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The NYT had a piece touting the recent run up in Amazon’s stock which briefly made Jeff Bezos the world’s richest person. It then turns to Hendrik Bessembinder, a finance professor at Arizona State University, who describes the company as “one of the greatest wealth creators since 1926.”
This designation as a “wealth creator” is based on its market capitalization of almost $500 billion. While this is a huge amount of money, it is not clear that Amazon’s current or likely future profits justify this price. Ultimately, stockholders value a company based on the profits it makes for shareholders and its current profits nowhere near justify its $500 billion market capitalization.
There have been other companies in the recent past that had stock prices that bore no relationship to their profits. AOL and Priceline are two that stand out, both with market capitalizations of well over $100 billion at the peak of the stock bubble in 2000. In both cases, the shareholders in these companies would have seen a huge amount of wealth destroyed if they bought them near their peak price.
The question is whether Amazon will be able to join the elite group of wealth destroyers if its stock price falls to a level more in line with its profits.
The NYT had a piece touting the recent run up in Amazon’s stock which briefly made Jeff Bezos the world’s richest person. It then turns to Hendrik Bessembinder, a finance professor at Arizona State University, who describes the company as “one of the greatest wealth creators since 1926.”
This designation as a “wealth creator” is based on its market capitalization of almost $500 billion. While this is a huge amount of money, it is not clear that Amazon’s current or likely future profits justify this price. Ultimately, stockholders value a company based on the profits it makes for shareholders and its current profits nowhere near justify its $500 billion market capitalization.
There have been other companies in the recent past that had stock prices that bore no relationship to their profits. AOL and Priceline are two that stand out, both with market capitalizations of well over $100 billion at the peak of the stock bubble in 2000. In both cases, the shareholders in these companies would have seen a huge amount of wealth destroyed if they bought them near their peak price.
The question is whether Amazon will be able to join the elite group of wealth destroyers if its stock price falls to a level more in line with its profits.
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In their NYT piece on the possibilities for people switching jobs mid-career, Clair Cain Miller and Quoctrung Bui link to a piece by M.I.T. economist David Autor to support the assertion that extensive research shows middle skills jobs are disappearing. Actually, more careful research showed the opposite. In the last decade, both middle- and high-skills jobs (using Autor’s definition) were declining as a share of total employment. Only the least skilled jobs had an increasing share.
It is also worth noting that there is little evidence for the “skills shortage” discussed in this piece. While businesses like to complain about not being able to get qualified workers, the ordinary response to a shortage is a rise in price. In other words, if businesses really were seeing a skills shortage, we would expect to see rapidly rising wages for significant groups of workers. We don’t, which suggests that businesses are just whining because they think it will help them get something from the government — not because they actually can’t get qualified workers.
In their NYT piece on the possibilities for people switching jobs mid-career, Clair Cain Miller and Quoctrung Bui link to a piece by M.I.T. economist David Autor to support the assertion that extensive research shows middle skills jobs are disappearing. Actually, more careful research showed the opposite. In the last decade, both middle- and high-skills jobs (using Autor’s definition) were declining as a share of total employment. Only the least skilled jobs had an increasing share.
It is also worth noting that there is little evidence for the “skills shortage” discussed in this piece. While businesses like to complain about not being able to get qualified workers, the ordinary response to a shortage is a rise in price. In other words, if businesses really were seeing a skills shortage, we would expect to see rapidly rising wages for significant groups of workers. We don’t, which suggests that businesses are just whining because they think it will help them get something from the government — not because they actually can’t get qualified workers.
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Since several people have asked me why I bothered to write about Amazon’s stock price possibly being overvalued, let me get out the sledge hammer and hit people over the head with the issue.
Let’s imagine that this week the god of Wall Street comes down and announces that Amazon’s proper valuation is half of its current level. (This is a hypothetical, not my target price for the stock.) Since the god of Wall Street is never wrong, we would expect that Amazon’s stock price would quickly plunge, eliminating $240 billion in market value.
