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kottke.org posts about economics

Freezing Executive Salaries to Pay Entry-Level Workers a Better Wage

posted by Jason Kottke   May 16, 2019

John Driscoll is the CEO of a healthcare company called CareCentrix. In an opinion piece in The Guardian, he wrote about the success of a plan his company implemented where they froze the salaries of the top 20 executives and gave significant raises to entry-level workers, from the federal minimum wage of $7.25/hr to $15/hr. Driscoll explains why the company decided to do this:

Assuming nothing went wrong, and assuming that our employees were living with another wage earner or working another part-time job, $7.25 hourly wage might be sufficient.

The reality is that for many of us, things do go wrong, and I had emails from my new teammates to prove it.

One was from a customer service representative — a young mother with a family, who had lost her apartment in a fire and did not have enough money for diapers. Another email soon followed — this employee had missed a few bills and was living out of her car with her child.

This drove me crazy: how did we get to the point where one of our employees had to apologetically ask for financial support so she and her family could put a roof over their heads?

While some of our elected officials congratulated us for creating jobs, I felt that we were failing some of our employees, and the communities we were based in. The more our executive team parsed through the requests for assistance, the more we all became uncomfortable with the mismatch between what we asked of our employees and what we provided to them in turn.

And the real kick in the groin about the plan? It wasn’t even that tough to implement!

I challenged the chief financial officer to see how deeply we would have to freeze wages in order to reach our goal of a base rate of $15 per hour.

The answer was that we did not have to go very deep. Over the last few decades executive salaries have skyrocketed. That translates into accelerated wage growth in the highest tiers of executives throughout American business, and it affects every company.

What that meant for our company was that if we just froze the wages of our most senior team — less than 20 executives - we could radically increase the wages and improve the lives of nearly 500 of our teammates.

The conversation with our executives was straightforward. We were in the midst of a turnaround. We were demanding much from every corner of the company. Small financial sacrifices from those at the top could be life changing for those at the bottom of our wage scale. We needed to do it to build a real sense of Team CareCentrix. They agreed.

And it worked really well. Duh. It drives me bananas that more companies don’t see the benefit of doing this versus implementing compensation policies that serve only to line the pockets of the people in char— oh waaaaait, it actually makes perfect sense why this is happening. The shareholders of these companies should start calling bullshit on that sort of behavior with more regularity though.

See also the founder of Richer Sounds retiring and transferring 60% of his company to its employees, with workers also receiving £1,000 for every year they’ve worked for the company.

The Failure of the Great Tip-Free Restaurant Experiment

posted by Jason Kottke   Apr 18, 2019

Over the past three years, a number of restaurants across the geographic and economic spectrum of America have experimented with eliminating tipping. The practice is outdated, creates a difficult-to-justify wage imbalance between servers and cooks, and can result in mistreatment of staff (racism, sexual harassment) because of the fucked-up power dynamic it creates.

But as Grub Street’s Nikita Richardson writes, the no-tip test has largely failed, with many of those places going back to the old ways. This happened for three main reasons:

1. No tips meant higher prices printed on the menu, and customers stayed away from what they perceived as more expensive meals. That $12 burger became a $14.50 burger and all of a sudden, people knew what they were actually paying for their food. What’s interesting is that in another situation (say, having to pay to check a bag on a flight), people would be upset at not knowing the price up front and having a “hidden charge” added to their bill when they’re drunk and happy at the end of a meal.

2. Servers can make more at tipping restaurants. Places that went tip-free lost a bunch of their staff to places that still had tipping.

Meanwhile, by raising menu prices and thus revenues, the extra money would go toward higher wages for kitchen staff, who could start making $12 to $15 an hour at a time when the state minimum wage was $8.75.

But, it turned out, many front-of-house staffers were more concerned with making money than with maintaining the moral high ground. This February, Meyer admitted that he had lost 30 to 40 percent of his “legacy” staffers since 2015. (One Meyer employee told Grub last year that her wages dropped from $60,000 per year to $50,000 under the new policy.) While he insisted that the employees that replaced them “understand ‘Hospitality Included’ and are thrilled about it,” added employee attrition in an industry where turnover is already 1.5 times that of the private sector average has to hurt.

My regular NYC spot was one of the restaurants that experimented with eliminating tipping, and I can report that the staff was indeed quite skeptical about it and they switched back to the old method very soon. (I believe they kept the raises for the chefs though somehow.)

3. Tips make diners feel powerful. With tipping, you become the boss of your server or bartender and are responsible for a large chunk of their take-home pay.

Generally speaking, Americans hated the practice of tipping when it was first introduced in the late 19th century, perceiving it as a form of bribery for service workers who should simply do their jobs. But as we’ve adjusted to it, tipping has become undeniably intertwined with a sense of power.

Short of walking into the kitchen and telling off the chef, tipping is the easiest way to express satisfaction or dissatisfaction with a dining experience.

As a customer, I loved not tipping. I don’t feel the need to have power over the staff in a restaurant, I want cooks & chefs to get paid as well as servers, and I’ve acclimated to factoring the tip into my dining expenses. But it seems that Americans in the aggregate do care about those things, and so here we are.

And if we’re going to have tipping in restaurants, we should all know how it works.

If you can’t afford to tip 20 percent of the total amount that you spend at a restaurant, you can’t afford to eat at that restaurant.

And if your meal is bad?

You still tip. If something truly egregious happened, you ask to speak privately with a manager. If you do not want to speak privately with a manager, and would rather correct this perceived slight by tipping less or not tipping at all, you do not actually care about your perceived slight; you’re just using it as an excuse to be a dick.

Cheap TVs and Exorbitant Education, Modern America in One Chart

posted by Jason Kottke   Feb 25, 2019

Economist Mark Perry has updated for 2018 his chart of price changes of selected goods over the past two decades.

Price Changes Graph

This graphic has been referred to a “the Chart of the Century” because it explains a lot about the socioeconomic life in the United States in just a quick glance.

During the most recent 21-year period from January 1998 to December 2018, the CPI for All Items increased by exactly 56.0% and the chart displays the relative price increases over that time period for 14 selected consumer goods and services, and for average hourly earnings (wages). Seven of those goods and services have increased more than average inflation, led by hospital services (+211%), college tuition (+183.8%), and college textbooks (+183.6%). Average wages have also increased more than average inflation since January 1998, by 80.2%, indicating an increase in real wages over the last several decades.

The other seven price series have declined since January 1998, led by TVs (-97%), toys (-74%), software (-68%) and cell phone service (-53%). The CPI series for new cars, household furnishings (furniture, appliances, window coverings, lamps, dishes, etc.) and clothing have remained relatively flat for the last 21 years while average prices have increased by 56% and wages increased 80.2%.

As various parties have noted, the goods & services that have gotten more expensive tend to be things that people need, aren’t subject to international competition, and are subject to more government regulation. The goods & services that have gotten cheaper tend to be things that people want, are subject to international competition, and are less regulated.

If healthcare & education costs had dropped as much in the last two decades as the price of TVs, toys, and software has, we’d be all set! As it is…

The Life-Changing Magic of the $15 Minimum Wage

posted by Jason Kottke   Feb 25, 2019

For the NY Times, Matthew Desmond writes about how raising the minimum wage makes a huge difference in people’s lives.

