Weekend reading links

1. Robin Harding writes that AI advances may not help much in the development of humanoid robots.

The obstacles to making an economically viable robot that can cook dinner and clean the toilets are a matter of hardware, not just software, and AI does not in itself address, let alone resolve them. These physical challenges are many and difficult. For example, a human arm or leg is moved by muscles, whereas a robotic limb must be actuated by motors. Each axis of motion through which the limb must move requires more motors. All of this is doable, as the robotic arms in factories demonstrate, but the high-performance motors, gears and transmissions involved create bulk, cost, power requirements and multiple components that can and will break down. After creating the desired motion, there is the challenge of sensing and feedback. If you pick up a piece of fruit, for example, then the human nerves in your hand will tell you how soft it feels and how hard you can afford to squeeze it. 

You can taste whether food is cooked and smell whether it is burning. None of those senses is easy to provide for a robot, and to the extent they are possible, they add more cost. Machine vision and AI may compensate, by observing whether the fruit is squashed or the food in the pan has gone the right colour, but they are an imperfect substitute. Then there is the issue of power. Any autonomous machine needs its own energy source. The robot arms in factories are plugged into the mains. They cannot move around. A humanoid robot is most likely to use a battery, but then there are trade-offs with bulk, power, strength, flexibility, operating time, usable life and cost. These are just some of the problems.

2. Nvidia does not seem to agree as it bets on robotocs as its next big growth driver. 

Nvidia... is set to launch its latest generation of compact computers for humanoid robots — dubbed Jetson Thor — in the first half of 2025. Nvidia is positioning itself to be the leading platform for what the tech group believes is an imminent robotics revolution. The company sells a “full stack” solution, from the layers of software for training AI-powered robots to the chips that go into them... The push into robotics comes as Nvidia is experiencing more competition for its powerful AI chips from rival chipmakers such as AMD, as well as cloud computing groups such as Amazon, Microsoft and Google that are looking to reduce their dependence on the US semiconductor group... a shift in the robotics market is being driven by two technological breakthroughs: the explosion of generative AI models and the ability to train robots on these foundational models using simulated environments. The latter has been a particularly significant development as it helps solve what roboticists call the “Sim-to-Real gap”, ensuring robots trained in virtual environments can operate effectively in the real world, he said... Nvidia offers tools at three stages of robotics development: software for training foundational models, which comes from Nvidia’s “DGX” system; simulations of real-world environments in its “Omniverse” platform; and the hardware to go inside the robots as its “brain”.

3. Pakistan drastically reduces pension benefits of retired civil and armed forces personnel to reduce its growing pension bill, the fourth largest expenditure in the budget. 

The Ministry of Finance on Wednesday issued three separate notifications to discontinue multiple pensions, reducing both the first home take pension and also lowering the base for determining future increases in pensions... According to the Ministry of Finance’s notification, on the recommendations of the Pay and Pension Commission of 2020, “it has been decided that henceforth, in an event where a person becomes entitled to more than one pension, such person shall only be authorised to opt to draw one of the pensions”... Instead of taking a pension on the basis of the last drawn salary, the new pensioner will get a pension based on the average salary of the last two years... It also ended the annual compounding of the pension and any increase would be treated separately from the base pension, a concept that is similar to the ad-hoc salary increase that is not made part of the basic salary to avoid compounding. The changes will take effect from January 1 and will be applicable to both retired civil and military personnel. Many serving federal government employees, who are taking salary and pension, would also be affected by the changes. The finance ministry’s notifications stated that the changes in the pension rules have been made on the basis of recommendations given by a commission constituted by the government of former prime minister Imran Khan in 2020.

4. A good description of how Chinese exporters are responding to US tariffs.

In industry after industry, Chinese companies have found footholds abroad that allow them to bypass trade barriers with the United States. After the United States put hefty tariffs on Chinese solar panels, for example, many Chinese companies opened solar factories in Southeast Asia... U.S. efforts to block critical minerals and electric vehicle batteries from China from receiving government subsidies have also pushed Chinese companies to set up battery-making subsidiaries in Morocco and Singapore... In some cases, global companies have also used accounting and tax tricks to make it appear that their shipments from China are lower, and thus pay fewer tariffs, without making major changes to their supply chains... For example, an electronics company might move one important stage of its supply chain out of China and into Vietnam. That could allow the company to report to U.S. customs agents that the export came from Vietnam, even if the good is still finished in China and exported from China to the United States. Another lever companies could play with, Ms. Brown said, is valuation. They can officially lower the value of the import by stripping out certain “intangible” costs, like payments for intellectual property, royalties, brand or research and development, and recording those to other global subsidiaries. By lowering the value of the import, they then pay a lower tariff.

