Weekend reading links

1. The pace of diffusion of ChatGPT

Artificial intelligence chatbot ChatGPT has become speedily popular, amassing 1mn users within five days of its launch according to the company itself. A UBS study found that two months after its launch, ChatGPT had reached 100mn active users.

2. FT points to a big concern with the transition from IC engine to EVs, job losses.

Though built in England, the petrol engine of a Mini is a map of Europe: engineered in Germany, containing an alternator from France, an ignition coil from Italy and a coolant pump from Austria. Each step in this process involves a person, if not several. Yet not one of them will be required in as little as seven years when the brand goes fully electric. The same is true of those who supply engines for Volvo Cars, Mercedes-Benz, Jaguar, Ford or any of the brands that have set end dates for engine-car sales in Europe. That electric vehicles take fewer people to make and design is well documented... Ford this month announced plans to cut 40 per cent of its entire European engineering team... Today, Europe’s auto industry employs 3.5mn people directly in manufacturing. Ford chief executive Jim Farley estimates that EVs require 40 per cent fewer people to make — the equivalent of 1.4mn jobs if applied across the industry. These are high-skilled, high-productivity, well-paid positions that are often in geographic areas that would otherwise be economic backwaters. Just look at Nissan’s Sunderland plant or in Slovakia, which has four plants that turn out one car for every five people living in the country annually.

3. Singapore is benefiting from Hong Kong's inward turn

... though much catch remains to be done.

4. The rise and rise of Indian Americans,

In 2013, the House of Representatives had a single Indian American member. Fewer than 10 Indian Americans were serving in state legislatures. None had been elected to the Senate... Ten years later, the Congress sworn in last month includes five Indian Americans. Nearly 50 are in state legislatures. The vice president is Indian American. Nikki Haley’s campaign announcement this month makes 2024 the third consecutive cycle in which an Indian American has run for president, and Vivek Ramaswamy’s newly announced candidacy makes it the first cycle with two... By and large, Indian Americans have been elected on the Democratic side of the aisle. All five Indian Americans in Congress, and almost all state legislators, are Democrats... Indian American voters are overwhelmingly Democratic: 74 percent voted for Joseph R. Biden Jr. in the 2020 presidential race, more than voters of other Asian backgrounds, according to a survey by AAPI Data, APIAVote and Asian Americans Advancing Justice.

5. The changing contributors to inflation in the US (HT: Adam Tooze)

As the supply shocks have eased, the demand side pressures have been rising. 

This on the different contributors to inflation in the US and Europe, 

The inflation problems facing the Fed and ECB are different, however. In the US, inflation has been driven chiefly by a stimulus-fuelled surge in demand after the end of lockdowns and the question for policymakers is whether higher wages can be justified by improved productivity. In the eurozone and UK, the dominant issue is the energy price shock caused by Russia’s invasion of Ukraine. Dramatically higher spending on energy has made societies poorer overall, and the question is how that cost is shared between companies, workers and taxpayers. In this context, even if wages lag behind inflation, they could still be too high for companies to bear without raising prices further.

Wage growth in the US has been declining.

6. Just 25 million of Nigeria's population of 220 million voted in the just concluded Presidential elections, a voter turnout of just 27%. The winner, Bola Tinbu of the ruling party won with 8.8 million votes. 

7. China's health insurance explained,

China has two main kinds of health insurance: employee hospitalization insurance and so-called residents insurance. The employee hospitalization insurance is the better of the two and used by a quarter of the country’s population. It covers the urban employees and retirees of state-owned enterprises, as well as the current employees of some private-sector businesses. In contrast to the United States, employee insurance in China is not managed by companies. Instead, a municipal government typically forms an employee insurance pool to cover hospitalization and a few outpatient expenses. Companies typically contribute to the pools an amount equal to as much as 9.8 percent of a worker’s salary. Employees do not contribute to the insurance pools themselves.

In addition, those who qualify for employee plans typically have what are called personal health accounts. The money in them can be spent on medicine and further outpatient treatments. The employee insurance pools currently forward about a third of the money they receive from employers to personal health accounts, and spend the remaining two-thirds on hospitalizations and other expenses. Employees also put about 2 percent of their paychecks into their health accounts until they retire.

The less fortunate three-quarters of China’s 1.4 billion people have urban or rural residents insurance. Residents insurance is for farmers and migrant workers, as well as for children, who are seldom covered by their parents’ health insurance plans. It is also for the many workers whose private-sector employers are not making contributions for them... People with residents insurance generally do not get personal health accounts. Less than 4 percent of China’s population has no health insurance at all. This portion tends to be migrant gig workers who live at the fringes of society... Chinese health insurance plans have narrow restrictions on what is covered, high co-payments and very low coverage maximums... Chinese law says that when a municipality’s pooled employee insurance fund runs a deficit, the city government has to cover the shortfall... 

While the pooled employee funds in many cities are depleted, personal health accounts across China have accumulated more than $130 billion. So the central government wants municipalities to put less money into personal health accounts and redirect some of that money to hospitalization funds. At the same time, the employee pooled hospitalization plans are taking responsibility for more outpatient expenses for serious illnesses and covering more purchases of medicine.

The three year of zero-covid have depleted the employee insurance pool and left the municipalities with growing liabilities. 

Demographic changes in China have complicated the task. The number of births each year has dropped by nearly two-thirds since the late 1980s. Fewer young workers support more and more retirees who require ever more health care. Cities are now cutting how much money their hospitalization plans transfer to the personal health accounts of retirees. Wuhan’s reduction of transfer amounts by a little more than two-thirds is particularly steep. Local governments are also introducing or increasing deductibles. Wuhan has begun requiring retirees to pay the first $75 of expenses each year and current workers to pay the first $100.

8. Manufacturing's share of value add has been declining in India and that too from a low base, in contrast to the trends in other major peer competitors.

When China and Vietnam began their textiles and clothing export booms, respectively in the mid-1990s and the mid-2010s, foreign inputs made up more than 40 per cent of their exports. For India in 2015 the equivalent number was just 16 per cent.

An example of the challenge faced,

At a casings factory in Hosur run by Indian conglomerate Tata, one of Apple’s suppliers, just about one out of every two components coming off the production line is in good enough shape to eventually be sent to Foxconn, Apple’s assembly partner for building iPhones, according to a person familiar with the matter. This 50 per cent “yield” fares badly compared with Apple’s goal for zero defects. Two people that have worked in Apple’s offshore operations said the factory is on a plan towards improving proficiency but the road ahead is long.

