Weekend reading links

1. Fed monetary accommodation fact of the day,

Fed bought around half of Treasury issues last year, and owns 40 per cent of all of the outstanding 10-year plus maturity treasuries.

Good interview with Glenn Hubbard, former CEA of George Bush. He is not too much worried about inflation, but feels that the American Jobs Act and American Families Plan are really "a remaking of the size of the government". He favours carbon tax, as against subsidies proposed by Biden administration, to promote green investments. In general, he also prefers a higher tax on consumption, say a VAT, than raising taxes on capital (corporate and capital gains tax increases). 

He goes on to call the Biden tax plans as "anti-investment". This is the narrative of low corporate and capital gain tax as necessary to incentivise investment surfacing. There is no empirical evidence on this. Even if there are some older studies which point to a negative correlation or a Laffer curve, there is nothing to say that the rates are currently on the downward sloping side. 

He has a re-think on neoliberalism of Reagan era, and favours a "liberalism with small L", which would abandon protectionism and focus on competition. 

2. FT long read on Bitcoin mining and its energy consumption implications. 

Some statistics,

“Bitcoin alone consumes as much electricity as a medium-sized European country,” says Professor Brian Lucey at Trinity College Dublin... In a paper earlier this month, Italy’s central bank said the eurozone’s payments system, Tips, had a carbon footprint 40,000 times smaller than that of bitcoin in 2019... The latest calculation from Cambridge university’s Bitcoin Electricity Consumption index suggests that bitcoin mining consumes 133.68 terawatt hours a year of electricity — a best-guess tally that has risen consistently for the past five years. That places it just above Sweden, at 131.8TWh of electricity usage in 2020, and just below Malaysia, at 147.21TWh... a rising bitcoin price attracts new miners, and also means that mining with older, less efficient equipment, makes financial sense. The higher price also means the machines producing bitcoin are forced to complete ever-tougher puzzles in search of their quarry. At the upper limit, bitcoin’s electricity consumption would be about 500TWh a year. The UK consumes 300TWh. About 65 per cent of the crypto mining comes from China, where coal makes up around 60 per cent of the energy mix.

3. The world's largest contract manufacturer Foxconn is moving into electric cars, with a "complete software and hardware platform for making electric cars". It has mobilised a consortium of more than 1200 companies, MIH, that intends to offer the product. It also makes it easier for Apple to enter electric vehicle manufacturing. In some sense, Foxconn expects to leverage its experience of mobile phones manufacturing and become a system integrator for the supply chain for electric vehicle manufacturing. 

It's also banking on the differences between the electronics and auto manufacturing industries and the importance of systems integration,

If an internal combustion engine is mostly made up of hardware today, then software and content such as in-car entertainment and connected services are expected to account for a majority in battery-powered vehicles... Historically, the car industry has been driven by mechanical capabilities. Its production cycles are several years long and its products have been highly customised to appeal to consumers ranging from families to wealthy race car lovers. By contrast large parts of the electronics industry, such as the consumer segment which Foxconn comes from, are increasingly commoditised and churn out new models every few months. In addition to high safety and reliability standards, Japanese carmakers have long argued that the art of manufacturing vehicles cannot be easily replicated by new entrants because it involves a complex process of tailoring each of the 30,000 components inside a car to function seamlessly. Known as suriawase or tuning technology, the high-precision manufacturing sets cars apart from smartphones and laptops that can be assembled by putting parts together in the same way. That is changing. “The number of components is expected to decline from 30,000 in an internal combustion engine car to 20,000 in an electric vehicle,” says Akihiko Shido, chair of Yorozu, a parts supplier for Nissan... 

Industry experts say two big trends are set to transform the auto industry: the different form and structure of EV components, which simplify car design; and vehicles’ growing computing content, which requires a consolidation of functions that have traditionally been scattered among different suppliers. “The main part under the hood is the battery. Due to its size and weight, it makes sense to put it as low as possible to the bottom of the car for stability purposes and the driving experience,” says Michael Schallehn, a partner in the Silicon Valley office of Bain & Company, the consultancy. “The other factor is that the electric motor is super small and closer to the wheels. So that allows you to put the drivetrain [the components that drive the wheels] and the chassis very low into the car and dedicate the rest of the space to the passengers.” This structure has given rise to the development of a skateboard-like architecture, a standard flat bottom structure containing all the key components which can be easily modified for different models. “If you fast-forward that trend, it takes a lot of the complexity away from the established automotive supply chain,” Schallehn says. He adds that the evolution of in-car computing, from infotainment systems and the dashboard to today when they cover every automotive function, has made integration more pressing. This will become even more urgent when the industry moves to self-driving vehicles that rely on software that needs to be continually updated. This, says Schallehn, could make it beneficial to have all software development in the hands of one producer rather than a smattering of suppliers, as it is now.