A $15 minimum wage is an antidepressant. It is a sleep aid. A diet. A stress reliever. It is a contraceptive, preventing teenage pregnancy. It prevents premature death. It shields children from neglect. But why? Poverty can be unrelenting, shame-inducing and exhausting. When people live so close to the bone, a small setback can quickly spiral into a major trauma. Being a few days behind on the rent can trigger a hefty late fee, which can lead to an eviction and homelessness. An unpaid traffic ticket can lead to a suspended license, which can cause people to lose their only means of transportation to work. In the same way, modest wage increases have a profound impact on people’s well-being and happiness. Poverty will never be ameliorated on the cheap. But this truth should not prevent us from acknowledging how powerfully workers respond to relatively small income boosts.

Another observation in the article reminded me of a passage from Matthew Walker’s piece in The Guardian asserting that sleep is an amazing and underutilized performance-enhancing drug:

Studies have linked higher minimum wages to decreases in low birth-weight babies, lower rates of teen alcohol consumption and declines in teen births. A 2016 study published in the American Journal of Public Health found that between roughly 2,800 and 5,500 premature deaths that occurred in New York City from 2008 to 2012 could have been prevented if the city’s minimum wage had been $15 an hour during that time, instead of a little over $7 an hour. That number represents up to one in 12 of all people who died prematurely in those five years. The chronic stress that accompanies poverty can be seen at the cellular level. It has been linked to a wide array of adverse conditions, from maternal health problems to tumor growth. Higher wages bring much-needed relief to poor workers. The lead author of the 2016 study, Tsu-Yu Tsao, a research director at the New York City Department of Health and Mental Hygiene, was “very surprised by the magnitude of the findings.” He is unaware of any drug on the market that comes close to having this big of an effect.

Desmond is the author of the award-winning Evicted: Poverty and Profit in the American City.

Americans Greatly Overestimate Racial Economic Equality in Our Country

posted by Jason Kottke   Jan 09, 2019

One of the defining features of the United States is a deep and long-lasting economic inequality between white and black people in terms of wages, income, and especially wealth.

Average wealth for white families is seven times higher than average wealth for black families. Worse still, median white wealth (wealth for the family in the exact middle of the overall distribution-wealthier than half of all families and less-wealthy than half) is twelve times higher than median black wealth. More than one in four black households have zero or negative net worth, compared to less than one in ten white families without wealth, which explains the large differences in the racial wealth gap at the mean and median. These raw differences persist, and are growing, even after taking age, household structure, education level, income, or occupation into account.

Despite the magnitude and persistence of this inequality, Americans (both black and white) vastly underestimate racial gaps in income and wealth.

For instance, one question in the study asked: “For every $100 earned by an average white family, how much do you think was earned by an average black family in 2013?” The average respondent guessed $85.59, meaning they thought black families make $14.41 less than average white families. The real answer, based on the Current Population Survey, was $57.30, a gap of $42.70. Study participants were off by almost 30 points.

The gap between estimate and reality was largest for a question about household wealth. Participants guessed that the difference between white and black households would be about $100 to $85, when in reality it’s $100 to $5. In other words, study participants were off by almost 80 points. Participants were also overly optimistic about differences in wages and health coverage.

The full paper is here. Closing that gap will be challenging, in part because the often racist mythology around it is persistent. In a report called
What We Get Wrong About Closing the Racial Wealth Gap, the authors conclude “that the wealth gap is structural in nature, cannot be solved through the individual actions of blacks, and can only be solved through ‘a major redistributive effort or another major public policy intervention to build black American wealth’”.

“The Invisible Helping Hand”

posted by Jason Kottke   Jan 08, 2019

Feeding America (formerly known as America’s Second Harvest) is a non-profit organization that receives food donations from farmers, manufacturers, and retailers and distributes them to food banks around the nation. As this excerpt from Tim Sullivan and Ray Fisman’s book, The Inner Lives of Markets, tells it, this system was working pretty well but wasn’t as efficient as it could be, resulting in food being wasted and people going hungry.

Food banks might provide feedback on their likes and dislikes, but at its core, the Second Harvest allocation still resembled 1960s-era Chinese central planning (which, free-market economists will note, helped to cause the Great Famine of 1959-61). Second Harvest’s management felt that it was falling short in its efforts to get food banks the donations they most needed. Prendergast gives the example of sending potatoes, unbidden, to a foodbank in Idaho that already had warehouses full. Or delivering milk to a bank that didn’t have the refrigeration capacity to store it and so would end up throwing it away. In fact, Second Harvest would sometimes turn down food donations from giant food companies because they weren’t sure where to send it. Second Harvest was also, at the time, treating different kinds of food as the same — a pound of broccoli was the same as a pound of cereal was the same as a pound of potato chips. When it comes to feeding the poor and hungry, however, not all foodstuffs are of equal value.

So Feeding America asked University of Chicago economist Canice Prendergast to design a market for the donated food, hoping that would make things run more efficiently. After listening to concerns raised by the food banks, particularly from the smaller ones who didn’t want to get out-muscled in the market by the larger banks, they came up with an economy where food banks were given shares to bid on the food they wanted each day.

Crucially, the market was overseen by a “central banker”, so that certain market dynamics didn’t result in a disruption of the ultimate goal of getting the most food to the people that needed it.

Food bank presidents, the market designers discovered, were hoarders of shares. To keep the market from dipping into a deflationary spiral, Prendergast needed to pump extra shares into the market to encourage bidding. There was also the ebb and flow of goods into it to consider. Some days, Kraft might dump half a dozen container — loads of mac and cheese into circulation; other days there’d be none. If everyone used their points to bid on mac and cheese, the prices of, say, potato chips and broccoli would plummet, not because broccoli was suddenly worth less, but because of a temporary surge in the supply of more desirable donations. So extra shares would need to be put into circulation to prop up prices — lest Arnold see last week’s lower price of potato chips and bid too timidly on them, misinterpreting short-run price declines as permanent ones. Similarly, in a dry spell of donations, shares would be withdrawn from the market: Since there was so little to bid on, there would be a run-up in prices unless the number of shares also declined.

As a result of their implementation of an economy, a couple of benefits emerged. First, Feeding America learned which foods were most sought after by banks (i.e. those for which the bidding was highest) and were able to be more aggressive in seeking out donors for them. Second, the amount of total food donations doubled, with about 25% of the increase directly attributable to the market:

As Prendergast reports in an academic paper summarizing the Second Harvest market experiment, the annual supply of food donations increased by 50 million to 100 million pounds as a result. Twelve million pounds can be traced directly to the market itself, in the form of excess donations that flush food banks placed into the market in exchange for shares. That’s 12 million pounds of food that would otherwise have been wasted.

A Short History of the US Economy 1945-2019

posted by Jason Kottke   Jan 03, 2019

Morgan Housel, an economics writer and venture capitalist, recently took a crack at summing up (in just 5000 words) what happened to the U.S. economy since the end of World War II. Even if you disagree with it (or parts of it), the whole thing is worth a read. I think this captures a large part of the main point:

Everything in finance is data within the context of expectations. One of the biggest shifts of the last century happened when the economic winds began blowing in a different, uneven direction, but people’s expectations were still rooted in a post-war culture of equality. Not necessarily equality of income, although there was that. But equality in lifestyle and consumption expectations; the idea that someone earning a 50th percentile income shouldn’t live a life dramatically different than someone in the 80th or 90th percentile. And that someone in the 99th percentile lived a better life, but still a life that someone in the 50th percentile could comprehend. That’s how America worked for most of the 1945-1980 period. It doesn’t matter whether you think that’s morally right or wrong. It just matters that it happened.