9. Good graphic on the prices of Starbucks Tall Latte across different countries

10. This from an article about the recent high-profile jury conviction of Alex Murdaugh for the murder of his wife and son in Hampton County in South Carolina's Lowcountry, does not seem out of place for several parts of India or other developing countries.

They have enormous sway because, it turns out, the Murdaughs are like royalty in Hampton. For nearly a century, a Murdaugh has been the chief criminal prosecutor for the surrounding district. At the same time, the family has operated Hampton’s biggest civil law firm. In essence, the Murdaughs are the law in Hampton. They are also fantastically wealthy, with multiple homes, boats, their own 1,700-acre hunting estate, an arsenal of guns, and other baubles.

11. Finally, from an Indian Express investigation on the forest produce certification system in India about green-washing of such certifications

Forest certification is a sunrise industry, driven by a growing preference to avoid any product that can be linked to deforestation or illegal logging. In India, the forest certification industry is growing at 8 to 10 per cent every year, mainly catering to exporters wanting to tap the US and European markets that have strict regulations to ensure the legality of wood products coming in. Only processed wood is allowed to be exported from India, not raw wood... The investigation revealed that certifications in India were mainly a tool to bypass regulatory requirements in Europe and the US, where India’s forest-based products have an export market worth Rs 4,000 to Rs 5,000 crore every year. “It is easy to obtain forest certifications in India, if you are willing to pay the fees. There are several unscrupulous operators who are willing to make a quick buck. In fact, because of the intense competition amongst certification bodies, it is largely a buyers’ market. If you negotiate hard enough, you can drive down the costs of certification considerably,” said an executive of the India-based office of a foreign certification body... 

The main seekers of certifications have been exporters of wood products and other forest-based goods... Forty per cent of all certificates issued in India by two of the largest global certification systems – FSC or Forest Stewardship Council, and PEFC or Programme for Endorsement of Forest Certifications – have not been renewed... FSC and PEFC, and others like them, are developers and owners of certification standards, much like the International Organisation of Standardisation (ISO) or the Bureau of Indian Standards (BIS). The actual work of evaluation, recommendation of certifications, and monitoring of compliance is carried out by certification bodies and their subcontracted auditors.

This is a good reminder about the limitations of industry self-regulation. 

Weekend reading links

1. Adam Tooze has a good post on the troubles facing the Chinese economy. He links to an article by Matthew Klein.

Homebuilders sold an average of 156mn sq m a month of residential floor space from April to June 2021. This year in the same period, Chinese developers have sold just 106mn sq m a month. The plunge in demand has flowed through to new building, with the amount of “residential floor space started” in April-June 2022 down by nearly half compared to last year. The pace of homebuilding has not been this slow since 2009... According to China’s ministry of finance, local government revenues from land sales so far this year were 31 per cent lower than in the first six months of 2021... Chinese consumer spending in the first half of 2022 was barely higher than in the first half of 2021 after accounting for inflation, and is now running more than 10 per cent below the pre-pandemic trend. Chinese oil refiners have been processing 10 per cent less crude oil since April compared with last spring thanks to the plunge in petrol demand. Electricity consumption, which had been expanding by about 7 per cent a year before the pandemic, is now growing just 2 per cent... In dollar terms, spending on imports has been flat since the end of last year. Factor in rising prices, and China’s real import demand is down about 8 per cent since the lockdowns began, according to estimates from the Netherlands Bureau for Economic Policy Analysis.

At a time when the global economy is grappling with supply constraints and rising inflation, lower demand from China is very helpful.

Chinese debt to GDP ratio has doubled since 2013, with the biggest contributor being the local government financing vehicles, who in turn leverage real estate to raise debt. 

2. Energy market risk diversification illustration

Berlin Brandenburg airport, newly opened after decades of delays, depends heavily for its kerosene jet fuel on the nearby Russian-owned Schwedt oil refinery. Authorities have been warning that a complete German embargo on Russian oil will threaten the airport’s operations. By contrast Berlin’s former airport, Tegel, was more resilient even during the cold war: a diversification rule meant aeroplane fuel arrived by a variety of means including truck and train.

3. Rana Faroohar points to inequality being a contributor to US consumption spending not declining as much as expected,

To the extent that the wealthy in the US are not yet cutting back on spending, they may be an important and under-explored factor driving the inflation felt by all. The top two-fifths of income distribution in the US accounts for 60 per cent of consumer spending, while the bottom two-fifths accounts for a mere 22 per cent, according to 2020 BLS statistics... The American Enterprise Institute, a right-leaning think-tank, estimated in February that the wealth effect of both asset gains and cash extraction from the refinancing of property (which hasn’t corrected yet, like stocks) represented $900bn, with a consumption impact that started last year and will continue through 2022... when the top quintile of Americans as a whole enjoy 80 per cent of the wealth effect from rising stock and home values (the AEI’s estimate), I suspect it starts to have a real impact on inflation, and on the overall structure of our economy, which over the course of the past 30 years of real falling interest rates has become highly financialised.

4. Businessweek points to the rise in college tuition fees in the US

5. The FT has a graphic that shows how European countries are reducing their reliance on Russian natural gas. 

By weaponising natural gas, Vladimir Putin is under-cutting Russia's strategic leverage over Europe for short-term gains. 

6. Ruchir Sharma draws attention to the counter-intuitive point of whether the world can produce robots "fast enough to save the world economy from labour shortages". 

Labour shortfalls are at historic highs in advanced economies, including the UK and US. There are now 11.2mn openings for 5.6mn job hunters in the US, the widest gap since the 1950s... The working-age population is shrinking in nearly 40 nations, including most of the major economic powers, up from just two in the early 1980s... underlying demographic trends foretell continuing shortages. Among the hardest hit nations are China, Japan, Germany and South Korea — all are expected to see the working age population drop by at least 400,000 a year through to 2030. Not coincidentally, these countries already host high concentrations of robots, and are rolling out more. Japan’s manufacturers deploy nearly 400 robots per 10,000 workers, up from 300 just four years ago. China, in its top-down way, is heavily subsidising robot makers, aiming to boost their output by 20 per cent a year through 2030. Even at that pace, Bernstein analysts predict, robots cannot fill all the holes in the labour force, which China expects will shrink by 35mn workers in the next three years.

7. Queen Elizabeth's passing away takes away a constant anchor for the last seven decades. This graphic is striking.

8. When we talk in general about inflation, so much is lost in the translation. FT has a superb graphic which looks at how the consumer price inflation in UK in July 2022 varied for different population categories compared to the national CPI average of 8.8%.