4. Good example of how trade lobbies work. The Government of India last month banned the import of mosquito killer rackets which are priced below Rs 121, under pressure from manufacturers lobby. This summary makes the point,

Should the government policy benefit a few manufacturers through protection from imports or a large number of people through easier access to cheaper devices that help reduce chances of contracting diseases? Manufacturers are better organised to present their case for protection whereas ordinary people are not so well organised. So, the government has an obligation to weigh the options carefully.

5. FT explores the surprisingly poor performance of Asian countries with vaccinations. It points to the absence of large pharmaceutical companies who can quickly mobilise resources, manpower, supply linkages, and finances to make vaccines at large scale at short notice.

6. Contrary to fears, Australian exporters appear to have diversified away and nicely weathered the sanctions and punitive tariffs imposed by China. 

and this point to rapid diversification.

It's also a reminder to China about the limits of such trade bullying. 

7. The orders are reserved in the battle between Apple and Epic Games on the former's 30% commission on all transactions done through iPhone App Store. This is a good summary of the issues under consideration before the judge and how the trial went.

8. Last year Novak Djokovic mobilised a group of tennis players and started the Professional Tennis Players Association with the objective of giving the players a greater share of the $2 billion the game generates annually. Another objective was to ensure that tennis players outside the top 50 rankings break even from their lives as professionals. As the Times reports, it has achieved little till date.

There is a rich irony in this. As another Times reports writes,

Professional tennis may be the most economically top-heavy sport in the world. The best players are fabulously wealthy, in part because of lavish endorsement deals, and any player ranked in the top 30 lives very well. For those ranked between roughly 40th and 70th, a bad few months can cause serious problems. Life for those outside the top 80, and especially outside the top 100, can be precarious.

If Novak Djokovic were to put his mouth where his money is, he would have to acknowledge that a major part of the change will have to come from limiting the concentration of prize money at the top of the rankings. In simple terms, Novak and others are the top ranks have to forego at least a small share of their disproportionately high incomes and accommodate the less fortunate journey men players down the rankings. 

9. Fantastic interactive graphical account in NYT of the 1921 race massacre in the black neighbourhood of Greenwod in Tulsa, Oklahoma which killed hundreds of black residents, burned down more than 1250 homes, and erased years of black success. 

Greenwood was so promising, so vibrant that it became home to what was known as America’s Black Wall Street. But what took years to build was erased in less than 24 hours by racial violence — sending the dead into mass graves and forever altering family trees. Hundreds of Greenwood residents were brutally killed, their homes and businesses wiped out. They were casualties of a furious and heavily armed white mob of looters and arsonists. One factor that drove the violence: resentment toward the Black prosperity found in block after block of Greenwood.

10. Priyanka Pulla has a very good investigative account of the problems associated with Covaxin's regulatory approvals process (HT:Ananth). From an already low baseline, the credibility of the national drugs regulator, Drugs Controller General of India (DCGI), the Indian Council for Medical Research (ICMR), and the local vaccine manufacturer, have all fallen further still.

The credibility of even the Pharma industry will be hit by premature approvals of certain drugs,

Apart from Covaxin, the years 2020 and 2021 saw a slew of ill-considered approvals of locally tested or developed drugs. Among them was a drug called itolizumab, developed by the Bengaluru-based Biocon and licensed by the DCGI in July 2020, based on a trial of 32 patients. Approving a drug based on such a small trial is unheard of, and was widely criticized by clinical research experts. This was followed by the approval of favipiravir, an antiviral from Mumbai-firm Glenmark, based on a trial whose results didn’t fulfil its primary criterion of success. Subsequently, two more drugs, Zydus Cadila’s pegylated interferon 2g and the Defence Research & Development Organisation’s (DRDO) 2-deoxy-d-glucose have come under fire for approval based on small, poorly designed and as-yet-unpublished trials.

11. Goutam Das in Livemint has a story on India's white collar workers,

White-collar professions who engage in tasks that require higher-order skills—the likes of engineers, doctors, accountants, teachers, marketing professionals, and BPO workers, among others—make up just 4% of India’s estimated workforce of 390 million (as of April 2021)... In April 2020, India had about 18.1 million white-collar workers. By April 2021, the number had plummeted to 13.8 million, according to an estimate made by Mitali Nikore, an economist and the founder of Nikore Associates, a think tank.