Expectations always move slower than facts. And the economic facts of the years between the early 1970s through the early 2000s were that growth continued, but became more uneven, yet people’s expectations of how their lifestyle should compare to their peers did not change.

Along with this:

The biggest difference between the economy of the 1945-1973 period and that of the 1982-2000 period was that the same amount of growth found its way into totally different pockets.

This reminded me of Matthew Stewart’s piece from The Atlantic that I read when it came out but never blogged about: The 9.9 Percent Is the New American Aristocracy.

When it comes to the division of wealth, many Americans believe that the country is split between the 1%, which possesses a significant share of the country’s money, and the 99%, or “the people.” In reality, The Atlantic writer Matthew Stewart argues, 9.9% of the population comprises America’s new aristocracy, which often “takes wealth out of productive activities and invests it in walls.” But this group of people is rich in more than mere money, and its constancy poses an insidious threat to the promise of American democracy.

The related video is a good 3-minute summary of Stewart’s piece.

GDP Per Capita in China and Africa in 1980 and 2016

posted by Jason Kottke   Dec 19, 2018

Africa China GDP

Using data from the IMF and World Bank, this map by Näytä Data shows how quickly the relative fortunes of China and African countries changed over the last few decades. For reference, in 1980, Africa had an estimated population of 480 million and China’s population was 994 million, while in 2016, Africa had 1.23 billion people and China had 1.4 billion people.

The Effects of Pollution on Human Cognition & Performance

posted by Jason Kottke   Nov 28, 2018

While I am not a big fan of shifting to an economic argument for things that are already plenty bad for other better reasons (see diversity in the workplace, immigration policy, healthcare, etc.), this article by Austin Frakt on the economic cost of pollution reports on the results of a number of studies linking pollution to low performance in work and school. This study of baseball umpires was particularly troubling:

Pollution may also affect the quality of work, which is much harder to measure. An intriguing study in the Journal of the Association of Environmental and Resource Economists got at this issue by examining how accurately baseball umpires called balls and strikes under different pollution conditions.

Since 2008, pitch calls have been checked by Major League Baseball with an electronic system. In a typical game, an umpire makes 140 ball/strike calls. When there was a 150 percent increase over average carbon monoxide levels or the same increase in small particulate matter, the study found an average of 1.4 additional incorrect calls. Levels of pollution that high occur in about one in 10 games.

Imagine what the rest of us, especially kids, are getting wrong when we’re in polluted areas (i.e. many American cities). (via @tylercowen)

If the Point of Capitalism is to Escape Capitalism, then What’s the Point of Capitalism?

posted by Jason Kottke   Oct 02, 2018

In a thought-provoking essay, Umair Haque asks the question If the Point of Capitalism is to Escape Capitalism, Then What’s the Point of Capitalism?

Some systems are self-perpetuating. Like a forest. Like a river. Like an ocean. But some systems are self-annihilating. Like a fire. Like a storm. Like an epidemic. They burn themselves out. We tend think of capitalism as the former — but we are wrong. It is the latter — a self-destroying, not a self-sustaining, system. If we’re all really just trying to escape it — then what else could it be? After all, that means there will probably come a day when we do make our escape — and on that day, poof! — capitalism, at least in the sense above, winks out, like a storm, or a fire. So if we see for a moment through the great lens of human history — first there was tribalism, and we escaped it, then feudalism, and we escaped that — today now there’s capitalism, which we’re currently trying to escape, all over again. But while kings and knights might have not been so keen on escaping feudalism, what’s striking about capitalism is that we’re all trying to escape it — even most of the capitalists — because it makes us so miserable, mean, and foolish.

Humans don’t want money — that’s never been the goal — they want freedom from exploitation and the freedom to pursue meaningful lives free from fear and anxiety. Haque then argues that given humanity’s current levels of wealth, technology, and social structures, it is not only possible to provide everyone with those freedoms without the need for capitalism but it’s inevitable.

These three things, technology, finance, and public goods, have finally matured and developed to a degree that freedom from capitalism isn’t just possible. It’s becoming inevitable. What’s really happening as these three forces intersect? Society’s surplus is being reinvested back in precisely the very things we are really after — instead of being skimmed off by predatory elites. Freedom from exploitation, freedom from control, freedom to find, realize, and develop ourselves. We haven’t had the means, mechanisms, or tools, in the long history of humankind, to ever really achieve those on a mass scale yet. But we have them now.

Read the whole thing — it’s not that long and it’ll give you something to think about as you work.

This Nonsense of Earning a Living

posted by Jason Kottke   Jul 10, 2018

From a 1970 issue of New York magazine, Buckminster Fuller on the massive economic lever of technology:

We must do away with the absolutely specious notion that everybody has to earn a living. It is a fact today that one in ten thousand of us can make a technological breakthrough capable of supporting all the rest. The youth of today are absolutely right in recognizing this nonsense of earning a living. We keep inventing jobs because of this false idea that everybody has to be employed at some kind of drudgery because, according to Malthusian-Darwinian theory, he must justify his right to exist. So we have inspectors of inspectors and people making instruments for inspectors to inspect inspectors. The true business of people should be to go back to school and think about whatever it was they were thinking about before somebody came along and told them they had to earn a living.

That was written almost 50 years ago…the capability of technology to generate wealth has increased greatly since then.

Closing the racial wealth gap: debunking 10 common myths

posted by Jason Kottke   Apr 19, 2018

A report called What We Get Wrong About Closing the Racial Wealth Gap was released this month by a group of economists and researchers from Samuel DuBois Cook Center on Social Equity at Duke University and the Insight Center for Community Economic Development. They report that the racial wealth gap in the United States is “large and shows no signs of closing”; this holds true at all levels in the wealth spectrum:

The white household living near the poverty line typically has about $18,000 in wealth, while black households in similar economic straits typically have a median wealth near zero. This means, in turn, that many black families have a negative net worth.

The 99th percentile black family is worth a mere $1,574,000 while the 99th percentile white family is worth over 12 million dollars. This means over 870,000 white families have a net worth above 12 million dollars, while, out of the 20 million black families in America, fewer than 380,000 are even worth a single million dollars. By comparison, over 13 million of the total 85 million white families are millionaires or better.

The authors then address ten common myths about the racial wealth gap, many of which are just straight-up racist — if only blacks just worked harder, saved more, learned more about financial literacy, etc. — particularly the one about black family disorganization:

The increasing rate of single parent households is often invoked to explain growing inequality, and the prevalence of black single motherhood is often seen as a driver of racial wealth inequities. These explanations tend to confuse consequence and cause and are largely driven by claims that if blacks change their behavior, they would see marked increases in wealth accumulation. This is a dangerous narrative that is steeped in racist stereotypes.

Single motherhood is a reflection of inequality, not a cause. White women still have considerably more wealth than black women, regardless whether or not they are raising children. In fact, single white women with kids have the same amount of wealth as single black women without kids. Recent research also reveals that the median single-parent white family has more than twice the wealth of the median black or Latino family with two parents. These data show that economic benefits that are typically associated with marriage will not close the racial wealth gap (Traub et al. 2017). Having the “ideal” family type does not enable black households to substantially reduce the racial gulf in wealth.

And overall, the authors conclude that the wealth gap is structural in nature, cannot be solved through the individual actions of blacks, and can only be solved through “a major redistributive effort or another major public policy intervention to build black American wealth”.