9. On the reemergence of unions among US companies, albeit in a different form,

The upstart union, Starbucks Workers United, is one of a new breed of organised labour that has emerged in the US in recent months. The movement has traditionally been dominated by large, sector-specific unions such as the United Auto Workers, the Service Employees International Union and the Teamsters, which have maximised their scale and reach to fight for better conditions for workers. Instead, the Starbucks employees have taken a different approach — forming smaller groups led by workers on a store by store basis, in the hope that it will build to a broader movement. The strategy has attracted a younger, more politically engaged type of worker, and has helped unions gain a foothold not just in the coffee giant, but also in Amazon, Chipotle and others following a similar path...

Since baristas in Buffalo, New York, founded Starbucks Workers United last December, some 233 other locations have followed suit. Workers at Amazon, Chipotle, and Trader Joe’s have all cited the union’s speedy rollout as the inspiration behind their own drives. But none of the new Starbucks unions have successfully completed what labour scholars say is the most important step on the path to unionisation: negotiating a collective bargaining agreement, the legally binding contract that unions rely upon to improve conditions for its members.

10. Mahesh Vyas points to interesting trends in India's labour market - increasingly ageing and less educated workforce.

Estimates from CMIE’s Consumer Pyramids Household Survey (CPHS) suggest that in 2016-17, 17 per cent of the labour force was of the 15-24-year age. By 2021-22, this proportion had dropped to 13 per cent... In 2016-17, a quarter of the total employment in India was of people below the age of 30. This fell to 21 per cent by 2019-20 and then to 18 per cent by 2021-22. The proportion of the workforce in their thirties has also fallen from 25 per cent in 2016-17 to 21 per cent in 2021-22. As a result, what is left in the workforce is mostly people in their forties and fifties. In 2016-17, 42 per cent of the workforce was in their forties and fifties; by 2019-20, this had risen to 51 per cent... 

A related problem is that the educational qualification of the workforce is deteriorating. The share of graduates and post-graduates increased from 12.5 per cent in 2016-17 to 13.4 per cent by 2017-18. Then it fell to 13.2 per cent in 2018-19 and then to 11.8 per cent in 2019-20. It recovered but only partially to 12.2 per cent... India’s workforce comprises mostly people whose maximum educational qualification is of secondary education (those who cleared their 10th – 12th examinations). They accounted for 28 per cent of the workforce in 2016-17 and in 2021-22, their share went up to 38 per cent. There is a similar increase in people whose maximum education was between 6th and 9th standards. Their share went up from 18 per cent in 2016-17 to 29 per cent in 2021-22.

11. Finally The Ken has a good story on the struggles with the Ayushman Bharat Digital Mission (ABDM), the giant project to introduce electronic health records in India - “unified health system for every citizen and the central verifier of all truths in healthcare”. The article says that the project is being implemented at a cost of $200 million. 

I don't think it's a good idea to plunge into such an ambitious project at such scale. This requires very carefully phased out and gradual progress up the electronic medical records value chain. It'll probably require at least decade to even have the rudiments of an effective EMR system in place. And it'll cost several multiples of the $200 m, besides serious engagement on its adoption down the public health referral chain.

Market failures at supply and demand sides, the case of hospitals in the US

It's widely accepted that the United States has one of the most expensive health care system. It's also a good example of the limitations of the less regulated model of health care, and free markets in general. Market failures abound in the deregulated US health care market. Pharma prices are generally multiples of those prevailing elsewhere. This post draws attention to the exorbitant hospital prices as well as the vast variations in them. 

Elizabeth Rosenthal draws attention to hospitals as being a major driver of high medical costs in US. While insurers and Pharma companies get all the public indignation, hospitals, which make up 44% of personal expenses for the privately insured and hospital prices have risen by 42% from 2007-14 for inpatient care. 

The cost of a hospital stay in the United States averaged $5,220 a day in 2015 — and could be as high as over $17,000, compared with $765 in Australia. In a Rand study published earlier this year, researchers calculated that hospitals treating patients with private health insurance were paid, overall, 2.4 times the Medicare rates in 2017, and nearly three times the rate for outpatient care. If the plans had paid according to Medicare’s formula, their spending would be reduced by over half. Most economists think hospitals could do just fine with far less than they get today from private insurance.

This inflation in hospital prices applies just as much to non-profit institutions,

It would be unseemly for these nonprofit medical centers to make barrels of money. So when their operations generate huge surpluses — as many big medical centers do — they plow the money back into the system. They build another cancer clinic, increase C.E.O. pay, buy the newest scanner (whether it is needed or not) or install spas and Zen gardens.Some rural hospitals are genuinely struggling. But many American hospitals have been spending capital “like water,” said Kevin Schulman a physician-economist at Stanford. The high cost of hospitals today, he said, is often a function of the cost of new infrastructure or poor management decisions. “Medicare is supposed to pay the cost of an efficient hospital,” he said. “If they’ve made bad decisions, why should we keep paying for that?”

If hospitals were paid less via regulation or genuine competition, they would look different, and they’d make different purchasing decisions about technology. But would that matter to medical results? Compared with their European counterparts, some American hospitals resemble seven-star hotels. And yet, on average, the United States doesn’t have better outcomes than other wealthy nations. By some measures — such as life expectancy and infant mortality — it scores worse than average.

The high prices are complemented with wide variations in prices charged by the same hospital on different insurers. The Times has an investigation of the variations in the prices that hospitals charge insurers.  

This year, the federal government ordered hospitals to begin publishing a prized secret: a complete list of the prices they negotiate with private insurers. The insurers’ trade association had called the rule unconstitutional and said it would “undermine competitive negotiations.” Four hospital associations jointly sued the government to block it, and appealed when they lost. They lost again, and seven months later, many hospitals are simply ignoring the requirement and posting nothing.

What does the data show?

It shows hospitals are charging patients wildly different amounts for the same basic services: procedures as simple as an X-ray or a pregnancy test. And it provides numerous examples of major health insurers — some of the world’s largest companies, with billions in annual profits — negotiating surprisingly unfavorable rates for their customers. In many cases, insured patients are getting prices that are higher than they would if they pretended to have no coverage at all.

For example, at Memorial Regional Hospital, Florida, a MRI costs $1827 with a Cigna Plan, $2148 with a Humana Plan, $2455 with a Blue Cross Plan, and $262 with a Medicare Plan. At the University of Mississippi Medical Center, a colonoscopy costs $1463 with a Cigna Plan, $2144 with a Aetna Plan, and $&82 with no insurance at all. At Aurora St Luke's Milwaukee, a MRI costs $1093 with United's HMO Plan and $4029 with United's PPO Plan. 

Why don't insurers push back to lower prices?

