Uber and Lyft prices

Uber and Lyft prices have sharply increased along with car rental prices. Waiting times are longer, too.

Prepare to Pay More for Uber and Lyft Rides

Car rental prices

There have been several news stories lately about the high prices of rental cars. CBS News example. Prices are especially high in Hawaii, e.g. $700 per day. Revenues and net income of car rental companies plunged in 2020 due to the pandemic curtailing travel. Many companies suffered big losses and sold off inventory, probably to meet cash needs. With the pandemic's decline and travel demand surging, the supply of rental cars is well below demand. So prices have risen sharply.

While I haven't seen stories about "price gouging", I will not be surprised if I see some.  Of course, accusers will likely conveniently ignore what happened in 2020, and the now high prices are enabling paying interest, adding to inventory, and reducing debt rather than producing windfall profits.

Cryptocurrency primer

Bitcoin and cryptocurrency: Myths and realities  Part 1, 5 September 2019

Bitcoin and cryptocurrency: Myths and realities – Part 2: The journey  19 September 2019

Bitcoin and cryptocurrency: Myths and realities – Part 3: The foundation  6 January 2020

On the lighter side, Fortune says: The ancient mathematical pattern predicting Bitcoin will hit $70,000  Said pattern is the Fibonacci sequence. "Numbers don't lie" - Max Halloway or anonymous. 😉

Jimmy Dore interview with Max Keiser 

Cryptocurrency outlook #5

Bitcoin Magazine: The Insurance Industry And Bitcoin

The article pertains to and refers to life insurance companies. It doesn't mention other kinds of insurance products, such as auto, homeowners, commercial property, and health, and therefore doesn't apply to them or much less so. The magnitude of interest rates affects the pricing of life insurance and annuities more so than the other products because the former are longer-term and without the ability of the insurer to adjust premiums after the contract is issued.

The following numbers illustrate the effect of interest rates on (pure) premiums for whole life insurance.  Here "pure" means they don't include non-mortality expenses or the probability of policy termination. (The premium amount buyers pay include these things.) For an issue age 40 or less the annual premium with the interest rate = 0.05% is more than 2x the annual premium with the interest rate = 5.0%. The ratio declines above age 40, but at age 60 is still about 1.4x times that for 0.5% interest than for 5.0% interest. For annuities the effect of lower interest rates on premiums is even more.

While such pure premiums are not what buyers pay, they are used in calculating reserves -- as required by statutory insurance laws -- for a life insurance company's in-force policies. Such reserves appear on the liability side of an insurer's balance sheet and thus have a real effect.

Kiplinger: How much Bitcoin should you own?

  

Cryptocurrency outlook #4

Joe Biden picks Gary Gensler as SEC Chair. Fox Business and Bitcoin.com comment on the possible effects on government regulation of Bitcoin and other cryptocurrencies. 

Fox: "If bitcoin and other cryptocurrencies were deemed to be securities, they would fall under the purview of the SEC. Exchanges that facilitate the trading of such cryptocurrencies would also need to have the appropriate investor protections in place," Gensler said (my bold).

"He pointed to improvements in the areas of payments systems, trade finance, and medical-records technology as areas where blockchain has proven useful. Gensler is currently a professor at the Massachusetts Institute of Technology and teaches about blockchain."

Bitcoin.com: Gensler clarified: “To the extent that somebody is offering an investment contract or security that’s under the SEC’s remit, and they have exchanges that operate there, then we have to make sure there’s investor protection” (my bold).

On the other hand, “If it’s not that, and it’s a commodity, as bitcoin has been deemed to be, then it’s either a question for Congress … or it’s possibly a question for the Commodity Futures Trading Commission,” he described (my bold).

Furthermore, the professor also said that the SEC must ensure that crypto markets “are free of fraud and manipulation.”

This is an example of whether or not x falls under the concept X in the context of government regulation. Whether it does or not can have significant consequences. Maybe x falls under both. For cryptocurrencies there is one concept - investment contract or security - for the SEC and another - commodity - for the Commodity Futures Trading Commission. 

Cryptocurrency outlook #3

Bitcoin is at a tipping point and could become 'currency of choice' for global trade, Citi says

https://www.theblockcrypto.com/post/96599/bitcoin-international-trade-currency-citi

“A focus on global reach and neutrality could see bitcoin become an international trade currency. This would take advantage of bitcoin’s decentralized and borderless design, its lack of foreign exchange exposure, its speed and cost advantage in moving money, the security of its payments, and its traceability.”