5. Important point about the origins of uncertainty and risks in the global order today.

According to John Ikenberry of Princeton University, a leading theorist of international relations, “a revisionist state has arrived on the scene to contest the liberal international order . . . it is the United States... Trump is poised to contest almost every element of the liberal international order — trade, alliances, migration, multilateralism, solidarity between democracies, human rights”. As a result, rather than supporting the international status quo, the US is poised to become the leading disrupter. “Every talk I’ve ever given on the geopolitical risks that we face in the world started with China and Russia,” says Ivo Daalder of the Chicago Council on Global Affairs. “But the biggest risk is us. It’s America.” America’s traditional allies are among the countries that feel most threatened by a change in the way that the US exercises its power. Middle-power democracies such as the UK, Japan, Canada, South Korea, Germany and the entire EU have got used to a world in which American markets are open — and the US provides a security guarantee against threatening authoritarian powers... The question of whether and how to respond to Trump tariffs is exercising diplomatic minds across the western world. Finding an answer is all the more difficult because Trump’s true intentions remain unclear.

6. Interesting inequality trends

So we have seen no increase in aggregate inequality. The story for the lowest-paid is unambiguously good but for the bulk of people who sit somewhere in the middle, it could be argued that the two divergent trends combine for a decidedly uncomfortable situation. If the middle class looks upwards, the rich are pulling further away. A top-tier life feels further out of reach than ever. But look down, and the floor is coming up fast. This simultaneous rise of resentment and precarity is a dangerous cocktail, and could certainly have fed into recent political undercurrents.

Professions once considered aspirational are at the sharp end. In Britain, doctors, nurses and police officers have all been slipping down the income rankings in recent years. In the US, the highest-paying jobs are increasingly shared among a handful of ultra-high-status occupations. Tech workers now account for one in six of the top 5 per cent of salaries, up from one in 20 in 1990... In the 1980s, 40 per cent of the highest-paying jobs in America didn’t require a degree. The upper reaches of the income scale included plenty of engineers and doctors, but also senior schoolteachers and the most skilled factory and construction workers. People from all sorts of backgrounds with all sorts of skillsets could dream of making it. Today, the upper part of the scale is dominated by highly skilled tech and healthcare workers. Almost half of the top jobs require an advanced degree. And a huge section of the population knows at a pretty early age they’re not on that path.

7. Some numbers of household savings in India.

Net household financial savings in India rose from 7.7 per cent of gross domestic product (GDP) in 2019-20 to 11.7 per cent in 2020-21, largely because of precautionary and forced savings during the pandemic, but moderated thereafter to a multi-decade low of 5.3 per cent in 2022-23... The share of low-cost current and savings accounts in total deposits has declined the past few years from a peak of 44-45 per cent in recent years to 38-39 per cent. In contrast, mutual funds, especially equity and hybrid schemes, have seen a surge in inflows and have delivered higher returns over the past few years. The share of mutual funds constituted around 6.1 per cent of household savings in 2022-23, with the number of mutual-fund folios jumping from 146 million at the end of 2022-23 to 178 million at the end of 2023-24.

8. Finally, after years of wrangling including several lawsuits, congestion pricing in busy hours goes live in mid-town Manhattan from the morning of 6th January.

Most passenger cars will now have to pay $9 to enter Manhattan south of 60th Street at peak hours, rather than the original $15. Small trucks will have to pay $14.40; large trucks, $21.60. Discounted rates will be offered overnight when there is less traffic. M.T.A. leaders expect the new tolls to help generate $15 billion through bond financing that will pay for a long list of transit repairs and improvements, including modernizing subway signals and stations and expanding the electric bus fleet... State officials said the original plan was expected to reduce the number of vehicles in the congestion zone by roughly 17 percent. They have not specified how the scaled-back program will compare except to say they expect it to cut traffic by at least 10 percent... The tolling plan also does not directly charge drivers and owners of for-hire vehicles, which have exploded on city streets since Uber’s arrival in 2011. Instead, a small per-trip fee — $1.50 for Ubers and Lyfts; 75 cents for taxis — will be added to each fare and paid by passengers... Within the congestion zone, the average travel speed has dropped to under 7 miles an hour for the first time since records were kept in the 1970s, he said. The slowest traffic crawls along at just 4.7 miles per hour in Midtown.

See also this.  

9. As Saudi Arabia wins the bid for the 2034 Football World Cup, FT writes on the country's ongoing boom in infrastructure investments.