Until now, consumers had no way to know before they got the bill what prices they and their insurers would be paying. Some insurance companies have refused to provide the information when asked by patients and the employers that hired the companies to provide coverage. This secrecy has allowed hospitals to tell patients that they are getting “steep” discounts, while still charging them many times what a public program like Medicare is willing to pay. And it has left insurers with little incentive to negotiate well.

The peculiar economics of health insurance also help keep prices high. Customers judge insurance plans based on whether their preferred doctors and hospitals are covered, making it hard for an insurer to walk away from a bad deal. The insurer also may not have a strong motivation to, given that the more that is spent on care, the more an insurance company can earn. Federal regulations limit insurers’ profits to a percentage of the amount they spend on care. And in some plans involving large employers, insurers are not even using their own money. The employers pay the medical bills, and give insurers a cut of the costs in exchange for administering the plan.

The high drugs and hospital prices negates the conventional wisdom that bulk buyers like large employers and insurers can negotiate and contract the best possible rates. 

Update 1 (17.09.2021)

Important RAND study of drugs prices across countries. The takeaway is that apart from unbranded generics, the US drug prices are much higher than those in other countries. 

Weekend reading links

1. Even as other developed countries grapple with return of inflation, Japan continues to struggle,

Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue. One popular explanation for the country’s trouble is that consumers’ expectations of low prices have become so entrenched that it’s basically impossible for companies to raise prices. Economists also point to weakening demand caused by Japan’s aging population, as well as globalization, with cheap, plentiful labor effectively keeping costs low for consumers in developed countries.

The picture once looked very different. In the mid-1970s, Japan had some of the highest inflation rates in the world, approaching 25 percent... But by the early 1990s, Japan began experiencing a different issue. An economic bubble, fueled by a soaring stock market and rampant property speculation, burst. Prices began to fall. Japan attacked the problem with innovative policies, including using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing...

Japan found itself in a vicious circle, said Takatoshi Ito, a professor of international and public affairs at Columbia University, who served on Japan’s Council on Economic and Fiscal Policy. Consumers came to expect “stable prices and zero inflation,” he said, adding that as a result, “companies are afraid of raising prices, because that would attract attention, and consumers may revolt.” The sluggish economy made companies reluctant to raise wages, he said, “and because real wages didn’t go up, probably consumption didn’t go up, so there was no increase for demand for products and services.”

Kenneth Rogoff thinks inflation in the US is transient.  

2. Fascinating story about Riad Salameh, the Governor of Lebanon's central bank since 1993, who has been accused of enriching himself and friends across Lebanese political spectrum by amassing an outsized fortune stashed away in Europe. This comes even as the economy is reeling with insolvent bank, hyperinflation, and a contraction of historic proportions, one which the World Bank has described as within the top three worst contractions in the last 150 years. 

3. Green jobs, while being good for the planet, may not be so for workers.

Building an electricity plant powered by fossil fuels usually requires hundreds of electricians, pipe fitters, millwrights and boilermakers who typically earn more than $100,000 a year in wages and benefits when they are unionized. But on solar farms, workers are often nonunion construction laborers who earn an hourly wage in the upper teens with modest benefits — even as the projects are backed by some of the largest investment firms in the world... The effect of Mr. Biden’s plan, which would go further in displacing well-paid workers in fossil-fuel-related industries, could be similarly disappointing. In the energy industry, it takes far more people to operate a coal-powered electricity plant than it takes to operate a wind farm. Many solar farms often make do without a single worker on site... 

While some of the new green construction jobs, such as building new power lines, may pay well, many will pay less than traditional energy industry construction jobs. The construction of a new fossil fuel plant in Michigan employs hundreds of skilled tradespeople who typically make at least $60 an hour in wages and benefits, said Mike Barnwell, the head of the carpenters union in the state. By contrast, about two-thirds of the roughly 250 workers employed on a typical utility-scale solar project are lower-skilled, according to Anthony Prisco, the head of the renewable energy practice for the staffing firm Aerotek.

4. One distortion caused by the persistent low interest rates is the strength of private equity firms which currently sit on a $1.7 trillion dry powder. The pandemic induced corporate stress has also provided an attractive feedstock of buyout targets for PE. This FT report points to the rapid growth of private equity led businesses in UK, who are taking many businesses off public markets. Compared to 2008, the number of listed UK companies has fallen by 40%.

5. Meanwhile PE firms in the US have been leveraging up their companies and paying out dividends,

Private equity groups including Ares and Golden Gate Capital have raised more than $20bn in the US leveraged loan market through the companies they own to award themselves a bumper payday. Dividend deals in the loan market have reached a total of $21.7bn, according to data from LevFin Insights, a unit of rating agency Fitch Ratings. It marks a new quarterly high for data going back to 2016... Private equity groups have jumped on the demand, pulling money out of companies they own and loading them up with fresh debt before the brightening economic outlook fades.

See also this study by Josh Lerner et al on the adverse impact of PE buyouts on employment and prospects of public firms.  

6. John Mauldin has a good summary of the mirage of foreigners owning shares of Chinese companies,

The Didi IPO was not a normal IPO, at least as we think of them in the West. US investors who bought these “shares” don’t actually own equity. They own pieces of a Caymans “variable interest entity,” (VIE) which has a contract with the parent company. This structure is necessary because under Chinese law foreigners can’t own Chinese shares directly... US-listed Chinese companies since at least Alibaba in 2014 have used the VIE structure. It’s one of those things that works great until it doesn’t... This arrangement... let Chinese enterprises rake in foreign capital while giving up no ownership and reserving the right to leave their own “investors” high and dry. This method may now be approaching its expiration date but it worked well for a long time. That’s how Xi and the Chinese Communist Party operate. They do things that lookcapitalist but really aren’t, lacing them with unnoticed poison pills for later use. It’s similar to their appropriation of US technology, trademarks, and other intellectual property. We are literally selling them the rope. 

The perils of whimsical regulatory changes by the Chinese authorities are now increasing,

About $16bn was wiped from the value of three major Chinese education companies listed in New York trading on Friday after a leaked memo suggested that Beijing might ban academic tutors from making a profit. The document, dated July 19 and seen by the Financial Times, requires home-schooling or off-campus education companies to register for non-profit status and bars local authorities from approving any new agencies. If the measures are enacted, it would be a heavy blow for one of China’s fastest-growing industries: tutoring children outside of school and preparing teenagers for university entrance exams. Share prices in some of China’s largest education companies plunged on the news. TAL Education, Gaotu Techedu and New Oriental Education, which are listed in New York and previously had a combined market value of more than $26bn, all fell close to 60 per cent in the first hour of trading.