These myths support a point of view that identifies dysfunctional black behaviors as the basic cause of persistent racial inequality, including the black-white wealth disparity, in the United States. We systematically demonstrate here that a narrative that places the onus of the racial wealth gap on black defectiveness is false in all of its permutations.

We challenge the conventional set of claims that are made about the racial wealth gap in the United States. We contend that the cause of the gap must be found in the structural characteristics of the American economy, heavily infused at every point with both an inheritance of racism and the ongoing authority of white supremacy.

Gosh, it’s almost like if one group of people owned another group of people for hundreds of years — like the wealth of the group was literally the bodies, minds, and souls of the members of the other group — and then systematically and economically discriminated against them for another 100+ years, it’s nearly impossible for them to catch up. (via @eveewing)

A Selfish Argument for Making the World a Better Place

posted by Jason Kottke   Mar 19, 2018

This video, a collaboration between Kurzgesagt and economist Max Roser, makes a compelling argument for empowering the maximum amount of people around the world to become happier/wealthier/more free, so that everyone can all work on solutions to problems that affect everyone. The main gist is that while pre-industrial conditions favored zero-sum thinking, the Industrial & Green Revolutions and global telecommunications have created a situation in which non-zero-sum thinking is favored.

I couldn’t help thinking of the Lost Einsteins due to inequality in America.

I encourage you to take a moment to absorb the size of these gaps. Women, African-Americans, Latinos, Southerners, and low- and middle-income children are far less likely to grow up to become patent holders and inventors. Our society appears to be missing out on most potential inventors from these groups. And these groups together make up most of the American population.

The key phrase in the research paper is “lost Einsteins.” It’s a reference to people who could “have had highly impactful innovations” if they had been able to pursue the opportunities they deserved, the authors write. Nobody knows precisely who the lost Einsteins are, of course, but there is little doubt that they exist.

In addition to the ethical and moral arguments for improving the lives of all humans, the non-zero-sumness of today’s world makes a powerful economic argument for doing so as well. How to accomplish this is left as an exercise to the reader…

Ted Chiang on the similarities between “civilization-destroying AIs and Silicon Valley tech companies”

posted by Jason Kottke   Dec 19, 2017

Ted Chiang is most widely known for writing Story of Your Life, an award-winning short story that became the basis for Arrival. In this essay for Buzzfeed, Chiang argues that we should worry less about machines becoming superintelligent and more about the machines we’ve already built that lack remorse & insight and have the capability to destroy the world: “we just call them corporations”.

Speaking to Maureen Dowd for a Vanity Fair article published in April, Musk gave an example of an artificial intelligence that’s given the task of picking strawberries. It seems harmless enough, but as the AI redesigns itself to be more effective, it might decide that the best way to maximize its output would be to destroy civilization and convert the entire surface of the Earth into strawberry fields. Thus, in its pursuit of a seemingly innocuous goal, an AI could bring about the extinction of humanity purely as an unintended side effect.

This scenario sounds absurd to most people, yet there are a surprising number of technologists who think it illustrates a real danger. Why? Perhaps it’s because they’re already accustomed to entities that operate this way: Silicon Valley tech companies.

Consider: Who pursues their goals with monomaniacal focus, oblivious to the possibility of negative consequences? Who adopts a scorched-earth approach to increasing market share? This hypothetical strawberry-picking AI does what every tech startup wishes it could do — grows at an exponential rate and destroys its competitors until it’s achieved an absolute monopoly. The idea of superintelligence is such a poorly defined notion that one could envision it taking almost any form with equal justification: a benevolent genie that solves all the world’s problems, or a mathematician that spends all its time proving theorems so abstract that humans can’t even understand them. But when Silicon Valley tries to imagine superintelligence, what it comes up with is no-holds-barred capitalism.

As you might expect from Chiang, this piece is full of cracking writing. I had to stop myself from just excerpting the whole thing here, ultimately deciding that would go against the spirit of the whole thing. So just this one bit:

The ethos of startup culture could serve as a blueprint for civilization-destroying AIs. “Move fast and break things” was once Facebook’s motto; they later changed it to “Move fast with stable infrastructure,” but they were talking about preserving what they had built, not what anyone else had. This attitude of treating the rest of the world as eggs to be broken for one’s own omelet could be the prime directive for an AI bringing about the apocalypse.

Ok, just one more:

The fears of superintelligent AI are probably genuine on the part of the doomsayers. That doesn’t mean they reflect a real threat; what they reflect is the inability of technologists to conceive of moderation as a virtue. Billionaires like Bill Gates and Elon Musk assume that a superintelligent AI will stop at nothing to achieves its goals because that’s the attitude they adopted. (Of course, they saw nothing wrong with this strategy when they were the ones engaging in it; it’s only the possibility that someone else might be better at it than they were that gives them cause for concern.)

You should really just read the whole thing. It’s not long and Chiang’s point is quietly but powerfully persuasive.

Unlocking the Commons: Or, the Psychoeconomics of Patronage

posted by Tim Carmody   Dec 15, 2017

Nieman Journalism Lab is running its annual predictions for the next year in journalism. I wound up pitching something about audio platforms that is weirdly optimistic about Spotify? but for a hot minute, I tried to talk Jason (and he tried to talk me) into writing something about the new patron economy.

It was too late to pitch it as a prediction, but I couldn’t get it out of my head. So I do what I do, which is to write as much of it down as I can. In the end, I couldn’t think of a better place to run it than right here at Kottke.org.

Here’s the picture as generally agreed upon: ads are still alive and well, but the collapse and consolidation of the ad market means ads alone can’t support media companies any more, whether they’re big like the New York Times or small like Kottke.org.

There’s a puritanical argument that says ads have failed media, they bring out media’s worse impulses, and might be inherently bad. The only way to break with the ad model is to break with it completely, and sell media like a product. Make readers pay for content. If they don’t pay for it, don’t give it to them. Only when media companies are wholly accountable to their subscribers can you fix what’s wrong with media. Big companies need paywalls: little ones need exclusive subscribers.

Kottke.org, obviously, does not work this way. It has ads, although those are a very small part of the site and a shrinking part of the revenue. It has members, but very, very little is directed only to them: right now, subscribers to the newsletters get some behind-the-scenes stuff and a few early previews and experiments. Stuff that only real fans even want. The site, the tweets, the RSS feed, and everything else the site’s produced or ever will produce is available to everyone, whether they’re a member or not.

I call this “unlocking the commons,” and it’s the same approach I’ve taken with my Patreon and newsletter. Fans support the person and the work. But it’s not a transaction, a fee for service. It’s a contribution that benefits everyone. Free-riders aren’t just welcome; free-riding is the point.

This, I think, is key to understanding the psychology of patronage. Normally, if you buy a product — let’s say you’re buying a book. Books aren’t perfect commodities, but they’re still commodities. As a shopper, you’re trying to get as much value for your book as you can for your money. If I can get the book cheaper and faster from retailer A(mazon) than retailer B(arnes & Noble), most of the time, that’s what I’m going to do.

If I’m skeptical of A, and prefer to support B or C(ity bookstore of my choice), I’m not strictly speaking in a purchasing relationship any more, but something closer to a patronage one. I don’t just want my money to buy an object; I want it to support institutions and individuals I like, and I want it to support the common good.

This is one of the weird things about patronage. As a consumer, your first thought is to your own benefit. As a patron, it’s to the good of your beneficiary. Likewise, as an artisan supported by patronage, you tend to think more about what’s best for your patrons and audience than you do yourself.