Saudi Arabia has launched real estate and infrastructure projects worth $1.3tn since Vision 2030 was unveiled in 2016, according to estimates by consultancy Knight Frank. These projects, such as the Neom linear smart city, include adding more than 362,000 hotel rooms and 7.4mn square metres in retail space. Football has become one of Prince Mohammed’s prime targets for sporting investment. The country’s sovereign wealth fund acquired English Premier League side Newcastle United, while superstars such as Ronaldo and Neymar have been lured to play in the Saudi Pro League. Saudi Arabia’s bid said the 48-team World Cup would be played in 15 stadiums across five cities. Eight stadiums would be in or close to Riyadh, which is already undergoing a construction boom that includes an entertainment zone to the west and a major expansion to the capital’s airport.

10. Adam Tooze points to a UNTD report that highlights the large differences in the cost of debt between Western countries and low-income ones.

11. Doing business, Huawei style.

Huawei’s first business was importing telephone switches before building its own, cheaper versions, copying foreign designs in the process. It later benefited from a government policy to rip out foreign technology in China’s communications network. Huawei developed a reputation for generosity towards government officials and telecoms executives, paying for international travel and hosting lavish banquets at its campus. Dou portrays Ren as an expert networker, including sending birthday cakes to retired telecoms experts who had helped Huawei.

12. Divisions in the Trump coalition that will only grow.

The Maga crowd and the globalists disagree not only on immigration, but on defence, employment and free speech. This is a coalition whose most significant overlap was a desire to take down the previous government. Now that they have, I think it’s unlikely they’ll come together on anything else.

13. Stunning figures about the US economy from Ruchir Sharma

Following the pandemic, government spending rose sharply as a share of GDP. More than 20 per cent of new US jobs are now created by government, up from 1 per cent in the 2010s. Public transfers including Social Security account for more than a quarter of residents’ income in more than 50 per cent of US counties — up from just 10 per cent in 2000.

14. Corporate India's acute deficit of global brands

Many Indian brands have either disappeared or ceded space to foreign competition. Where Onida and Videocon once dominated the domestic market for TVs, washing machines, and household appliances, Japanese, Korean, and, increasingly, Chinese brands now rule the showrooms. In cars, the Premier Padmini and Ambassador vanished when Japan’s Suzuki set up its joint venture to launch the Maruti, an Indian brand only in name. Here, too, it is the Japanese, Koreans, Germans, and Chinese that offer consumer choices, with Tata and Mahindra & Mahindra being the only indigenous exceptions. In fast-moving consumer goods, brands such as Anchor, Nirma, Uncle Chipps, and Binny’s, which once gave multinational players a run for their money, have all vanished or receded to the margins of the market... The abdication of Indian brands to global competition — with many of them converting themselves into contract manufacturers — reflects the lack of long-term thinking and strategic imagination, which are critical to brand-building.

15. This is what US Treasury Secretary-nominee Scott Bessent thinks.

Bessent has also suggested that countries with military protection from America should be forced to buy more dollar debt, as a quid pro quo. “Is there some kind of statecraft to do where you go to [these countries] and say we have these 40- or 50-year military bonds [to buy]?” he said, citing Japan, Nato members and Saudi Arabia.

16. Finally, Tej Parikh presents some facts about European stocks that go against conventional wisdom. Excluding Nvidia, European stocks outperform S&P 500 since the latest bull market started in October 2022!

European stocks are undervalued compared to their American peers.

Tech accounts for around just 8 per cent of the Stoxx Europe 600. AI euphoria has mostly passed the continent by... The Granolas... covers a diverse group of international companies spanning the pharmaceutical, consumer and health sectors. Together, they account for about one-fifth of the Stoxx 600. Their performance against the Magnificent Seven has only recently diverged. The S&P 500 — which has around 70 per cent revenue exposure to the US — got a jolt following the election of Donald Trump... Small listed European businesses also tend to outperform their American counterparts. About 40 per cent of US small caps have negative earnings, compared with just over 10 per cent in Europe. The winner-takes-all dynamic may be stronger in the US, where tech behemoths suck capital and talent away from smaller companies... European corporates also rely more on relationship-based, illiquid funding, unlike in the US, where listed equity dominates. That may encourage longer-term corporate governance in Europe... Regarding the Trump tariff threat, it’s not all disaster for European companies either. Stoxx 600 groups derive only 40 per cent of their revenues from the continent... A stronger dollar would also boost the earnings of European companies with sizeable US sales.

Weekend reading links

1. On the politics of congestion pricing,

The state of New Jersey has sued to suspend the rollout of the first congestion charge in the US, planned for cars driving through central Manhattan, saying that such a scheme would divert pollution to neighbouring areas and impose an unfair cost on commuters crossing the Hudson river. In a complaint filed in federal court on Friday, New Jersey accused government agencies of turning “a blind eye” to the environmental effects of the charge on the Garden State when agreeing to approve the scheme last month, and administrators in New York of failing to distribute the proceeds of such a scheme fairly across the broader metropolitan region. The intervention by New Jersey comes just hours after Britain’s Conservative party narrowly hung on to a seat previously held by Boris Johnson on the outskirts of London, in a victory widely attributed to anger at the expansion of the city’s Ultra Low Emission Zone...