This follows the now infamous crackdown on the ride-hailing firm Didi Global,

On July 2, just two days after Goldman Sachs, J.P. Morgan and Morgan Stanley launched an initial public offering for the Chinese ride-hailing app Didi on the New York Stock Exchange, Chinese regulators cracked down on the company hard. Citing data privacy concerns, the Chinese government ordered the removal of Didi’s app from app stores, pending an opaque national security review process. As a result, the stock has lost 30 percent of its value since shortly after its IPO, when investors, most of them from the United States, put $4.4 billion into the company.

US investors love for Chinese stocks may well have ended.  

7. Long read on the complex operational management of the National Load Dispatch Centre for the national electricity grid, the largest synchronous grid in the world.

8. Fascinating FT article about Inditex's supply and distribution chain automation. 

Because of its fast supply chains — just three weeks between design approval and going on sale — Inditex can alter and add to its range in midseason, responding to consumer demand. It churns out 65,000 new designs a year, delivering the latest garments to its network of stores at least twice a week... “The essence of our strategy at Inditex is the same as ever: flexibility in our business model, the integration of logistics, manufacture and design; production close to hand; and a capacity to react from moment to moment,” says Pablo Isla, executive chair of Inditex.

This captures the essence of Inditex's success

Because of its fast supply chains — just three weeks between design approval and going on sale — Inditex can alter and add to its range in midseason, responding to consumer demand. It churns out 65,000 new designs a year, delivering the latest garments to its network of stores at least twice a week. The group says its approach is based on “pull” rather than “push”. Inditex does not spend significantly on advertising, but 20m people view its products every day online on its apps or social media. It prefers to buy prime locations for its outlets. Prime real estate — Ortega’s big bet in investing his personal fortune — remains at the heart of what Inditex does. “The essence of our strategy at Inditex is the same as ever: flexibility in our business model, the integration of logistics, manufacture and design; production close to hand; and a capacity to react from moment to moment,” says Isla.

9. Reliance Jio has 426 million users and over 100 million smart JioPhones. And the ultimate objective of the Jio system is to become something like the WeChat of India, the master aggregator platform of choice for any service. However, despite this dominance, its performance has been remarkably deficient,

Only four Jio apps are in the top 100 of Google’s Play Store, according to App Annie, including the music streaming app JioSaavn and MyJio, which bundles together several services like phone top-ups or quizzes. Jio’s chat and shopping apps trail behind rivals... it remains behind on metrics such as app downloads, revenue and basket size, according to brokerage Motilal Oswal. A partnership with Facebook to offer the service through WhatsApp is still in trials more than a year after it was announced.

10. Scott Galloway has a searing takedown of the vanity space flights of Jeff Bezos and Richard Branson,

But if Mr. Bezos was genuine about doing something more than crashing a canary yellow T-top Corvette into a Bosley for Men franchise, he could raise the minimum wage at his firm to $20/hour... After his flight, Bezos said, “I want to thank every Amazon employee, and every Amazon customer, because you guys paid for all this.” He’s right. We did pay for it. Eighty-two percent of American households are Prime members, and the company has 1,298,000 employees. We also paid for the Apollo program, of course, only there’s a difference. To put Neil Armstrong on the moon, we paid taxes, and elected representatives to decide how to spend them.

11. In the context of social loafing while working from home, Sandeep Goyal points to Ringelmann experiment,

One of the first experiments in social loafing was conducted by French agricultural engineer, Max Ringelmann, in 1913 when he studied the pulling power of horses. He concluded that the power of two animals pulling a coach did not equal twice the power of a single horse. It was, in fact, considerably less. Surprised by the result, Ringelmann extended his research to humans. He had several men pull a rope and measured the force applied by each individual. On an average, if two people were pulling together, each invested just 93 per cent of his individual strength; when three pulled together, it was 85 per cent; and with eight people pulling, just 49 per cent of individual strength was exerted by each team member. Ringelmann’s findings more than a century ago created ripples in the emerging study of human resource (HR) management, effectively puncturing the concept of teamwork. Ringelmann called this the “social loafing” effect and posited that when individual performance is not directly visible, it blends into a group effort where every team member actually “cheats” a little, though not always consciously.

12. An FT investigation shows that vaccines have made Covid 19 far less fatal.

 And the impact of vaccines in terms of avoided hospitalisation.

13. Business Standard points to a new study by PHFI on who gets the healthcare subsidies in India. It found that the richest quintile corners 26.7% of all in-patient care subsidies.

The wealthiest 40% get 48% of subsidies, compared to 30.6% for the poorest 40%. In case of out-patient care, the wealthiest quintile cornered 30.2% of subsidies to 17% for the poorest quintile. 

Even with Ayushman Bharat, just 16% of all hospitalisations were covered under that.

The perils of excessive specialisation and outsourcing - infrastructure and insurance

I blogged here examining the claims of Infrastructure Investment Trusts (InVits). 

At a basic level, an InVits is an example of unbundling and specialisation in the financing and management of infrastructure projects. There is a project sponsor or promoter who constitutes the InVit; a fund manager who is contracted out the responsibility of managing the investment; a project manager who is entrusted the execution of the project (say, construction or operation and maintenance); and a neutral referee or Trustee. What does this entail in terms of successful management of the scheme?

One, the project has to generate enough revenues to support atleast three purely commercial business lines (sponsor, fund manager, and project manager). Second, given the numerous conflicts of interests (related party transactions, revolving door of personnel etc) and incentive distortions (arising from holding durations etc), the Trustee/Board has to both have the expertise to monitor them and also the commitment to adhere to exceptional standards of governance in resolving issues as required. 

We know that infrastructure is low return asset. These commercial returns have to be squeezed out from this asset. The inevitable consequence is, as is well documented, asset-stripping and renegotiations, with all their public losses and controversies (see this). As to governance expectations from the Trustee, the stakes associated and the revolving door of personnel across different categories of intermediaries makes it perhaps too unrealistic.  

Take another example, of a national health insurance scheme that targets predominantly those outside the formal employment. There is a similar debate about the relative merits of a pure insurance and a public Trust-based insurance system. Like with InVits, an insurance system too has its set of intermediaries. There is a third party authoriser who contracted the pre-authorisations for insurance claims, the sponsor who issues the insurance, and the fund manager who manages the investments for the sponsor. 

Any health insurance scheme runs on three levels of diversification - across patients, across medical conditions, and across time. As I blogged earlier here, when the risk pool is mostly homogenous and consists of high-risk population category (poor), there are limits to such diversification. It is no surprise that such schemes have claims ratio which is pretty much close to 100%. And this is not to speak of the large subsidy in the premiums themselves. 