Has this information destroyed any wealth? Well, the folks who owned Amazon stock have $240 billion less than they did previously, so they clearly have less wealth. But the god of Wall Street knows the true value of Amazon stock, so there really was not any basis for this $240 billion in wealth. In effect, they would have this wealth and be able to spend based on it, as long as other investors did not realize that Amazon’s stock was hugely over-valued.
In this sense, it can be seen as very similar to counterfeit money. Suppose Amazon stock was priced in line with the god of Wall Street’s assessment, but Amazon shareholders collectively held $240 billion in counterfeit money that everyone accepted as though it was real. If the government suddenly discovered a way to detect these counterfeits so no one would ever be able to spend this money again, it would be the same story as the Amazon stock losing half its price.
The moral of the story is that there is no reason for those of us who don’t hold large amounts of Amazon stock to be happy about it being overpriced if this is the case. It is the same story as people having large amounts of counterfeit money. It’s good for them, but when they price the rest of us out of the housing market and their spending causes the Fed to raise interest rates and slow growth, it’s not good for everyone else.
Since several people have asked me why I bothered to write about Amazon’s stock price possibly being overvalued, let me get out the sledge hammer and hit people over the head with the issue.
Let’s imagine that this week the god of Wall Street comes down and announces that Amazon’s proper valuation is half of its current level. (This is a hypothetical, not my target price for the stock.) Since the god of Wall Street is never wrong, we would expect that Amazon’s stock price would quickly plunge, eliminating $240 billion in market value.
Has this information destroyed any wealth? Well, the folks who owned Amazon stock have $240 billion less than they did previously, so they clearly have less wealth. But the god of Wall Street knows the true value of Amazon stock, so there really was not any basis for this $240 billion in wealth. In effect, they would have this wealth and be able to spend based on it, as long as other investors did not realize that Amazon’s stock was hugely over-valued.
In this sense, it can be seen as very similar to counterfeit money. Suppose Amazon stock was priced in line with the god of Wall Street’s assessment, but Amazon shareholders collectively held $240 billion in counterfeit money that everyone accepted as though it was real. If the government suddenly discovered a way to detect these counterfeits so no one would ever be able to spend this money again, it would be the same story as the Amazon stock losing half its price.
The moral of the story is that there is no reason for those of us who don’t hold large amounts of Amazon stock to be happy about it being overpriced if this is the case. It is the same story as people having large amounts of counterfeit money. It’s good for them, but when they price the rest of us out of the housing market and their spending causes the Fed to raise interest rates and slow growth, it’s not good for everyone else.
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The NYT had an interesting column making the case for publicly funded open research to speed the development of artificial intelligence. It’s good to see some clear thinking about alternatives to research supported by government-granted patent monopolies. Can we talk about prescription drugs now?
The NYT had an interesting column making the case for publicly funded open research to speed the development of artificial intelligence. It’s good to see some clear thinking about alternatives to research supported by government-granted patent monopolies. Can we talk about prescription drugs now?
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The NYT had an interesting piece on how Japanese workers are increasingly working well into their sixties, as a declining population has led to somewhat of a labor shortage. The piece rather bizarrely offers this as an explanation for why wages aren’t rising, since it says that older workers are paid less.
That could be true, but it would imply serious discrimination if older workers are paid less than younger workers with the same productivity. Alternatively, if older workers are paid less because they are actually less productive, then this would not explain why average wages are not rising in the face of a labor shortage.
It is also worth noting that the piece repeatedly describes the declining numbers of workers as a problem. This is 180 degrees at odds with the view that robots are going to take all the jobs and we won’t have any work for people. It is incredible that we have ostensibly serious people who are both worried that an aging population will leave us with too few workers and rapid productivity growth (i.e. robots) will leave us with too few jobs. As they say in economics, “which way is up?”
The NYT had an interesting piece on how Japanese workers are increasingly working well into their sixties, as a declining population has led to somewhat of a labor shortage. The piece rather bizarrely offers this as an explanation for why wages aren’t rising, since it says that older workers are paid less.