Last month, the Federal Highway Administration approved the proposed scheme, which aims to generate $15bn in revenue for the MTA, New York’s perennially cash-strapped public transport body, by charging drivers to enter Manhattan below 60th Street. The precise charge has not been established but is reported to be as high as $23 a day for some drivers. New Jersey’s governor Phil Murphy has long condemned the scheme as unfair to the 400,000 residents of the state who commute to Manhattan daily, and vowed to explore all legal options to frustrate its implementation. His state has passed legislation that gives tax incentives to businesses in a retaliatory attempt to lure them away from New York. This year, New Jersey also rolled out billboard advertisements across New York, with slogans such as “Paying a congestion tax to sit in NYC traffic? Get outta here” — and a call for passers-by to consider relocating to New Jersey. “We can’t fix a broken MTA in New York City on the back of New Jersey commuters,” Murphy said this month. “It’s a huge tax on them, and frankly, it challenges our environment because of all the rerouting of traffic.”

2. Scott Galloway points to how government actions were central to the post-war economic growth. Not only did these actions quickly shift the economy away from war production (in 1945, 40% of GDP went to the war effort, compared to 3% today, and jobs had to be found for 10 million youth leaving military service). 

Underlying this prosperity was robust state support. The G.I. Bill funded college for 2 million soldiers and home loans and small business loans for hundreds of thousands more. Truman’s housing legislation expanded the government’s role in building homes and financing home ownership. Eisenhower launched a 40-year project to build a national highway system, at a cost of over $500 billion in today’s dollars. Income taxes were progressive — the top rate was 91% — and the wealth of the biggest earners was redistributed through social programs and investments in infrastructure, education, and science. The greatest innovation in the history of the West, the American middle class, was the product of intentional and sustained public investment. Our retreat from that vision has led to decades of prosperity, but little progress. We’ve slid into a cascading pattern of failure — to rear, educate, and employ young men. Returning to our tradition of investment could rebuild the engine of capitalism and reverse the slide in their fortunes.

3. Excellent NYT visualisation story on how private developers who got additional floor-space and other building concessions in return for developing and maintaining public spaces in their properties have reneged on their commitments. Building regulation violations are universal, only their nature varies across countries.  

The plaza at 325 Fifth Avenue is just one example of a privately owned public space, commonly known as a POPS, that has not been maintained according to the developer’s agreement with the city. These agreements allow developers to build larger towers and earn more revenue in exchange for providing public spaces. In December, the Department of Buildings completed its three-year inspection cycle and found that about one in five of the properties violated the terms of their agreements. The lack of compliance with the law has been a problem for years. The city’s inspectors have issued violations to half of the 392 buildings with such spaces since 2011, according to a Department of Buildings dataset. The standard penalty for a violation is $5,000, which is a fraction of the value of the bonus space developers receive from the agreements. For example, the owners of 325 Fifth Avenue have been assessed a total of $54,000 in penalties since 2015. By contrast, the bonus floor area that the developers gained could be worth approximately $80 million if used for residential space, based on 2022 sales prices provided by Jonathan J. Miller, a New York City real estate appraiser.

4. On labour rights suppression at Starbucks,

The hectic, high-risk pandemic shifts had racked up record profits for Starbucks, but left many of the baristas exhausted and embittered. Workers at one cafe after the next were voting to unionize — more than 330 of its thousands of locations so far. Their demands include better pay ($20 an hour minimum for baristas, with annual raises), fair and consistent scheduling and easier access to the benefits that Starbucks executives were always touting... a sobering picture of employee rights casually crushed and labor laws too weak to help. Starbucks continues to fight and appeal the many labor complaints pending against it and maintains that the company has done nothing wrong.

But these professions of innocence are countered by piles of testimony from workers and National Labor Relations Board findings suggesting that Starbucks has indeed illegally repressed employees’ rights. The company has so far racked up a staggering number of complaints from the agency. In 100 cases, many of which consolidate a number of incidents, regional N.L.R.B. offices have decided there is sufficient evidence to pursue litigation against Starbucks. That includes a nationwide complaint, consolidating 32 charges across 28 states, alleging that Starbucks failed or refused to bargain with union representatives from 163 cafes... as strikes and union drives erupt across the economy, the coffee workers’ struggle illuminates the stark and sometimes insurmountable challenges confronted by ordinary American workers who try to exercise their right to organize.