Therefore, the relevance of the traditional models of specialised commercial insurance become questionable. Neither are the margins enough to sustain them, nor is there likely to be a large enough portfolio of long-term capital that would need to be managed. 

Instead, a more likely effective approach would be a public Trust, which is professionally administered and is managed through appropriately designed service contract(s). Given that there is no getting away from public management of multiple contracts, it is a question of figuring out the the most prudent contract design that is consistent with the messy and uncertain practical realities of implementation. Fundamentally, the issue is about the state capacity to manage contracts. 

At a conceptual level, the limits to the Coasean bargain starts to become evident. The efficiency gains from splitting up activities and outsourcing them runs into both the costs associated with sustaining those individual business lines and the problems of managing the associated multiple contracts. 

It is important to keep this in mind as public policy encounters such financial engineering innovations in public contracting. Most such innovations, while irresistible in their logical appeal, have no track record of definitive success and endures just as is the case with such engineering in the regular financial markets. Unlike in case of the latter where private individuals are making choices with their money, in the case of infrastructure and subsidised health insurance, governments are putting tax payer money at risk. That requires a different level of scrutiny and standard for adoption. 

Postscript: 

Ananth sends me these comments on more reasons:

• Too many specialised roles make for dilution of responsibilities and only complicate simplicity
• What is the skin in the game for these financial entities? 
• Where is their expertise in managing infrastructure assets?
• Most importantly, what exactly is the underlying problem that is being solved or the gap being addressed? If there is none, why do we need a fix? - this might only make funding available for the limited category of financially viable assets. For majority of assets, where funding is needed and where cash flows can be turned over to the investors, the funding won't be available.

The seductive appeal of insurance for the poor

In the context of the interest within international development circles about using insurance (crop, health etc) and micro-pensions to help the poor, it is pertinent to point to the following.

1. In the US, 44% of households have wealth of less than $400 and will struggle to sustain themselves after retirement. Do we hear any one offering micro-pensions in the US? 

2. We have been implementing about crop-insurance in developing countries for decades. Why is it that there is not even one example of a commercially sustainable crop-insurance anywhere in a developing country? How is it that US, Europe and Japan prefers direct payments over crop insurance? 

3. Why is there not even one example of a developed country which has managed the health-insurance route to realising universal health coverage (UHC), rather than supplementing with insurance after good quality UHC has been achieved? Why is there not even one developing country (even a province within a country) which has managed to realise UHC through insurance? 

4. Finally, did any of these developed countries of today used insurance to mitigate the basic risks faced by the most vulnerable sections of their population at any stage in their development trajectory (though both health, property insurance for the broader population segment have been commonplace for decades)?

I have written earlier on micro-pensions, fintech, and financial engineering for the poor, highlighting their obvious limitations.

Certain narratives just endure no matter what. 

Consider any of these big problems - lack of savings among the poor, weather risk protection for farmers and small businesses, and protection against catastrophic medical episodes. If we take any geographical unit - country or province or city - and make an assessment of the average cost of damage suffered from the risk materialising each year, and the average premiums of a prospective plan to cover the same risk, we will realise that the former is far bigger, often multiples, of the latter. 

So developed countries address this by direct income transfers instead of crop insurance, social security instead of micro-pensions, and means-tested health insurance like Medicaid/NHS instead of  micro-health insurance. 

Just work backwards from the total money spent annually on direct income transfers to farmers, social security, and Medicaid/NHS and see how much it would translate into in terms of individual premiums on each if it were delivered as insurance. You will realise they are orders of magnitude off. 

Also remember that the risk-pools in all the three are among the riskiest among all insurable pools, thereby making their payout likelihood even more, thereby necessitating even more unaffordable premiums. Farmers completely vulnerable to the vagaries of weather whose incidence appears ever increasing, poor people who have very bad primary health care which in turn amplifies the likelihood of disease episodes.

Asking poor people who can barely eat three times a day to skimp on a quarter of their meal to save for a rainy day for a micro-pension (which in any case is most likely to be grossly insufficient at old age, given, among other things the high inflation rates) is not economically inefficient but plain unethical. 

In fact, instead of spending money on crop insurance, aid money could be more effectively used to help support drones and other technologies which help with making cheaper and faster assessments of crop-damages - this will help both governments (in their inevitable direct payments) and the broader insurance market itself.

Weekend reading links

1. Amazon's Mechanical Turk is the latest in the cost-minimising innovations with massive negative externalities on society.

Employers, known as requesters, post batches of what are called Human Intelligence Tasks, or HITs, on Mechanical Turk’s website. A task could be transcribing an invoice, or taking part in a study, or labeling photographs to train an artificial intelligence program... Most tasks pay a dime or less, and there is a daily churn of tasks that pay only a penny... People turk to save for a motorcycle. They turk to buy insulin. They turk to pay off debt or pass the time profitably while on the clock at a boring job. Some do it because there are few decent-paying jobs that can be done at will. People who are confined to their homes by disability or social anxiety or who live where there are few jobs do it because, despite lousy wages, it seems like the best option. Plenty turk full time. In a 2016 Pew Research Center survey of nearly 3,000 American turkers, a quarter said they made most or all of their earned income on the platform. More than half the turkers surveyed said they earned under $5 an hour. 

As little as turking appears to pay on paper, in practice it often pays less because MTurk, as it is known, is a sloppy, shoddy free-for-all. Turkers spend their time fighting requesters over an unfair 10-cent rejection or a missing 60-cent payment. They waste minutes filling out bubbles on defective questionnaires that cannot be submitted. They abandon “10-minute” surveys after half an hour. They swap horror stories and warnings on turker message boards (“rejection on a $0.50 hit,” read one recent bulletin, “reason is ‘funds were not allocated’”). They leave scathing reviews on the turker-run site Turkopticon (“unfair and wild use of the rejection button”). Just how much turkers make is the subject of considerable scholarly debate, but one paper published last year analyzed millions of tasks done by thousands of turkers. Though they probably overrepresented novice turkers like me who do the lowest-paying tasks, the paper’s authors concluded that if you count time spent looking for tasks and working on tasks that came to nothing, the median turker’s hourly wage was $1.77... 

Presiding over this production is the world’s biggest tech company, feet firmly planted on the sidelines. Amazon usually declines to get involved when turkers say requesters rip them off, even as it lets requesters hide behind aliases that can make them impossible to track down... Amazon even finds ways to recoup some of the pennies turkers earn, a reminder of the days when miners were paid in scrip redeemable only at the company store. While American turkers can get their wages direct-deposited, thousands of turkers overseas have only one way to get paid without incurring third-party fees: on an Amazon gift card... Minimum-wage laws generally do not apply to piecework jobs like turking. Mechanical Turk is now one of a handful of big players in the field known as crowdwork or microwork. (One crowdwork company, Prolific, used by academic researchers, enforces a minimum wage: $6.50 an hour.)

