, but 100's in another context, or 1000's in yet another context.  Suppose 18 people attended a meeting and 15 of the 18 went for lunch together afterwards. Wouldn't 15 qualify as many? Yet in another context 15 could be considered few.

Obviously people in general won't change their usage, but it seems few, several, many and most would have firmer meanings if they were based on percentages. For example, few could mean less than 10%, several at least 10% but less than 20%, many more than 50% but less than 75%, and most 75% or more (but not all). Between 20% and 50%? A bunch? 😊

The article's opinion about the range of some is very narrow -- more than few but less than several. Some has a far wider range in my opinion. That may be due to having studied logic. In logic some means not none (or no) but less than all.

Tuesday, November 13, 2018

Perfect Competition #1

The economic theory of perfect competition is critiqued in the first two chapters of George B. Richardson’s Information and Investment: A Study in the Working of a Competitive Economy (link).

The theory is a much celebrated attempt to reduce the working of a competitive economy to essentials. Its importance to economists is two-fold. As an instrument of analysis it has held a central position in economic theory for a long time, much due to the ease it lends to mathematical formulation. Second, the prices and outputs associated with perfect competition, in its supposed equilibrium state, have a normative significance, in that they are consistent with the optimum conditions of production and exchange. Perfect competition hence represents an ideal with which actual competitive organization may be compared.

Richardson criticizes the theory in two ways – its concept of equilibrium and what it says about the knowledge of entrepreneurs, and the information available to them (Information and Investment pg.1-2).

The concept of equilibrium is addressed in Chapter 1. The concept is used to say what particular actions are taken in response to the prevailing conditions, such as a change in aggregate demand. The perfect competition model assumes numerous individual economic actors who have equal knowledge about their market, no control over prices, are mere traders of homogeneous goods, and have little or no control over the nature of the goods. In the simplest case, the economic activity in each time period repeats itself, becoming a stationary state. The same amount and kind of product or service is both produced and consumed each time period. How this stationary state came or comes about is largely unexplained.

However, entrepreneurs act not merely on what they know, but also what they expect. Moreover, they may alter the nature of goods and services they offer. Consumers may alter how much they buy and the mix of goods and services they do buy. Both kinds of alterations imply disturbances to the existent equilibrium.

Summarizing, the “theory of the maintenance or the attainment of equilibrium under perfectly competitive conditions fails to account for the process of adjustment in terms of investment decisions by individual entrepreneurs, who have expectations which they could reasonably be presumed to form, on the basis of information which can reasonably be presumed to be available” (28).

My next post will be about Chapter 2, information available to entrepreneurs.

Saturday, November 10, 2018

Aristotle's Wheel Paradox #3

The title includes #3 because I posted #1 and #2 in February (link). I am posting #3 because I edited the Wikipedia article about the topic (link).

I improved the first section. It had said the paradox was about two wheels. The section 'Wrong problem entirely ' on the Talk page says the paradox is about one wheel. I wholly agree. So my change to the first section says it is about two circles and one wheel (or a suitable substitute for the wheel).

I added the Analysis & Solution section to include my two solutions to the paradox. To the best of my knowledge the solutions are original. At least I didn't see or hear them anywhere else.

Since others can edit Wikipedia articles at any time, I cross my fingers that somebody won't impair it. I earlier added similar text to the Talk Page. I believe others can alter that too, but maybe they are less likely to do so.

P.S. I later added a third solution, labeled the first solution in the Wikipedia article.

Wednesday, November 7, 2018

The Organization of Industry #2

A coordinating example Richardson doesn't give is a home-builder, HB for short. HB could contract with an architect to create detailed design and specs for building a new house. After the architect's work is done, HB contracts with an excavator, landscaper, concrete provider, carpenters, plumbers, electricians, painters, roofers, and so forth to build the house. When the home is at least partly built, HB could contract with a realtor to sell the property.