That Starbucks is carrying on this campaign in plain sight may be the most damning aspect: Union busting is illegal, but consequences are inconsequential. The Starbucks case demonstrates that a large corporation can effectively bust a union with time, by dithering over details and exhausting legal appeals. According to national labor laws, an employer “must bargain in good faith.” But that is a squishy and essentially unenforceable rule. Starbucks may yet succeed in smothering one of the most energized labor movements of our time... The company has been accused of deploying familiar anti-labor tactics, such as the shuttering of some union stronghold cafes... Union activists reported being spied upon, harassed or fired on flimsy pretexts, complaints that Starbucks disputes. But Starbucks has also done a lot of nothing — time-buying, morale-eroding, innocent-seeming nothing.

And this

Howard Schultz, a steely eyed, self-made former Starbucks chief executive, has told his story all over the country: the impoverished childhood in shoddy housing; the disabled and mistreated father; final vindication through the achievement of theAmerican dream, a phrase he likes to use. It’s a good story, and we bought it — we bought his coffee at a premium price, and we bought him, too. Hillary Clinton, by many accounts, planned to nominate Mr. Schultz for labor secretary if she’d won the presidential election in 2016. Mr. Schultz himself has toyed with the idea of running for president. Mr. Schultz frequently lectures people about having built a “different kind of company” that respects the rights of employees, whom he calls partners. An empty chair gapes at every board meeting in a symbolic nod to the partners, who may or may not feel gratified at being represented by a piece of furniture. 

When the recent wave of labor organizing first started to foment among Starbucks workers in Buffalo, Mr. Schultz was one of the corporate luminaries who jetted into town to discourage the union. It didn’t work, though — in 2021, a Buffalo Starbucks became the first company-owned cafe to unionize, and other stores quickly followed. Mr. Schultz greeted the union with an indignation that has yet to fade. He has flouted an N.L.R.B. order to apologize to his workers and to film and distribute a video explaining his employees’ rights.

This a teachable example about the problem with today's centre-left politics. A liberal newspaper like NYT highlights the cause of workers at Starbucks and liberal intellectuals and politicians passionately argue in favour of worker protections and rail against corporate high-handedness. Most of these liberals also wear their ideologies on their sleeves and embrace them in their personal lives (energy and water conservation, organic and local food, environmental protection etc).

The only problem is that this embrace is only when it's convenient. How many liberals are willing to boycott Starbucks and walk the talk on their pro-labour and pro-union professions? I would not be surprised if the article itself was written and edited while sipping Starbucks! But it's encouraging that the Times is exposing such practices among very high profile abusers. 

This hypocrisy is widespread. The liberals are deeply enmeshed with Big Tech and Wall Street firms whose activities engender some of the most damaging social problems and economic perversions. You can't be a honest protagonist against these problems (and the firms creating them) when you also benefit from the same companies. 

5. Simon Kuper asks whether we are at overtourism or peak tourism, given the sharp increase in tourist traffic, and points to governments now taking action to reverse tourism.

The official number of international tourist arrivals doubled from 1998 through 2019, to 2.4bn a year... In Barcelona, to cite an extreme case, the number of tourists staying in hotels jumped from 1.7mn in 1990 to 9.5mn in 2019 — a number that excludes the city’s Airbnbs, some of them entire buildings that have been removed from the local housing market and essentially offshored. Barcelona is one of several places that risk becoming a Venice: a former city that turned into a museum-cum-fun park. Venice now has around as many beds for visitors as for inhabitants: about 49,000 each. And the thinning ranks of residents tend to be older people who moved in decades ago when the city was still affordable. 

More ominously for cities, official tourist totals are probably understatements. In particular, they rarely capture visitors who stay with friends or family, or swap homes, or just drive in for the day and don’t stay overnight... A paper by Jacques Lévy of the École Polytechnique Fédérale de Lausanne and others, using phone data, finds a “big surprise”: on average, there were about 5mn customers of non-French phone operators in France in 2022-23, compared with just under 2mn foreign visitors measured by “official data”. In some neighbourhoods of Paris, the paper says, the number of foreign visitors per sq km exceeded 100,000. For comparison: Paris’s 20,000 inhabitants per sq km already make it Europe’s densest city. Here’s a painful paradox of urban tourism: the cities that attract most visitors are cramped, ancient places that lack space even for residents. You don’t get much tourism in the Houston exurbs.

6. Good FT long read on the challenge facing Leag, a coal mining and thermal power generation company headquartered at Cottbus in the Lusitz area of Eastern Germany and which is the second largest electricity producer behind RWE and employs 7000 workers in a town with a population of 100,000. With Germany mandating the closure of all coal-powered power plants to shut down by 2038, Leag is planning to shift away from coal and thermal power to solar and wind power generation.