Crowdwork’s proponents see a gleaming future — a borderless, no-overhead labor market where task-creator and task-doer meet at the intersection of supply and demand. Its critics see a throwback to something more Dickensian, where the lack of regulation and accountability keeps workers in the dark and on the defensive. Mechanical Turk, in particular, combines the inconsistency and precariousness of gig work with Big Tech’s tendency to dodge liability for the icky things that happen on its platforms. 

2. The Economist has a nice article on the $3.5 trillion US healthcare industry, perhaps the most famous example of why unfettered markets do not work. Sample this,

The merger wave has increased concentration and pricing power. Brent Fulton of the University of California, Berkeley, found that 90% of America’s hospital markets, representing a population of over 200m, were highly concentrated. Zack Cooper of Yale University, whose team looked at insurance claims covering over a quarter of Americans with employer-provided health insurance, discovered that prices at hospitals with a local monopoly were 12% higher than in markets with four or more rivals. A study by an insurance-industry body concluded that consolidation cut costs by 15-30% at acquired hospitals, but average prices for hospital services still rose by between 6% and 18%.

According to the American Hospital Association, a lobby group, operating margins in the industry rose from 4.4% in 2007 to 6.4% in 2017. But many hospitals in rural areas, which suffer from undercapacity, and in poor urban areas, which have lots of uninsured patients, barely break even or lose money. Big for-profit chains like hca Healthcare, with around 180 hospitals, can enjoy high (if volatile) margins. Non-profit institutions often plough those gains into expansion or salaries.

And the incentives facing the different participants,

Patients are often not price-sensitive. They are either in need of urgent care, with no time to shop around, or have insurance, and so pay a fraction of the full cost (often nothing beyond an annual out-of-pocket limit). Insurers, for their part, care less about prices because they now make more money by managing health plans for self-insured employers than by managing risk. They may even like to see inflation rise, since they can take a bigger cut from a bigger base. A well-intentioned Obamacare rule forces insurers to pay out at least 80% of their revenue from premiums. But by capping margins, it encourages raising revenue, not efficiency—and higher costs can be used to justify higher premiums.

3. Excellent essay by Paul Graham on what goes behind the creation of a genius (HT: Rajeev Mantri),

An obsessive interest in a topic is both a proxy for ability and a substitute for determination. Unless you have sufficient mathematical aptitude, you won't find series interesting. And when you're obsessively interested in something, you don't need as much determination: you don't need to push yourself as hard when curiosity is pulling you. An obsessive interest will even bring you luck, to the extent anything can. Chance, as Pasteur said, favors the prepared mind, and if there's one thing an obsessed mind is, it's prepared. The disinterestedness of this kind of obsession is its most important feature. Not just because it's a filter for earnestness, but because it helps you discover new ideas... The popular story is that they simply have better vision: because they're so talented, they see paths that others miss. But if you look at the way great discoveries are made, that's not what happens. Darwin didn't pay closer attention to individual species than other people because he saw that this would lead to great discoveries, and they didn't. He was just really, really interested in such things. Darwin couldn't turn it off. Neither could Ramanujan. They didn't discover the hidden paths that they did because they seemed promising, but because they couldn't help it. That's what allowed them to follow paths that someone who was merely ambitious would have ignored.

The important thing is to cultivate disinterested obsessive interest in something which matters!

4. Livemint points to the tanking of one of the last remaining drivers of economic growth, the state governments capital investments. 

The value of new state government projects fell 75% over last year, and is the lowest in 15 years. This, at a time when across states, government funded capex has overtaken private capex as the major source of investment. 

The article also points to how UDAY, without the complementary power sectors reforms to lower losses and raise tariffs, has both weakened state government and discom finances and lowered investments in the power sector. 

5. A stunning snippet capturing the demographic shifts taking place,

Harvard has more students at its Division for Continuing Education (for mature and retired students) than it does at the university itself.

6. Much gloss has been applied on the recent Business Roundtable Declaration by over 180 leading US corporate executives pledging their allegiance to beyond shareholders to cover employees and customers.  Sample some of the reality behind it,

Most of the CEOs who pledge to fight climate change do not run firms that are responsible for it. Take the biggest 200 Western firms that disclose emission figures. Of these, the top 20 are responsible for 70% of all emissions: the other 180 don’t matter much... the accusations of hypocrisy: it is not hard to find. Nike, which has pushed virtuous branding, has been embroiled in a doping scandal. BlackRock, a fund manager that pushes other firms to invest more, spent over 100% of its own cashflow on buybacks in the past 12 months. Visa signed the Roundtable letter championing customers, but is part of a payments oligopoly. 

7. Finally a call for industrial policy to recover America's lost manufacturing competitiveness,

This national effort—call it Industrial Policy 2.0—should focus on ensuring that hardware innovations are manufactured in this country. The idea is not to recover lost industries but to rebuild lost capabilities. The U.S. needs to leverage its dominance in science and technology to create future industries, to provide us with first-mover advantages and reclaim American leadership in manufacturing. The first step would be to create a new federal agency responsible for the health of U.S. manufacturing. A number of agencies currently have manufacturing-related programs, but there is little or no coordination or strategy. Defense alone cannot solve this challenge because defense procurement needs are dwarfed by commercial markets, and defense-specific technologies may have few commercial applications. A new agency is needed to signal new priorities. This National Manufacturing Foundation, as it could be called, would be a cabinet-level agency focused on rebuilding America’s industrial commons and translating our scientific knowledge into new products and processes.

Weekend reading links

1. When delays and cost over-runs in infrastructure projects are passe, the Mumbai metro rail project appears an impressive achievement.

More than 8,000 workers and a fleet of 360-foot-long boring machines are working 24 hours a day—even through monsoon rains—to finish the 27-station, 21-mile subway through some of the world’s most densely populated neighborhoods, around the edge of one of Asia’s biggest slums, below an airport and under temples and colonial buildings to end at a green edge of forest where leopards still roam. The train is also cutting a path through the country’s religious traditions, legal system and every layer of its society, with challenges at each stop... Despite the difficulties, the subway, which was started in 2016, is now getting built at a pace of just over one mile a month. So far, 9 miles are complete. The $3.3 billion “Metro Line 3,” Mumbai’s first underground train, is on track to be finished and open by the end of 2021.

All the more so given that this is not a PPP but a purely public project.