For instance, when Patreon recently changed its fee structure, I thought about it on two levels. First, it seemed really bad for patrons, slightly less bad for beneficiaries, and clearly helped out Patreon more than either group. As a customer of Patreon — they’re the ones I give my money to — I felt like I was being ripped off. I was being asked for more money without getting more in return. But as a patron, my first thought was, does this help the people I pledge money to each month? And as a beneficiary, I thought, how does this affect the people who pledge money to me?

In both cases, I wanted what was best for that other person. I wanted them to be getting the full value of the transaction. The only time it was about me was when I thought about my relationship with Patreon — which is completely different.

Please note that this is not fuzzy-headed idealism or just sentiment: this is as concrete and comprehensive as it gets. It’s economic thinking that recognizes that goods don’t just exist to be used up, but are objects of labor produced by and for members of a commonwealth. The truth of the transaction is in the whole.

The most economically powerful thing you can do is to buy something for your own enjoyment that also improves the world. This has always been the value proposition of journalism and art. It’s a nonexclusive good that’s best enjoyed nonexclusively.

Anyways. This is a prediction for 2018 and beyond. The most powerful and interesting media model will remain raising money from members who don’t just permit but insist that the product be given away for free. The value comes not just what they’re buying, but who they’re buying it from and who gets to enjoy it.

The bigger those two pools get — the bigger the membership, and the bigger the audience — the better it gets for everyone. This is why we need more tools, so more people can try to do it. PBS as a service.

It’s not quite socialized art. Mutualist art, maybe. Proudhon probably would have thought it was pretty cool. So would the Florentines, arch-capitalists as they were. And it might not work. But so far, it’s the only model I’ve found worth trying.

An interactive map of debt in America

posted by Jason Kottke   Dec 13, 2017

Interactive Debt Map

The Urban Institute has built an interactive map for exploring debt in America.

Credit can be a lifeline during emergencies and a bridge to education and homeownership. But debt-which can stem from credit or unpaid bills-often burdens families and communities and exacerbates wealth inequality. This map shows the geography of debt in America at the national, state, and county levels.

I’d love to hear why the “share with any debt in collections” is so relatively low in the Upper Midwest, Minnesota in particular.

Update: Unsurprisingly, health insurance coverage is a significant factor in American debt…and Minnesota has a low rate of medical debt in collections along with a relatively low rate of uninsured. This 2016 press release from MN Department of Health provides some clues as to why the uninsured rate is so comparatively low. (via @yodaui)

Universal Basic Income explained

posted by Jason Kottke   Dec 07, 2017

In their distinctive style, Kurzgesagt tries to explain the concepts behind and pros & cons of Universal Basic Income in just 10 minutes. In US, UBI would be a massive change to how our economy and society functions, so much so that it’s challenging to predict what the effects would be. Nonlinear systems, yo!

Update: Aw dammit… I totally forgot to connect the part of the video where they talk about the non-monetary value of work — which is a worry of UBI critics — to something that Ludicorp (the small company that built Flickr and sold to Yahoo! in the mid-2000s) had on the company’s about page. It was a passage from Disclosing New Worlds: Entrepreneurship, Democratic Action and the Cultivation of Solidarity by Charles Spinosa, Fernando Flores & Hubert Dreyfus:

Business owners do not normally work for money either. They work for the enjoyment of their competitive skill, in the context of a life where competing skillfully makes sense. The money they earn supports this way of life. The same is true of their businesses. One might think that they view their businesses as nothing more than machines to produce profits, since they do closely monitor their accounts to keep tabs on those profits.

But this way of thinking replaces the point of the machine’s activity with a diagnostic test of how well it is performing. Normally, one senses whether one is performing skillfully. A basketball player does not need to count baskets to know whether the team as a whole is in flow. Saying that the point of business is to produce profit is like saying that the whole point of playing basketball is to make as many baskets as possible. One could make many more baskets by having no opponent.

The game and styles of playing the game are what matter because they produce identities people care about. Likewise, a business develops an identity by providing a product or a service to people. To do that it needs capital, and it needs to make a profit, but no more than it needs to have competent employees or customers or any other thing that enables production to take place. None of this is the goal of the activity.

When behavioral economics meets a $700M Powerball jackpot

posted by Jason Kottke   Aug 24, 2017

Business Insider went out onto the streets of NYC and tried to buy people’s just-purchased Powerball tickets ahead of the $700 million drawing. They did not get many takers, even when offering twice the price they paid (which meant they could just go and buy double the number of tickets and slash their odds of winning). The video says this is an example of regret avoidance.

A theory of investor behavior that attempts to explain why investors refuse to admit to themselves that they’ve made a poor investment decision so they don’t have to face the unpleasant feelings associated with that decision. Regret avoidance causes investors to not correct bad decisions, which can make those decisions worse. Regret avoidance is the result of cognitive dissonance.

As Alex Tabarrok notes, it’s also a demonstration of the endowment effect (Tabarrok: “these people are crazy!”).

In psychology and behavioral economics, the endowment effect…is the hypothesis that people ascribe more value to things merely because they own them. This is typically illustrated in two ways. In a valuation paradigm, people will tend to pay more to retain something they own than to obtain something they do not own — even when there is no cause for attachment, or even if the item was only obtained minutes ago. In an exchange paradigm, people given a good are reluctant to trade it for another good of similar value. For example, participants first given a Swiss chocolate bar were generally unwilling to trade it for a coffee mug, whereas participants first given the coffee mug were generally unwilling to trade it for the chocolate bar.

One way to think about it is if you buy a lottery ticket for $5 and someone offers you $10 and you don’t take it, financially it’s like you’ve paid $10 for the ticket, an easily replaceable item with an average worth of about $2.50 (and more likely worth nothing). But no one should be buying tickets anyway because the lottery sucks.

Apple’s diseconomies of scale and the next iPhone

posted by Jason Kottke   Jul 19, 2017

Apple is the biggest company in the world and they sell one of history’s most successful consumer products. As the total human population of Earth becomes a limiting factor in the iPhone’s continued sales growth (see also Facebook), they are perhaps running into problems designing a desirable product that they need to produce 200 million times over the course of a year.

This is one of those areas where Apple may be the victim of its own success. The iPhone is so popular a product that Apple can’t include any technology or source any part if it can’t be made more than 200 million times a year. If the supplier of a cutting-edge part Apple wants can only provide the company with 50 million per year, it simply can’t be used in the iPhone. Apple sells too many, too fast.

A Daring Fireball reader put it this way:

People commonly think that scale is an unambiguously good thing in production, but the tremendous scale at which Apple operates shows this not to be the case. Annual iPhone production is so large that Apple is likely experiencing diseconomies of scale, a phenomenon one doesn’t often hear about. What significant, break-through technology can a company practically introduce to 300 million new devices in a year?

Diseconomies of scale is a real thing, btw. John Gruber has been arguing that Apple’s way around this is to produce a more expensive iPhone ($1000-1200) with exceptional components and features that the company simply can’t produce at a scale of 200 million/year. Rene Ritchie describes this iPhone++ strategy as “bringing tomorrow’s iPhone to market today”. Gruber compares it to the Honda Prelude, quoting from the Edmunds description of the car:

Honda established itself in America with the Civic and Accord — both good, solid but basic cars. But big profits in the automotive world don’t come from basic cars that sell for commodity prices. Those profits come from cars that get consumers so excited that they’ll pay a premium price just to have one. The Prelude was Honda’s first attempt at an exciting car.