The incremental capacity addition in Germany since the turn of the millennium has been completely renewables based. 

7. The Indian IT majors face a reckoning. Apart from the Y2K, they've failed to capitalise as would have been expected every opportunity that has come up in the last two decades - IoT, data analytics, cloud computing etc. Now the new big thing AI beckons. And the underlying trends don't look good this time too.  

8. Ishan Bakshi has some interesting statistics that point to relatively large high income pockets in India,

India’s per capita income is just under Rs 2 lakh or around $2,400. But this statistic conceals more than it illuminates. Delhi’s per capita income, for instance, is estimated at Rs 4.4 lakh ($5,475), Gautam Buddha Nagar at Rs 5.41 lakh ($7,261), Mumbai city and suburban at Rs 3.4 lakh ($4,390), Bengaluru urban at Rs 6.2 lakh ($8,006), Dakshina Kannada at Rs 4.43 lakh ($5,721), Hyderabadat Rs 3.5 lakh ($4,715) and Rangareddy at Rs 6.69 lakh ($8,980). There are also others like Gurugram, Ahmedabad, Chennai and Kolkata. (Years for the income estimates vary from 2020-21 to 2022-23)... The overall size of the market in these cities could well rival other geographies — the Philippines has a per capita income of $3,499, Vietnam $4,164...

For the assessment year 2018-19, around 1.5 crore individuals had gross total incomes of Rs 5-10 lakh ($7,100-$14,203, at the exchange rates). Another 52 lakh had incomes between Rs 10-50 lakh ($14,203- $71,013), while three lakh had an income of more than Rs 50 lakh (above $71,013). Five years later, in the filings for the ongoing assessment year 2023-24, the number of individuals in these categories is likely to be significantly more — they had doubled between 2014-15 and 2018-19... these numbers... are gross underestimates... they rival other markets — Croatia, with a population of 38.5 lakh, has an income of $18,413, while Lithuania has a population of 28.3 lakh and an income of $24,827.

This translates into a fairly big consumption base,

As per NFHS 2019-21, 7.5 per cent of households own a car. That roughly translates to 8 per cent of the population having some spending capacity. But, while sales of entry-level cars have slowed down, suggesting low upward mobility, there are also indications of growing spending ability in other cohorts. In 2021-22, 7.78 lakh cars sold were priced above Rs 10 lakh (more than $12,000) as per CRISIL Market Intelligence and Analytics. In 2022-23, that rose to 10.36 lakh. And this is when the tax incidence ranges from 30 to 50 per cent...

As per JLL, the houses sold in the Rs 1.5 crore plus category now account for roughly a fifth of all sales in the top seven cities. As per CBRE, projects with a quoted value of Rs 2 crore and above (more than $2,50,000) have increased by twice in comparison to pre-pandemic levels. Similarly, sales of high-end luxury cars (Mercedes, BMW, Jaguar, Porsche, Lamborghini, Bentley and Rolls Royce) rose to 27,910 in 2022-23, up from 22,166 the year before as per data from FADA. Add the others and sales surpass 35,000. The luxury watch market (Rs 1 lakh and above) is also seeing strong numbers. In 2019-20, the size of the market was estimated at Rs 3,240 crore ($450 million at the exchange rates). By the end of next year, it is likely to touch Rs 5,940 crore ($740 million) as per Ethos’s annual report. In the case of the art market, an even more rarified segment, sale of 3,833 artworks fetched Rs 1,145 crore ($144 million) in 2022-23 as per Indian Art Investor’s art market report.

This is a point that I've made in several posts on the Indian economy. It's growing high consumption class, while small compared to its own population is as big as some countries, and could contribute significantly to sustain high growth. This is the idea of a long-term K-shaped growth trajectory. 

9. Some very interesting data on the flight of white students away from schools with greater number of Asian students, the "white flight". Gillian Tett points to a new paper by Leah Platt Boustan, Christine Cai and Tammy Tseng that use population, economic and school enrolment data in high socio-economic status Californian suburbs between 2000 and 2016

They argue that the arrival of each new Asian student was correlated with the departure of 0.6 white students. And when adjusted for demographic factors, “on average, the arrival of one Asian student in a suburban school district leads to the departure of 1.5 white students”. They note that this “rate of white flight that is somewhat lower but not too dissimilar from flight from black/Hispanic populations documented in different settings”... But the factors that sparked “white flight” from African-American and Hispanic incomers — namely racism, crime and house prices — do not seem to be to blame. 