The quantitative mix between direction, co-operation and market transactions can vary due to other particulars such as the size and specialization of the firms. Richardson's paper addresses some of this relying in part on brick-making. "What is important, for our present purposes, is to note that impersonal co-ordination through market forces is relied upon where there is reason to expect aggregate demands to be more stable (and hence predictable) than their component elements. If co-ordination were to be sought through co-operation, then individual brick-makers would seek to match their investment and output plans ex ante with individual builders. Broadly speaking, this does not happen, although traditional links between buyers and sellers, such as are found in most markets, do introduce an element of this kind. Individual brick manufacturers rely, for the most part, on having enough customers to ensure some cancelling out of random fluctuations in their several demands. And where sales to final consumers are concerned, this reliance on the law of large numbers becomes all but universal. Thus we rely on markets when there is no attempt to match complementary activities ex ante by deliberately co-ordinating the corresponding plans; salvation is then sought, not through reciprocal undertakings, but on that stability with which aggregates, by the law of large numbers, are providentially endowed[.] "

Richardson's summary section begins as follows: "This article began by referring to a vision of the economy in which firms featured as islands of planned co-ordination in a sea of market relations. The deficiencies of this representation of things will by now be clear. Firms are not islands but are linked together in patterns of co-operation and affiliation. Planned co-ordination does not stop at the frontiers of the individual firm but can be effected through co-operation between firms. The dichotomy between firm and market, between directed and spontaneous coordination, is misleading; it ignores the institutional fact of inter-firm cooperation and assumes away the distinct method of co-ordination that this can provide."

Tuesday, November 6, 2018

The Organization of Industry #1

The title is that of a seminal 1972 paper by English economist George B. Richardson. The entire text is here. It is also included in Richardson's book Information and Investment: A Study in the Working of the Competitive Economy  (Amazon link).

When Friedrich Hayek wrote about the spontaneous order of a market economy, his main concern was prices. He said that market prices help to guide and coordinate the actions of market participants. Richardson's view of coordination is more extensive.

"[C]o-ordination can be effected in three ways; by direction, by co-operation or through market transactions. Direction is employed when the activities are subject to a single control and fitted into one coherent plan. Thus where activities are to be co-ordinated by direction it is appropriate that they be consolidated in the sense of being undertaken jointly by one organisation. Co-ordination is achieved through co-operation when two or more independent organisations agree to match their related plans in advance. The institutional counterparts to this form of co-ordination are the complex patterns of co-operation and affiliation which theoretical formulations too often tend to ignore. And, finally, co-ordination may come about spontaneously through market transactions, without benefit of either direction or co-operation or indeed any purposeful intent, as an indirect consequence of successive interacting decisions taken in response to changing profit opportunities."

An example of such co-operative coordination is sub-contracting, such as when a manufacturer buys specialized parts from a supplier. The supplier learns in advance what specifications the parts must meet, and the supplier works to assure the specs are met.

Richardson's paper gives the British retailer Marks and Spencer as another example. "Not only do Marks and Spencer tell their suppliers how much they wish to buy from them, and thus promote a quantitative adjustment of supply to demand, they concern themselves equally with the specification and development of both processes and products. They decide, for example, the design of a garment, specify the cloth to be used and control the processes even to laying down the types of needles to be used in knitting and sewing. In the same way they co-operate with Ranks and Spillers in order to work out the best kind of flour for their cakes and do not neglect to specify the number of cherries and walnuts to go into them."

To further distinguish inter-firm co-operation from market transactions: "Where buyer and seller accept no obligation with respect to their future conduct, however loose and implicit the obligation might be, then cooperation does not take place and we can refer to a pure market transaction. Here there is no continuing association, no give and take, but an isolated act of purchase and sale such, for example, as takes place on an organised market for financial securities."

Saturday, November 3, 2018

Maximum size of animals

The largest animal is a blue whale, and the largest land animal is an African bush elephant. The average mass of a blue wheel is more than 22 times that of an average African bush elephant. The maximum mass of a blue wheel is more than 15 times that of the largest African bush elephant. Link.

Why can blue whales be so many times larger than an African bush elephant? Galileo Galilei had an answer in Two New Sciences (TNS). TNS is written as a dialogue in which Salviati played the part of Galileo’s own spokesman.

Salviati: "Well, the ability of fish to stay motionless in water is a convincing argument that the composition of their corporeal bulk is equal to water in specific gravity. So if some parts heavier than water are found in them, there must necessarily be an equivalent amount less heavy in order for equilibrium to hold. So if the bones are heavier [than water], it must be that the flesh, or some other material present, is lighter, and that these offset with their lightness the weight of the bones. Thus, what happens in aquatic animals is the opposite of the case with terrestrial animals; namely, that in the latter, it is the task of the skeleton to sustain its own weight and that of the flesh, while in the former, the flesh supports its own weight and that of the bones. And there the marvel ceases that there can be very vast animals in the water, but not on the earth, that is to say, in the air." Link.

A large part of blue whales is blubber. This page cites 50 tons, or about 45.5 tonnes.  If that were from an average sized adult blue whale, it would be about 41% of the body weight. The density of blubber is very near that of seawater (65 pounds per cubic foot).