That could be true, but it would imply serious discrimination if older workers are paid less than younger workers with the same productivity. Alternatively, if older workers are paid less because they are actually less productive, then this would not explain why average wages are not rising in the face of a labor shortage.
It is also worth noting that the piece repeatedly describes the declining numbers of workers as a problem. This is 180 degrees at odds with the view that robots are going to take all the jobs and we won’t have any work for people. It is incredible that we have ostensibly serious people who are both worried that an aging population will leave us with too few workers and rapid productivity growth (i.e. robots) will leave us with too few jobs. As they say in economics, “which way is up?”
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A Washington Post article discussed the future prospects for the Affordable Care Act now that the repeal efforts seem to be defeated. At one point, the article referred to the cost-sharing subsidies in the program, which cover out-of-pocket expenses for moderate-income households. It reports that these subsidies will “cost about $7 billion this year and $10 billion in 2018.”
It would have been useful to put these numbers in a context that would be meaningful to readers. The 2017 figure is equal to roughly 0.18 percent of total spending and the 2018 number would be roughly 0.25 percent. On a per person basis, the 2017 number is equal to about $21 for every person in the country, while the 2018 number would be around $30 for every person in the country.
A Washington Post article discussed the future prospects for the Affordable Care Act now that the repeal efforts seem to be defeated. At one point, the article referred to the cost-sharing subsidies in the program, which cover out-of-pocket expenses for moderate-income households. It reports that these subsidies will “cost about $7 billion this year and $10 billion in 2018.”
It would have been useful to put these numbers in a context that would be meaningful to readers. The 2017 figure is equal to roughly 0.18 percent of total spending and the 2018 number would be roughly 0.25 percent. On a per person basis, the 2017 number is equal to about $21 for every person in the country, while the 2018 number would be around $30 for every person in the country.
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If the United States is to have more rapid economic growth, as most folks seem to want, then it needs more rapid productivity growth. Productivity growth is the key factor allowing rising living standards through time.
This is basically definitional. It means more output of goods and services per hour of work. It can allow us to have more stuff or work fewer hours and have the same stuff.
When we consider this simple logical point, it is bizarre that one of the attacks against Amazon is that it is costing jobs in retail. If Amazon is costing jobs in retail, it is increasing productivity in the sector. It is allowing us to get by fewer workers, meaning that workers can instead be available to do things like provide child care, install solar panels, or do many other useful things. Or, we can all work less.
Of course, they may not be the same workers and some people may get screwed in the process, but this is a larger problem of policy. For example, the Federal Reserve Board is quite deliberately trying to slow the rate of job creation by raising interest rates. Let me repeat that since it seems many people involved in policy debates somehow haven’t noticed: the Federal Reserve Board is quite deliberately trying to slow the rate of job creation by raising interest rates.
If Amazon and other online sellers were not eliminating jobs in retail, the Fed would be raising interest rates faster in response to a more rapid rate of job creation. Insofar as increased productivity in retail is slowing the rate of job creation, it is allowing for jobs to be created in other sectors which would not otherwise exist.
It is also worth noting that productivity growth has been extraordinarily slow in the last decade, as in the opposite of fast. This is the main reason for the slow growth in the recovery. In other words, the economy’s main problem has been too few job-killing robots.
(Yes, distribution is a problem and we should talk about things like patents and protectionism for doctors and other professionals, but let’s keep it simple for now.)
If the United States is to have more rapid economic growth, as most folks seem to want, then it needs more rapid productivity growth. Productivity growth is the key factor allowing rising living standards through time.
This is basically definitional. It means more output of goods and services per hour of work. It can allow us to have more stuff or work fewer hours and have the same stuff.
When we consider this simple logical point, it is bizarre that one of the attacks against Amazon is that it is costing jobs in retail. If Amazon is costing jobs in retail, it is increasing productivity in the sector. It is allowing us to get by fewer workers, meaning that workers can instead be available to do things like provide child care, install solar panels, or do many other useful things. Or, we can all work less.