The Prelude was Honda’s technological leading edge. Features that are now expected from Honda, like the double-wishbone suspension under the Accord, fuel injection, and VTEC electronic variable valve timing system showed up first on the Prelude before migrating across the Honda line (though VTEC first showed up on the 1990 Acura NSX).

Keen observations all around and it will be interesting to see if Apple can benefit from this strategy.

Made In Iowa, a Rust Belt comeback story

posted by Jason Kottke   Jul 03, 2017

Produced by Square, Made In Iowa tells the story of what happened after the Electrolux plant closed in the small town of Webster City, Iowa in 2011. The company had decided to move those jobs to Mexico and in the years after the closing, the unemployment rate in the town rose from about 3% to 10%. The video shows how the town rallied around the reopening of the movie theater and pursued an entrepreneurial strategy of revitalizing downtown through opening a number of small businesses. That approach brought the town’s unemployment rate back up to 3%.

But that’s not the entire story. The new jobs are mostly non-union and pay less than Electrolux jobs did. The town’s pivot was not entirely a bootstrap effort…the former workers had the government’s assistance and the advantage of their union’s negotiation of benefits. From a 2013 NPR story about the plant closure:

On March 31, 2011, Electrolux shut its washer-dryer plant in Webster City and sent the jobs to Juarez, Mexico. The employees were warned more than a year in advance of the closure, and many used the time to pay off debt and begin thinking about a new career.

Because their jobs had left the country, the laid-off workers qualified for federally funded retraining. A large number enrolled in two-year programs at community colleges and have been living off unemployment benefits as they learn new skills.

And those new businesses downtown are possible in part because people have access to healthcare through the ACA.

It seems relevant at this point to mention that in the 2016 election, the county in which Webster City is situated went for Trump 58.6% (to Clinton’s 35.8%). I mean, bootstrap all you want, but just don’t forget the massive governmental safety net that makes it possible for communities to recover when shit like this goes down and which party wants to dismantle it.

America runs on taxpayer-funded services *and* capitalism

posted by Jason Kottke   Jun 26, 2017

Yesterday, Grover Norquist shared a short parable about taxes on Twitter:

How Republicans are born…
Daughter, 8, has been savings up to buy her first Guitar.
Found it for $35. She had 35 exact.
Then…sales tax

Norquist has famously been on a quest to stop tax increases in the US…in 2015 he wrote a book called End the IRS Before It Ends Us.1 Many people took Norquist to task over his remarks:

Did you mention that you drove her to the guitar store on roads that were partly funded by sales taxes?

In a car which only has seat belts preventing you from being badly injured in the event of a crash due to taxpayer funded regulations?

or those same taxes that pay for emergency services that will respond if you do get in an accident?

These responses remind me of a pair of posts written several years ago about the contributions to society of both taxpayer-funded and corporate goods & services. From the liberal version:

After spending another day not being maimed or killed at work thanks to the workplace regulations imposed by the department of labor and the occupational safety and health administration, enjoying another two meals which again do not kill me because of the USDA, I drive my NHTSA car back home on the DOT roads, to my house which has not burned down in my absence because of the state and local building codes and fire marshal’s inspection, and which has not been plundered of all its valuables thanks to the local police department.

And from the conservative viewpoint:

When my Motorola-manufactured Cable Set Top Box showed the appropriate time, I got into my Toyota-manufactured Prius vehicle and set out to my graphic design workplace and stopped to purchase some gasoline refined by the Royal Dutch Shell company, using my debit card issued to me by Bank of the West. On the way to my workplace, I dropped off a package at the local UPS store for delivery, and dropped my children off at a local private school.

  1. How was Norquist radicalized about taxes? In part because his dad was a dick: “After church, his father would buy him and his three younger siblings ice-cream cones and then steal bites, announcing with each chomp, ‘Oops, income tax. Oops, sales tax.’”

Fifty Inventions That Shaped the Modern Economy

posted by Jason Kottke   Jun 21, 2017

50 Things Economy

Tim Harford, aka The Undercover Economist, is coming out with a new book called Fifty Inventions That Shaped the Modern Economy.

New ideas and inventions have woven, tangled or sliced right through the invisible economic web that surrounds us every day. From the bar code to double-entry bookkeeping, covering ideas as solid as concrete or as intangible as the limited liability company, this book not only shows us how new ideas come about, it also shows us their unintended consequences — for example, the gramophone introducing radically unequal pay in the music industry, or how the fridge shaped the politics of developing countries across the globe.

It’s based on his BBC podcast 50 Things That Made the Modern Economy.

Fun fact that I just discovered: Harford and I share the same birthday, both date and year.

Why did Amazon buy Whole Foods? World domination.

posted by Jason Kottke   Jun 20, 2017

Amazon’s New Customer is a really great analysis by Ben Thompson of Amazon’s strategy and why Amazon bought Whole Foods: they purchased a new customer for Amazon infrastructure, not a retailer. Early on in the piece, Thompson lays this one on us:

Amazon’s goal is to take a cut of all economic activity.

No qualifiers. All economic activity. In the world. Sort of a Dutch East India Company for the internet age. Thompson explains how they’re going to do it and why fresh food is such a strategic hole for them.

As you might expect, given a goal as audacious as “taking a cut of all economic activity”, Amazon has several different strategies. The key to the enterprise is AWS: if it is better to build an Internet-enabled business on the public cloud, and if all businesses will soon be Internet-enabled businesses, it follows that AWS is well-placed to take a cut of all business activity.

On the consumer side the key is Prime. While Amazon has long pursued a dominant strategy in retail — superior cost and superior selection — it is difficult to build sustainable differentiation on these factors alone. After all, another retailer is only a click away.

This, though, is the brilliance of Prime: thanks to its reliability and convenience (two days shipping, sometimes faster!), plus human fallibility when it comes to considering sunk costs (you’ve already paid $99!), why even bother looking anywhere else? With Prime Amazon has created a powerful moat around consumer goods that does not depend on simply having the lowest price, because Prime customers don’t even bother to check.

This, though, is why groceries is a strategic hole: not only is it the largest retail category, it is the most persistent opportunity for other retailers to gain access to Prime members and remind them there are alternatives. That is why Amazon has been so determined in the space: AmazonFresh launched a decade ago, and unlike other Amazon experiments, has continued to receive funding along with other rumored initiatives like convenience store and grocery pick-ups. Amazon simply hasn’t been able to figure out the right tactics.

When I heard about the Whole Foods deal, the first thing I thought about was Amazon Go. The company has been trying to experiment with different retail environments, but without the proper scale, it doesn’t make a lot of sense. Whole Foods gives them a chance to develop their fresh food delivery infrastructure at scale…so that they can offer it to other customers just like they do with AWS.

P.S. Whenever I think about Amazon as a business, I recall this 2012 post by Eugene Wei on Amazon’s low-margin strategy. I suspect Thompson’s post will join it in my thoughts.

Information Age automation is coming for your job

posted by Jason Kottke   Jun 09, 2017

This new video by Kurzgesagt examines automation in the past (“big stupid machines doing repetitive work in factories”) and argues that automation in the information age is fundamentally different. In a nutshell,1 whereas past automation resulted in higher productivity and created new and better jobs for a growing population, automation in the future will happen at a much quicker pace, outpacing the creation of new types of jobs for humans.