2. A good article by Rohit Prasad in Mint about the farm loan waivers and corporate NPA write-off equivalence.

The equivalence arises when conditions warrant that the state must indirectly bear the burden of corporate NPAs by infusing funds into banks, as had happened in the US following the 2008 financial crisis and as is happening now in India. Equivalence can also be drawn when the problem of corporate NPAs repeats itself in the same sectors implying that, for some reason, banks keep lending to the same sectors even in the absence of structural improvements... Another ground for equivalence arises if the resources of the exchequer are used to buoy companies that would otherwise go into bankruptcy. 

And this is interesting,

It is true that there has been a marked increase in the share of large loans in agriculture since 1990. In the same vein, the top 12 corporate houses received close to 15% of ₹70-80 trillion in total advances to the corporate sector and accounted for approximately 25% of the NPAs. The share of these borrowers in credit from the formal sector is almost the same as that of the entire agriculture sector. Four of these have been resolved within a year with about 52% recovery, representing only 14% of the dues from these 12 accounts.

And this point about the agriculture cross-subsidy, from farmers to (especially urban) consumers,

It is believed that food prices for consumers must be kept low through restrictions on farmers and subsidies to consumers. The Organization for Economic Co-operation and Development (OECD) estimates that the average yearly revenue lost by Indian farmers between 2014 and 2016 on account of export restrictions, net of subsidies received, is ₹1.65 trillion... Historical performance shows that the credit quality of large corporate borrowers is not superior to that of agriculture/priority sector lending. In that context, interest rates charged by banks to large corporate borrowers have been kept artificially low and incommensurate with the risks involved.

Even in terms of incentives, the distortions are similar.

3. Very interesting extract from a chapter by Christophe Jaffrelot on the Gujarat model in a new book on business and politics in India. Drives home the point about the relative superiority of growth that is built on SMEs than on a few large businesses. Sample this,

In the Nano plant, out of 2,200 employees, 430 are “permanent workers”. They earned ₹12,500 in 2016, whereas the informal workers earned about ₹3,300 a month... in 2013, Gujarati industry represented 17.7% of the fixed capital of India but only 9.8% of the factory jobs, whereas the industry of Tamil Nadu represented 9.8% of the fixed capital but 16% of the factory jobs.

4. The problem with many PPP policies is that about attendant downstream policy interventions that distort markets. For example, creating the private sector supply-side for Ayushman Bharat by providing land and/or viability gap funding to establish private hospitals in smaller towns. In addition, other subsidies like interest subvention on loans, electricity at residential rates etc are being proposed.

For weak states, which struggle to effectively regulate even those small number of existing PPP and other subsidised private facilities, this expansion of contract management may prove simply unmanageable. And worse, private hospitals know this is most certain and unscrupulous promoters will bid to capture the land or subsidy. Every major Indian city has public land allotted to large private hospitals with contractual obligations to provide some share of free/subsidised care to poor patients, and perhaps no city has been able to enforce them.

Further, apart from the monopoly problems in smaller towns, there is also the problem of private providers across the state coming together and holding the state to ransom demanding periodic unreasonable rate increases. The case of Aarogyasri is well known.

Amidst all this, nobody seems to be talking about the one obvious solution to address the problem, strengthening and expanding public facilities.

5. Fascinating account of the trolley problem in different cultures, economies, and geographies.

Participants from collectivist cultures like China and Japan are less likely to spare the young over the old—perhaps, the researchers hypothesized, because of a greater emphasis on respecting the elderly. Similarly, participants from poorer countries with weaker institutions are more tolerant of jaywalkers versus pedestrians who cross legally. And participants from countries with a high level of economic inequality show greater gaps between the treatment of individuals with high and low social status. And, in what boils down to the essential question of the trolley problem, the researchers found that the sheer number of people in harm’s way wasn’t always the dominant factor in choosing which group should be spared. The results showed that participants from individualistic cultures, like the UK and US, placed a stronger emphasis on sparing more lives given all the other choices—perhaps, in the authors' views, because of the greater emphasis on the value of each individual. Countries within close proximity to one another also showed closer moral preferences, with three dominant clusters in the West, East, and South.

6. Ananth points to this excellent Lynn Stout article which lays bare the critique against modern finance. Its questions the arguments about finance's role in capital raising, liquidity provision, and resource allocation. This is the summary,

Doctors and nurses make patients healthier. Firefighters and EMTs save lives. Telecommunications companies and smart phone manufacturers permit people to communicate with each other at a distance. Automobile executives and airline pilots help people close that distance. Teachers and professors help students learn. Wall Street bankers help—mostly just themselves.

7. Evidence (HT: MR) that traders exhibit greater skill and rationality while buying than when selling,

Most research on heuristics and biases in financial decision-making has focused on non-experts, such as retail investors who hold modest portfolios. We use a unique data set to show that financial market experts - institutional investors with portfolios averaging $573 million - exhibit costly, systematic biases. A striking finding emerges: while investors display clear skill in buying, their selling decisions underperform substantially - even relative to strategies involving no skill such as randomly selling existing positions - in terms of both benchmark-adjusted and risk-adjusted returns. We present evidence consistent with limited attention as a key driver of this discrepancy, with investors devoting more attentional resources to buy decisions than sell decisions. When attentional resources are more likely to be equally distributed between prospective purchases and sales, specifically around company earnings announcement days, stocks sold outperform counterfactual strategies similar to buys. We document managers' use of a heuristic that overweights a salient attribute of portfolio assets - past returns - when selling, whereas we do not observe similar heuristic use for buys. Assets with extreme returns are more than 50% more likely to be sold than those that just under- or over-performed. Finally, we document that the use of the heuristic appears to a mistake and is linked empirically with substantial overall underperformance in selling.

8. Nice article by Shailesh Chitnis in Mint on the state of startup universe. Among the world's fastest growing startups, just 9% are apparently doing truly innovative and cutting-edge work. Just 27 of the world's 289 unicorns, which have sucked in $980 bn in investment capital, are creating innovative new products. Sample this on how innovation is getting more expensive,

Nicholas Bloom, an economist at Stanford University, and his colleagues studied research productivity across a variety of sectors. Their findings suggest that the cost of finding new ideas has increased, both financially and in the number of researchers needed. In aggregate, they compute that research productivity falls in half every 13 years. To maintain a constant growth in per capita GDP, the US must double the amount of research effort every 13 years. Simply put, coming up with new ideas is getting more expensive... The number of researchers required to double chip density today is more than 18 times larger than the number required in the early 1970s.

9. Finally, from Marginal Revolution, this is a superb economics cheat sheet.