High socio-economic status (SES) areas have low crime and high house prices. And while separate research by experimental psychologists suggests that white families do sometimes see Asian-Americans as “a foreign cultural threat” in other US locations, the economists see little evidence of overt hostility in Cupertino. Instead, they point to education as a possible reason for the flight: white parents wanted to use public schools in other districts, where their children could come top of the class, and thus have more chance of entering California universities, which emphasise class order in admissions. “Asian arrivals lead to test score gains for the full student body in these high-SES districts, but do not boost most measures of test scores for white students,” the authors note. “The learning of white students appears unaffected [by immigration] but the relative performance in the class for the average white student would fall with Asian entry . . . raising parental concerns about competition.”

Weekend reading links

1. Golf is a test bed for what happens when financial interests end up driving its course. The sport has been hit by three competing global leagues/tours each of which trying to lure players into it and barring non-members from playing its events. The two largest, LIV Golf and US-based PGA tour, have even at each other in recent months and have taken their dispute to the courts.

Into this comes Saudi Arabia, whose SWF Public Investment Fund (PIF) has now infused $3 billion to merge LIV Golf and PGA tour, and also brought the commercial operations of the Europe-based DP World Tour under the umbrella of the joint entity created for the merger. The Saudis were the promoters of the breakaway LIV Golf, which had broken away from the PGA Tour and lured top stars by paying massive signing bonuses. The new entity's Board will be chaired by the CEO of PIF, though the US PGA Tour will have majority voting rights. This is an explainer of the deal. 

This is part of Saudi Arabia's push into global sport. In football, it recently handed over ownership of its top four football clubs to PIF, which also owns Newcastle United. It also has significant interests in Formula One. At a global scale, this is also part of Prince Mohammed Bin Salman's efforts to project the Kingdom on the global stage, something which critics have denounced as "sports-washing". An FT article writes

Sport is one of 13 “strategic” sectors identified by the PIF, partly to deliver more entertainment options for a youthful domestic population, but also to champion Saudi Arabia’s brand overseas... this week’s investment gives Saudi Arabia for the first time partial control of a professional sport circuit. The PIF will have a significant minority stake in the new entity that will unify the commercial operations of the PGA, the European DP World Tour and LIV.

From being a risk-averse vehicle to park the country's reserves, the PIF has grown into a brash international investor with investments in Uber, SoftBank's Vision Fund, gaming companies, and a lot more. But its main focus has been to help boost and shape the domestic economy.

It has created 79 companies, ranging from a coffee producer, to a new airline, a waste-recycling business, a defence firm and even a vape business. The fund and its subsidiaries are responsible for everything from Riyadh’s renewable energy goals to urban regeneration and food security. As well as establishing new industries, the PIF has been tasked with developing a string of megaprojects. The most eye-catching — and controversial — is Neom, a $500bn scheme to create a massive futuristic development along the Red Sea coast with a 170km-long linear city in the desert, known as the Line, at its heart... Some analysts have described the fund — which committed to invest $200bn in Saudi Arabia in the five years through to 2025 — as a state within a state.

2. Interesting oil industry facts - the industry's net income in 2022 rose to $4 trillion, more than double the average for recent years; dividends and share buybacks formed 39% of its spending, a 15 year high; but just 1% of its cash went into clean energy investments; and less than half the cash available was invested into new oil and pipeline, the first time in at least 15 years.

3. With its dependency ratio (the number of people aged 65 and above as a share of its working age population) expected to treble to 75% in the next three decades, South Korea is ground zero for ageing societies. 

4. Couple of graphics on Indian Railways from an FT article. The first on electrification, 

The length of electrified railway lines in India has more than doubled since 2014, from 21,000km to more than 50,000km in 2022. The proportion of electrified lines reached 65.8 per cent in 2021, higher than France’s 60.3 per cent and the UK’s 38 per cent.

And this on the impressive reduction in accidents, notwithstanding the recent tragedy

5. Ruchir Sharma writes that luxury is to European stock markets what Big Tech is to the US

Contrast Europe to the US, where over the past 12 months 10 of the biggest tech firms accounted for 65 per cent of stock market returns — which is itself an alarming sign of industry concentration. The similar signs of concentration are even more concerning in Europe. There, 10 of the biggest luxury stocks, from LVMH to Ferrari, have accounted for about 30 per cent of returns — a share unmatched since records began...

Europe’s list of top 10 companies by market capitalisation, which has historically been dominated by banks, utilities and industrial conglomerates, now features four luxury names, up from zero at the start of the 2010s. Its big luxury brands are even more profitable than big US tech, with earnings amounting to nearly 25 per cent of revenue... The top European brands now account for a third of global sales, up from a quarter in 2010. Europe’s top four luxury companies, by market cap, are all French: LVMH, L’Oréal, Hermès, and Christian Dior (which is owned by LVMH)...