Their two main sources for the video are Martin Ford’s Rise of the Robots and The Second Machine Age by Erik Brynjolfsson and Andrew McAfee.

  1. The German phrase “kurz gesagt” means roughly “in a nutshell”, so this is a pun. Laugh now!

Systemic racism in America explained in just three minutes

posted by Jason Kottke   Jun 07, 2017

This short video shows several ways in which systemic racism is still very much alive and well in the United States in 2017. See also Race Forward’s video series featuring Jay Smooth.

“What Is Systemic Racism?” is an 8-part video series that shows how racism shows up in our lives across institutions and society: Wealth Gap, Employment, Housing Discrimination, Government Surveillance, Incarceration, Drug Arrests, Immigration Arrests, Infant Mortality… yes, systemic racism is really a thing.

The reason why this matters should be obvious. Just like extra effort can harness the power of compound interest in knowledge and productivity, even tiny losses that occur frequently can add up to a large deficit. If you are constantly getting dinged in even small ways just for being black, those losses add up and compound over time. Being charged more for a car and other purchases means less life savings. Less choice in housing results in higher prices for property in less desirable neighborhoods, which can impact choice of schools for your kids, etc. Fewer callbacks for employment means you’re less likely to get hired. Even if you do get the job, if you’re late for work even once every few months because you get stopped by the police, you’re a little more likely to get fired or receive a poor evaluation from your boss. Add up all those little losses over 30-40 years, and you get exponential losses in income and social status.

And these losses often aren’t small at all, to say nothing of drug offenses and prison issues; those are massive life-changing setbacks. The war on drugs and racially selective enforcement have hollowed out black America’s social and economic core. There’s a huge tax on being black in America and unless that changes, the “American Dream” will remain unavailable to many of its citizens.

America is a developing nation for most of its citizens

posted by Jason Kottke   May 02, 2017

In his new book, The Vanishing Middle Class: Prejudice and Power in a Dual Economy, MIT economics professor Peter Temin says that the US “is coming to have an economic and political structure more like a developing nation” and that the US is really two countries at this point:

In one of these countries live members of what Temin calls the “FTE sector” (named for finance, technology, and electronics, the industries which largely support its growth). These are the 20 percent of Americans who enjoy college educations, have good jobs, and sleep soundly knowing that they have not only enough money to meet life’s challenges, but also social networks to bolster their success. They grow up with parents who read books to them, tutors to help with homework, and plenty of stimulating things to do and places to go. They travel in planes and drive new cars. The citizens of this country see economic growth all around them and exciting possibilities for the future. They make plans, influence policies, and count themselves as lucky to be Americans.

The FTE citizens rarely visit the country where the other 80 percent of Americans live: the low-wage sector. Here, the world of possibility is shrinking, often dramatically. People are burdened with debt and anxious about their insecure jobs if they have a job at all. Many of them are getting sicker and dying younger than they used to. They get around by crumbling public transport and cars they have trouble paying for. Family life is uncertain here; people often don’t partner for the long-term even when they have children. If they go to college, they finance it by going heavily into debt. They are not thinking about the future; they are focused on surviving the present. The world in which they reside is very different from the one they were taught to believe in. While members of the first country act, these people are acted upon.

This whole piece on the book by Lynn Parramore is worth a read. Another small tidbit:

In the Lewis model of a dual economy, much of the low-wage sector has little influence over public policy. Check. The high-income sector will keep wages down in the other sector to provide cheap labor for its businesses. Check. Social control is used to keep the low-wage sector from challenging the policies favored by the high-income sector. Check. Mass incarceration. Check. The primary goal of the richest members of the high-income sector is to lower taxes. Check. Social and economic mobility is low. Check.

The importance of social capital in public life

posted by Jason Kottke   Mar 24, 2017

In 1993, Robert Putnam, who later went on to write Bowling Alone (which inspired Meetup), wrote a piece for The American Prospect called The Prosperous Community: Social Capital and Public Life about social capital and its contribution to political and economic well-being of a society. Much has changed since then, but Putnam’s piece is solidly relevant to the political situation in America today.

How does social capital undergird good government and economic progress? First, networks of civic engagement foster sturdy norms of generalized reciprocity: I’ll do this for you now, in the expectation that down the road you or someone else will return the favor. “Social capital is akin to what Tom Wolfe called the ‘favor bank’ in his novel, The Bonfire of the Vanities,” notes economist Robert Frank. A society that relies on generalized reciprocity is more efficient than a distrustful society, for the same reason that money is more efficient than barter. Trust lubricates social life.

Networks of civic engagement also facilitate coordination and communication and amplify information about the trustworthiness of other individuals. Students of prisoners’ dilemmas and related games report that cooperation is most easily sustained through repeat play. When economic and political dealing is embedded in dense networks of social interaction, incentives for opportunism and malfeasance are reduced. This is why the diamond trade, with its extreme possibilities for fraud, is concentrated within close-knit ethnic enclaves. Dense social ties facilitate gossip and other valuable ways of cultivating reputation—an essential foundation for trust in a complex society.

This quote by 18th-century Scottish philosopher David Hume that leads off the piece succinctly sums up the challenges involved and the potential consequences in not addressing them properly:

Your corn is ripe today; mine will be so tomorrow. ‘Tis profitable for us both, that I should labour with you today, and that you should aid me tomorrow. I have no kindness for you, and know you have as little for me. I will not, therefore, take any pains upon your account; and should I labour with you upon my own account, in expectation of a return, I know I should be disappointed, and that I should in vain depend upon your gratitude. Here then I leave you to labour alone; You treat me in the same manner. The seasons change; and both of us lose our harvests for want of mutual confidence and security.

(via @timoreilly)

The economics of airline classes

posted by Jason Kottke   Mar 17, 2017

How much money does an airline make on a typical flight in the various classes of service? On some flights, revenue from first & business class seats can be up to 5 times that of economy seats. This video explores the economics of airline classes and looks at how we got to the present moment, where the people and companies buying business class and first class tickets are subsidizing those of us who fly economy.

The 8 richest men are now as wealthy as half the world’s population

posted by Jason Kottke   Jan 17, 2017

According to a report by Oxfam, the world’s 8 richest men are as wealthy as the poorest half of the world’s population. That’s 8 men with the same combined wealth of 3.6 billion people.

As decision makers and many of the super-rich gather for this week’s World Economic Forum (WEF) annual meeting in Davos, the charity’s report suggests the wealth gap is wider than ever, with new data for China and India indicating that the poorest half of the world owns less than previously estimated.

Oxfam, which described the gap as “obscene,” said if the new data had been available before, it would have shown that in 2016 nine people owned the same as the 3.6 billion who make up the poorest half of humanity, rather than 62 estimated at the time.

The gap between the super-rich and poor is widening: in 2010, it would have taken 43 of the richest people to equal the bottom 50%. The eight men in question are Bill Gates, Amancio Ortega, Warren Buffett, Carlos Slim, Jeff Bezos, Mark Zuckerberg, Larry Ellison, and Michael Bloomberg.

Five of the men on this list — Gates, Buffett, Ellison, Bloomberg, and Zuckerberg (all Americans) — have signed the Giving Pledge, a public promise to give away the majority of their fortunes while still alive (or upon their deaths). They are essentially agreeing with Oxfam that their wealth should be redistributed. When five men who control, say, as much wealth as 25-30% of the world’s poorest are saying, by their actions, that the wealth inequality gap needs to be narrowed, shouldn’t the government take that as a sign that something needs to be done about it?