Of course, they may not be the same workers and some people may get screwed in the process, but this is a larger problem of policy. For example, the Federal Reserve Board is quite deliberately trying to slow the rate of job creation by raising interest rates. Let me repeat that since it seems many people involved in policy debates somehow haven’t noticed: the Federal Reserve Board is quite deliberately trying to slow the rate of job creation by raising interest rates.
If Amazon and other online sellers were not eliminating jobs in retail, the Fed would be raising interest rates faster in response to a more rapid rate of job creation. Insofar as increased productivity in retail is slowing the rate of job creation, it is allowing for jobs to be created in other sectors which would not otherwise exist.
It is also worth noting that productivity growth has been extraordinarily slow in the last decade, as in the opposite of fast. This is the main reason for the slow growth in the recovery. In other words, the economy’s main problem has been too few job-killing robots.
(Yes, distribution is a problem and we should talk about things like patents and protectionism for doctors and other professionals, but let’s keep it simple for now.)
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Morning Edition host Rachel Martin introduced an interview with Tom Nickels, spokesperson for the American Hospital Association by referring to Republican efforts to “fix” the nation’s health care system. This implies that the Republicans are trying to make the system better. This is certainly not obvious since all of their proposals are likely to take away insurance from tens of millions of people.
It shouldn’t be too hard to use neutral terms, like “change” or simply refer to efforts to repeal the Affordable Care Act. There is no reason for NPR to attribute good motives to the Republicans, especially when there is zero evidence to support this view of their actions.
Morning Edition host Rachel Martin introduced an interview with Tom Nickels, spokesperson for the American Hospital Association by referring to Republican efforts to “fix” the nation’s health care system. This implies that the Republicans are trying to make the system better. This is certainly not obvious since all of their proposals are likely to take away insurance from tens of millions of people.
It shouldn’t be too hard to use neutral terms, like “change” or simply refer to efforts to repeal the Affordable Care Act. There is no reason for NPR to attribute good motives to the Republicans, especially when there is zero evidence to support this view of their actions.
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That’s the arithmetic according to the Washington Post. The article told readers that Wisconsin governor Scott Walker claims he is giving $3 billion in economic incentives to the Taiwanese manufacturer Foxconn. The company, in turn, says that it will build a factory that will eventually employ 3,000 people. It would have been helpful to include the arithmetic so it was clear how much Scott Walker planned to spend for each job that Foxconn claims it will create. (Foxconn has not always followed through on its promises, as the piece points out.)
It also would have been worth mentioning the importance of these jobs to Wisconsin’s labor market. The state currently has 472,000 manufacturing jobs (it added 7,900 in the last year), so the jobs pledged by Foxconn would increase this figure by just under 0.6 percent.
Addendum
As several comments noted, the Washington Post had a follow up piece that gives more details on this deal. The 3,000 jobs figure is the number who are originally expected to be employed in the factory when it is projected to be completed in 2020. Foxconn said the number of people employed has the “potential to grow” to 13,000. It appears that the full $3 billion in subsidies is at least partly contingent on the number of jobs actually created, although the terms do not seem to be clear at this point.
That’s the arithmetic according to the Washington Post. The article told readers that Wisconsin governor Scott Walker claims he is giving $3 billion in economic incentives to the Taiwanese manufacturer Foxconn. The company, in turn, says that it will build a factory that will eventually employ 3,000 people. It would have been helpful to include the arithmetic so it was clear how much Scott Walker planned to spend for each job that Foxconn claims it will create. (Foxconn has not always followed through on its promises, as the piece points out.)
It also would have been worth mentioning the importance of these jobs to Wisconsin’s labor market. The state currently has 472,000 manufacturing jobs (it added 7,900 in the last year), so the jobs pledged by Foxconn would increase this figure by just under 0.6 percent.
Addendum
As several comments noted, the Washington Post had a follow up piece that gives more details on this deal. The 3,000 jobs figure is the number who are originally expected to be employed in the factory when it is projected to be completed in 2020. Foxconn said the number of people employed has the “potential to grow” to 13,000. It appears that the full $3 billion in subsidies is at least partly contingent on the number of jobs actually created, although the terms do not seem to be clear at this point.
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