12. India private ports fact of the day,

Abhishek Nigam, associate director at India Ratings and Research, says, “Private ports are cannibalising traffic away from major ports. Private operators offer more mechanisation, faster turnaround times and better rail and road connectivity to the hinterland, so customers can evacuate cargo quickly. Major ports take as long as 23 hours sometimes to process imports and up to 77 hours for exports. Private port operators are able to turn around both at under 10 hours."...While road and rail speeds for freight are comparable with global averages, the average turnaround time for freight at Indian ports is 12 times slower than world leaders like Hong Kong and Singapore. An Indian port, on average, takes 84 hours to move export/import cargo, against the global hub average of seven hours. In that difference of 77 hours lies opportunity. And private players—like Adani—have begun to diligently chase it.

13. From an article in The Indian Express on the surging IPO boom,

(T)he equity on offer from a large number of companies is a mix of some fresh equity and mostly offer for sale (OFS) by existing investors or promoters... Data sourced from Prime Database shows that over the last eight years, of the total issue amount of Rs 1.94 lakh crore that was raised by 160 IPOs, more than 75% (Rs 1.46 lakh crore) was raised through offer for sale. Around Rs 48,000 crore was raised through fresh equity. While money raised by offering fresh equity in an IPO goes to the company for its expansion and growth, money raised through OFS goes to the investor offering his equity for sale. Experts say this is a sign of a maturing capital market.

On the one hand, high OFS share is a sign of exit opportunities for private equity investors, on the other hand it also shows that investment capital raising continues subdued.  

14. Livemint has a status report on vaccination rates across countries from April 1 to May 26.

15. Scott Galloway has a nice illustration of corporate value destruction by some of the leading corporate executives. He writes about Marissa Meyer and Adam Neumann,

When Mayer took over, Yahoo (not including a 20% ownership stake in Alibaba) was valued at $14.4 billion. In July 2016 the company sold itself to Verizon for $4.5 billion, and Mayer was gone. That’s $9.9 billion turned to ash in four years (or 13.5 Burj Khalifas), for a Daily Benjamin Burn (DBB) of $6.8 million. Mayer’s compensation began with a $30 million signing bonus and went up from there, totaling an estimated $365 million, giving her a $250,000-per-day commission for destroying $7 million per day of other people’s money. That’s an (Earn to Burn Ratio) EBR of 3.7%. Shocking, sure, but not the gold standard.

Adam Neumann founded WeWork in 2010, but he didn’t start burning Benjamins at epic scale until SoftBank began shoveling billions into the WeWork furnace in August 2017. By the time Neumann was fired in September 2019, SoftBank had invested $10.3 billion; a few months later it wrote off $9.2 billion of that. That’s a $13.1 million DBB on SoftBank’s money alone... Neumann’s compensation for this value destruction was complicated by his ouster and a subsequent lawsuit, but we estimate he made off with around $1.02 billion, most of it coming out of SoftBank’s deep pockets. That’s $1.5 million per day during those two years: an EBR of 11.1%.

16. Finally, The Economist highlights the issue of decision fatigue among over-worked or distracted employees. 

In a new paper for Royal Society Open Finance, “Quantifying the cost of decision fatigue: suboptimal risk decisions in finance”, Tobias Baer and Simone Schnall examine the credit decisions of loan officers at a leading bank over the course of their working day. The academics write that decision fatigue “typically involves a tendency to revert to the ‘default’ option, namely whatever choice involves relatively little mental effort”. In other words, as you become tired, you get mentally lazy.

The study looked at proposals to restructure loans, with each credit officer analysing 46 requests per day. The approval rate was around 40%, so the default decision was rejection. Officers tended to start work between 8am and 10am, took lunch between 1pm and 3pm, and tended to leave at 6pm. The researchers found that the approval rate declined significantly between 11am and 2pm, as lunch approached, then picked up again after 3pm before declining in the last two hours of work. The applications were distributed to credit officers by the bank’s automated system, so they were in effect allocated randomly. There is no sign that the loans assessed at lunchtime were of a different quality from those in the rest of the day. What makes this study ingenious is that the authors were able to see whether or not the loans were subsequently paid back. They found that rejecting a restructuring request made it less likely that the loan would be repaid. So they calculated that decision fatigue, by causing more rejections, actually cost the bank money; around $500,000 over the course of a single month.

Similar patterns have been seen in other situations. A much-cited study of Israeli judges found they were less likely to grant parole as lunch approached, but became more lenient once their stomachs were full again. Other research found that doctors grew steadily more likely to prescribe antibiotics, even when these might not be necessary, over the course of their shift. In some areas of work, breaks are seen as a vital matter of safety. In the EU, lorry drivers are expected to take a 45-minute break after 4 hours 30 minutes behind the wheel.

The point highlights the importance of small breaks in ensuring the quality of work output.