Update: The way Oxfam is calculating wealth here takes debt into account:

If you look at the numbers that the statistic is based on, from Forbes and Credit Suisse, you’ll see that the equality here is that the eight richest people in the world have a combined net worth of roughly $426 billion, or 0.16% of all the world’s wealth.

Is it really true that the bottom 50% of the world’s population accounts for only 0.16% of the wealth on the planet? Well, not really. The bottom 50% comprises five different deciles. Of those deciles, the fourth has 0.17% of the world’s wealth, and the fifth has 0.32%. Those are both very small numbers — but they’re both bigger than 0.16%.

So something funny is going on here — and that something funny is debt. When Oxfam looks at net worth, it adds up your assets, and then subtracts your liabilities. And when your liabilities are bigger than your assets, that means you have negative net worth. According to Oxfam’s methodology, the bottom 10% of the world’s population has a net worth of one trillion negative dollars — an almost inconceivably large sum.

The inequality is there, and growing, but Oxfam’s formulation is misleading without the proper context. (thx, everyone)

My holiday shopping adventures and Amazon’s continued retail dominance

posted by Jason Kottke   Jan 12, 2017

French drone company Parrot recently announced significant layoffs and will shift focus away from their recreational drone business.

French company Parrot has had a rough year and missed its sales expectations. That’s why the company will lay off 290 employees who were working on drones. In total, Parrot currently has 840 employees on the drone team and more than a thousand employees in total.

While the company isn’t just selling drones, it represents a good chunk of the business. But it looks like other companies, such as DJI, are doing better in this market. Parrot expected to report $105.9 million in sales for 2016. It reported $90 million instead (€85 million vs. €100 million expected).

Even though the company is still selling quite a few drones, Parrot says that it doesn’t generate healthy margins. So here’s the new plan: focusing on commercial drones.

Well, this explains my holiday shopping difficulties with Parrot. Ollie asked for a drone for Christmas and after doing some research, I decided on the Parrot Swing. Amazon was out of stock, so I decided to buy directly from Parrot. They had stock and the site said they’d ship in plenty of time for Xmas. So I ordered one. The next day, I get a call from Parrot saying I need to “verify my order”. So, I call them back, give them some info about my order and where it’s being shipped and the very nice woman on the phone tells me that I’m all set and they’re shipping it out.

Two days go by, no shipping confirmation email in sight. I get another voicemail: you need to call us to verify your order. I call back, give them the same info and tell them, oh by the way I’ve already done this once. Profuse apologies were offered, that was a mistake, and the very nice woman on the phone tells me she’s going to tell the shipping people to send out my order “right away”. It will still arrive in time for Xmas. The next day I get an email from Parrot:

Hello! We have refunded your order No. XXXXX-XXXXX placed 12/15/2016. We are sorry that your order did not meet your expectations and hope that you will visit us again.

Obviously, I am done with them at this point but still need that drone. Amazon is still out of stock, but Walmart has them. I order one, it arrives two days later (with free shipping), and on Christmas morning, after some reflection, Ollie says it was the best present Santa has ever gotten him.

I did quite a bit of holiday shopping this year…went a bit nuts making up for some not-so-great efforts the past two years. The kids and I shopped for Toys for Tots (twice), I bought gifts for them from me and from Santa, I bought non-holiday stuff like clothes for myself,1 and I shopped virtually for the gift guide. I shopped every which way: small, locally, at big box stores, and online at 4-5 different retailers. My main takeaway from that experience? Amazon is miles and miles and miles ahead of everyone else. It is not even close.

Sure, Walmart had the drone in stock, but when I’d tried shopping with them earlier in the month, the product page threw a 404 error. I switched to Safari and was able to put the item into my cart, but then a form in the ordering flow wouldn’t work, so I had to get that item elsewhere. (When I did finally create an account while ordering the drone, Walmart thought my name was “Ashley”?!)

Target’s site was so slow that it was nearly unusable (like 30-40 seconds for a product page to start loading). But I persevered because they had an item I really wanted that no one else had in stock. I got an email two days before Xmas saying they were out of stock and couldn’t ship until Jan 4 at the earliest, but that if I still wanted the item, I would have to log in to my account to verify the new shipping date. I didn’t want the item later, so I did nothing. Guess what arrived on my doorstep last week?

My troubles with Parrot I shared above. The local toy stores are expensive (Lego sets are $5-10 more than if you buy online) and ran out of popular items 2-3 weeks before Xmas. Very few online stores outside Amazon, Walmart, etc. had clear holiday shipping policies, so relying on them more than a week or two out was risky. Zappos was great (Amazon owns them) and Patagonia was pretty good, although their shipping estimates aren’t that great and returns aren’t free.

And Amazon? The site is always fast, I have never seen a 404’d product page, the URLs for their products haven’t changed in almost 20 years,1 each product page was clearly marked with holiday shipping information, they showed the number of items in stock if they were running low, shipping was free (b/c I’m a Prime member), returns are often free, and the items arrived on time as promised. More than 20 years after the invention of online retailing, how is it that Amazon seems to be the only one that’s figured all this out? How come massive companies like Walmart and Target, whose very businesses are under immense pressure from Amazon, can’t get this stuff right despite having spent hundreds of millions on it? I’m not a financial analyst, but unless something changes drastically, Amazon is just going to continue to eat more and more of the US retail pie and at this point, with all these advantages they’ve accrued and their razor-sharp focus on low pricing, it’s difficult to see how anyone is going to compete.1

  1. After freezing my ass off wearing improper clothing the last few years (because, to be clear, I am an idiot), I made myself a promise this year that I was not going to be cold this winter. So in November and December, I spent a bunch of energy outfitting myself with the proper gear: sweaters, thermal layers, coats, mittens, boots, etc. I am both warm and happy now.

  2. I linked to the Office Space DVD on kottke.org in 1999 and the link still works. What’s the percentage of URLs from 1999 that still work? 5%? 2%? 0.1%?

  3. Just for fun, let’s take a quick stab. Stripe and Shopify are arguably better than Amazon in some ways and when the one-click patent expires this year, those payment flows will get even easier. And anyone can use them to sell anything. So the problem becomes stocking and shipping. Who’s going to build/provide the third-party fulfillment infrastructure so that shipping and returns are cheap and reliable…like Amazon’s fulfillment warehouses but for anyone to use? UPS? FedEx? The USPS? (Hahaha.) Uber? Can that company offer a Prime-like or Costco-like shipping membership? What is the rationale for everyone involved (the retailers, the payment company, the online store service, the fulfillment company) to keep prices as relentlessly low as Amazon does? There are a lot of different reasons why a collection of interchangeable third-party services could succeed against a fully integrated solution, but price does not seem like one of them…there’s just too much margin lost because of the friction between services.

    (And we haven’t even talked about AWS here. It’s profitable by itself but is also turning out to be a massive competitive advantage. The likes of Walmart and Target can’t use it even if it would be better than their home-grown infrastructure because that’s like the Trojans paying the Greeks to invade. AWS also potentially insulates Amazon against competitors like Shopify and Stripe. Imagine if Amazon got serious about integrating AWS with their payment and fulfillment systems…a low-cost, bulletproof, integrated system that almost anyone could use to sell almost anything would put an enormous amount of pressure on every other retail experience, particularly if they continue to ramp up their real-world retail offerings.)