Cryptocurrency outlook #2

Harvard Professor Kenneth Rogoff Warns Central Banks Will Never Allow Bitcoin to Go Mainstream

Professor Rogoff says:

"As it really starts to compete with ordinary, fiat currencies, government currencies, I think they’ll clamp down on it like a ton of bricks. They are not going to allow that to happen."

"But make no mistake, the governments need to retain control over taxation, controlling crime, etc. They need to maintain control over the unit of account — the currency. Yes, private innovation can come out for a while, but eventually over the long course of history, the government first regulates and then it appropriates, and I think we can see that happening here."

Economics of Violence

EconTalk: Gary Shiffman on the Economics of Violence.

Economist Gary Shiffman of Georgetown University talks about his book, The Economics of Violence, with EconTalk host Russ Roberts. Shiffman argues that we should view terrorism, insurgency, and crime as being less about ideology and more about personal expression and entrepreneurship. He argues that approaching these problems as economists gives us better tools for fighting them.

His perspective is unique. A one hour interview.

Two Articles by Walter Williams, RIP

Sadly, Walter E. Williams died December 1 at age 84. Here is a tribute to Mr. Williams by the great Thomas Sowell (90 years old).
 
'Correct Diagnostics Needed’ is a recent article by Mr. Williams.

‘Costs Must Be Weighed Against Benefits’ is another.

Nobel Laureate on the Morality of Markets

This video is an interview with Vernon Smith. It's 56 minutes at normal speed. Smith is a slow talker. With the Settings control that looks like a gear, it can be played faster.

I recommend not downplaying his references to auction markets near the start. They exist far more than auctions per se. The trading of stocks and many commodities are in essence auction markets. In some markets there are parties who are mostly buyers and mostly sellers. For example, in the crude oil market, extractors are sellers and refiners are buyers.

Smith makes an interesting analogy between (1) government and its citizens and (2) parents and children. Government and parents exercise top-down control. Citizens and children adapt and cooperate on their own autonomously. 

Coronavirus -- supply chains

The COVID-19 pandemic has shined some light on the significance of supply chains. To a final user the supply of toilet paper and milk products are ordinarily so reliable that they can be easily taken for granted. However, the pandemic has caused disruptions in the supply chains for them.

While there has been hording of toilet paper, the disruption has also occurred because there are two major kinds of toilet paper -- commercial and household. More people staying at home, schools closed, and many workplaces and businesses closed has lessened demand for the commercial kind and increased demand for the household kind. As this article explains, the two kinds are made, packaged, and distributed very differently. The changes in demand have caused a ripple effect back through many links in the supply chain.

A similar disruption has occurred in the supply chains for milk products. The first link in all chains is raw milk from the dairy farmer. However, the chains differ after that. As this article explains: "Mass closures of restaurants and schools have forced a sudden shift from those wholesale food-service markets to retail grocery stores, creating logistical and packaging nightmares for plants processing milk, butter and cheese. Trucking companies that haul dairy products are scrambling to get enough drivers as some who fear the virus have stopped working. And sales to major dairy export markets have dried up as the food-service sector largely shuts down globally."

There was also a sudden surge in demand for personal protective equipment (masks, gowns, etc.), beds in hospitals, and ventilators. The supply chains for these things did not have the size and resilience to adapt as quickly as many wished.

Facts like these should be a wake-up call for socialists like Bernie Sanders and Nathan Robinson, but I doubt they will. They talk like they take supply chains completely for granted. They show no grasp or interest in supply and demand or how products get made and distributed to the end user. They have nothing to say about the informative value of prices and quantities. Their sole concern is how income is distributed. All BS can say about prices are that some are too high for middle and lower income people and the cause is the greed of the wealthy. They show no grasp or appreciation for higher level decision-makers along any supply chain. Their overwhelming concern is the welfare of middle- and lower-income workers not responsible for any higher-level or even mid-level decision making.

World Bank's pandemic bonds

The World Bank issued the bonds in 2017. They mature in July, 2020. Their value has dropped sharply recently with the news about the coronavirus. Reuters.  Wall Street Journal (paywalled).

AOC strikes out

Alexandria Ocasio-Cortez questions Facebook's David Marcus about Libra.

I disagree with the author's view of AOC and believe that David Marcus, Facebook's cryptocurrency boss, did not handle the exchange very well.

"Ocasio-Cortez made the point that the assets backing the Libra currency that set its value would be determined by corporations, most of which are profit-driven."

The paragraph prior to that shows AOC's error. "Libra will be backed by real financial assets, specifically a "basket" of existing currencies — such as the US dollar, the euro, and government securities — that will serve as the digital currency's 'reserve'." Strike one.

Since when are profit-driven corporations the only thing that determine the value of the US dollar, the euro, and government securities? What about the Federal Reserve, investors, non-profits, and anybody who receives and spends money? Strike two.

AOC asks twice, "Do you believe currency is a public good?" AOC merely assumes currency is a public good and the article paraphrases her saying so -- "a nation's currency is something that functions as a "public good" in the purview of a government, not for-profit corporations."

To the contrary. Currency or money is not a "public good" as explained here. Wikipedia gives several examples of public goods, and money is not one of them. A typical economics textbook definition says a public good is something one person's consumption of it does not reduce that available to another person, such as radio waves and air. Money doesn't qualify. AOC majored in economics. She should know that. Strike three.

Walter Williams said

"By the way, I'm not making an outright condemnation of socialism. I run my household on the Marxist principle, "From each according to his ability, to each according to his needs." That system works when you can remember the names of all involved" (link).

Amazon HQ2 #4

Cleveland did not make the list of Amazon's top 20 cities contending for its HQ2 announced several months ago. This article, also in yesterday's Cleveland Plain-Dealer print addition, reports that Cleveland, Cuyahoga County, and Ohio offered Amazon about $3.5 billion in incentives to put HQ2 in Cleveland. This wasn't as much offered to locate HQ2 in Alexandria, VA or Queens, NY.

What was offered to locate in Cleveland? There were the typical reduced real estate taxes for many years. In addition, the county subsidy included the creation of a power micro-grid,  which would allow Amazon to power its facilities independent of the main power grid. The micro-grid would cost $200 million, and be paid for by the sale of bonds. Cleveland is believed to have been the only city to offer Amazon an independent and redundant power supply.

Of course, there were other reasons for Amazon not choosing Cleveland -- airport capacity and being an area with a smaller tech workforce than other cities.

Information and Investment #4

Chapter VIII of Information and Investment is The Need for Adaptability. It includes a very extensive discussion of liquidity.

The author assumes an entrepreneur will adopt the investment plan which offers the highest mathematical expectation of income, irrespective of the degree of dispersion which the possible values of income may show. I know from personal experience in risk management this isn’t wholly true, but I don’t regard it as very wrong.

Ideally, an investment plan is designed to offer positive profits under all possible scenarios likely to develop. In practice, however, such perfectly adaptability is out of reach. So long as the investor holds his resources in the form of money, he remains free to choose to engage in a variety of activities, the range of which is limited by technical, legal, and financial restraints. Whenever he decides to commit his resources in a form other than money, the scope of future activities is to some extent curtailed. However, the committing of resources in that way is the only hope the entrepreneur has for a substantial return. The more capital-intensive is the process, the greater is the fixed cost, and the greater will be the per unit cost of output if the total volume of production has to adapted to a lower level of demand.

Adaptability is enhanced by the power to make net expenditures from a source of readily available purchasing power. This has two dimensions – amount and speed. This is the heart of liquidity. Of course, money is the most liquid asset. Further resources are trade credit granted by suppliers and credit from a bank or other lender. Urgent sales of assets typically mean getting less money in return than patiently waiting.

An actual liquidity position at a particular time may be accounted for not in terms of intentions but as the unplanned result of recent transactions – of unexpected variations in costs or receipts. Cash balances in this sense are ex post, not ex ante in terms of a ‘transactions motive.’

Information and Investment #3

Chapter VI of Information and Investment is The Assortment of Production, or in other words, product differentiation.

Usually economic models assume a fixed set of goods and services, for both consumers and producers. But it is important to deal explicitly with the qualitative composition, for the variety of production is quite great. If we wish to consider, as does an entrepreneur, what kinds and qualities of goods to produce.

Consumers buy goods because of the satisfaction they expect to receive. They also experiment when making purchases as part of an endeavor to find newer and better ways of meeting their desires. Businesses also experiment with product variations to find newer and better ways of meeting customer satisfaction. Most formal economic models, especially the perfect competition model, ignore this.

Imagination, rather than information in an ordinary sense, is what entrepreneurs require in order to discover new ways of combining resources to meet consumers’ desires. Undiscovered ways of production are somewhat like musical tunes awaiting discovery. Often the competitiveness of a market is associated with or defined in terms of the cross elasticity of demand for the products sold in it. A high degree of competitiveness in this sense is much greater in reality than in the so-called pure competition model, which recognizes only price.

Information and Investment #2

Chapter IV of Information and Investment is The Co-ordination of Complementary Investments. It concerns investment by an entrepreneur’s suppliers, actual or potential.

It will be necessary to inquire both about the information which entrepreneurs will wish to have and as to the conditions which will permit access to it. It is probably the qualitative assortment of production that complementary investment is of greatest importance.

An entrepreneur needs to recognize that the profitability of his own investment will depend on the terms on which he can obtain inputs, and therefore indirectly on the volume of investment which has been, or will be, undertaken elsewhere. It is possible for two or more firms to be in a complementary relationship without there being transactions between them. For example, the other party could be a supplier to one’s supplier.

A further complementarity results from the fact that investment of any kind, by generating income, will increase the demand for other goods and services. No very close relationship between particular firms is likely to be created by this form.

The problem is to explain how producers may obtain information or assurances about the likely volume of complementary investment sufficiently reliable to persuade them to invest themselves. Complementarity between various lines of production does not imply that investment in them will be simultaneous and coordinated. Although producers may be able, on the basis of implicit collusion, to expect an increase in complementary production, it seems doubtful such expectations could be held with much confidence.

Every business makes plans, with greater or lesser precision, for a set of investment activities. It will be based on an assessment of the various technical and market conditions upon which the prices at which the firm will buy its inputs and sell its outputs. Due to the uncertainty of expectations, an entrepreneur will want to be as flexible or adaptable as possible, to allow for modification. But inflexibility will be to some extent unavoidable, such as due to more or less fixed equipment or personnel. Attempts to secure a more perfect coordination, such as by contracts, may reduce future adaptability.

It is difficult to resist the conclusion that in less developed markets, the coordination of investment, at least in manufacturing, may require more deliberate planning than with advanced markets. Unfortunately, it is in less developed markets that the administrative skill and experience required for such coordination is likely to be absent.

Information and Investment #1

I return to G. B. Richardson's book Information and Investment: A Study in the Working of the Competitive Economy. My previous (November) posts’ titles start with 'The Organization of Industry’ and ‘Perfect Competition.’

Chapter III is The Co-ordination of Competitive Investments. It is about an entrepreneur’s information and consideration of other entrepreneurs who are his competitors. (Like Richardson did, I use he/his for convenience. It could be she/her, or it/its for a firm, as well.)

The profitability of any one investment project is dependent in part on the volume of investment by competitors. Suppose an entrepreneur expects the demand for a particular product to rise, one that he could fulfill. If he believes the situation offers a profit opportunity for him in particular, he needs assurance that that the volume of investment undertaken by his competitors will not be so much that an excess supply will occur. However, the information available for that assurance often doesn’t exist. In a free enterprise system all the competitors don’t meet and plan their levels of production together. The less they cooperate, the more difficult it is to see how the required information could be obtained. Adequate market information seems unobtainable. Nor can one plausibly contend that it is possible to predict the actions of competitors merely by considering what one would do oneself in like circumstances.

In some circumstances certain producers having a temporary monopoly of information about a general profit opportunity may be important to securing its successful exploitation.

The upper limit on the volume of future competitive supply will depend on the number of firms which could increase their capacity in time and to the extent they could do so. Perhaps for some the extra resources aren’t available. The impossibility of borrowing unlimited sums at the same rate of interest is a crucial check, and an ‘imperfection’ of the capital market that is incompatible with the perfect competition model.

When we consider an individual producer, we should couple his supply curve and his demand curve – not the general supply curve and demand curve for his commodity in a wide market.

Perhaps the most obvious way in which a producer may try to secure the loyalty of his customers is by offering a differentiated product which they prefer to any substitutes. Commodities may be differentiated, not only by their particular attributes, but by where they are available due to transport costs.

The market attachment known as ‘goodwill’ has probably received more attention from businessmen than by most economists. Buyers may be unwilling to patronize a different producer, even if momentarily tempted, if they believe loyalty to him affords the best chance of good treatment over a long period.

The availability of information about competitive production depends on various restraints that reduce the freedom of action of individual entrepreneurs. By assuming, overtly or tacitly, that it is zero, and therefore neglecting the whole problem of information, the perfect competition model is unrealistic and inadequate.

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).