Increasingly, the global luxury industry is based on goods that are still made by small Italian firms but sold by big French conglomerates. Gucci, Bulgari, Fendi — all are Italian brands now under French owners. While US tech firms overshadow all rivals, the same can be said of French luxury. Among the top luxury firms, the French have annual sales three times higher than the Swiss, more than four times the Americans and Chinese and 12 times the Italians.

Sharma argues that the dominance of luxury, in contrast to technology in the US, highlights the problems faced by European economies in terms of productivity growth and economic dynamism.  

6. Daron Acemoglu and Simon Johnson may well have made the most definitive argument against the unimpeded progress of AI evolution. 

Tech giants Microsoft and Alphabet/Google have seized a large lead in shaping our potentially A.I.-dominated future. This is not good news. History has shown us that when the distribution of information is left in the hands of a few, the result is political and economic oppression. Without intervention, this history will repeat itself... The fact that these companies are attempting to outpace each other, in the absence of externally imposed safeguards, should give the rest of us even more cause for concern, given the potential for A.I. to do great harm to jobs, privacy and cybersecurity. Arms races without restrictions generally do not end well. History has repeatedly demonstrated that control over information is central to who has power and what they can do with it... 

This technology is in the hands of two companies that are philosophically rooted in the notion of “machine intelligence,” which emphasizes the ability of computers to outperform humans in specific activities... This philosophy was naturally amplified by a recent (bad) economic idea that the singular objective of corporations should be to maximize short-term shareholder wealth. Combined together, these ideas are cementing the notion that the most productive applications of A.I. replace humankind. Doing away with grocery store clerks in favor of self-checkout kiosks does very little for the productivity of those who remain employed, for example, while also annoying many customers. But it makes it possible to fire workers and tilt the balance of power further in favor of management. We believe the A.I. revolution could even usher in the dark prophecies envisioned by Karl Marx over a century ago... Our future should not be left in the hands of two powerful companies that build ever larger global empires based on using our collective data without scruple and without compensation.

They have three proposals to control these data monopolies and future of civilisation

Congress needs to assert individual ownership rights over underlying data that is relied on to build A.I. systems. If Big A.I. wants to use our data, we want something in return to address problems that communities define and to raise the true productivity of workers. Rather than machine intelligence, what we need is “machine usefulness,” which emphasizes the ability of computers to augment human capabilities. This would be a much more fruitful direction for increasing productivity. By empowering workers and reinforcing human decision making in the production process, it also would strengthen social forces that can stand up to big tech companies. It would also require a greater diversity of approaches to new technology, thus making another dent in the monopoly of Big A.I.

We also need regulation that protects privacy and pushes back against surveillance capitalism, or the pervasive use of technology to monitor what we do — including whether we are in compliance with “acceptable” behavior, as defined by employers and how the police interpret the law, and which can now be assessed in real time by A.I. There is a real danger that A.I. will be used to manipulate our choices and distort lives.

Finally, we need a graduated system for corporate taxes, so that tax rates are higher for companies when they make more profit in dollar terms. Such a tax system would put shareholder pressure on tech titans to break themselves up, thus lowering their effective tax rate. More competition would help by creating a diversity of ideas and more opportunities to develop a pro-human direction for digital technologies. If these companies prefer to remain in one piece, the elevated tax on their profits can finance public goods, particularly education, that will help people cope with new technology and support a more pro-human direction for technology, work and democracy.

7. On a related note, another article points to a recent strike by over 11000 film and TV writers in the Writers Guild of America Union which went, calling for among other things, studios to guarantee them weeks of work at a time instead of hiring by the day.

This protest yet again highlights the biggest problem with the gig economy. Labour is an important cost in any industry, but especially so in the services sectors. But services sectors also allow for flexibility to employers in the management of their workforce. This flexibility gets enabled by technology. For workers, the same flexibility also proved the attraction, though it has now soured with instability and low wages.

8. Byju's, the eponymous Edtech firm, is hurtling towards what should be its inevitable denouement. First,  it missed a $40 million repayment due on June 5 and cheekily sued its lenders over alleged harassment in the loan recovery. The lenders have accused Byju's of moving $500 million out of Byju's Alpha, the US borrower. The company's $1.2 billion debt is trading at 64 cents. Second, its auditor since 2016 and re-appointed for another five years in 2020, Deloitte, has quit with immediate effect citing "long-delayed" financial statements. The auditor also said there was a "significant impact" on its ability to perform the audit according to standards and that it has "not received any communication on the resolution of the audit report modifications for 2020-21. The auditor's statement is a damning indictment,

The financial statements of the company for the year ended March 31, 2022 are long delayed. In accordance with the Companies Act, 2013, the audited financial statements for the year ended March 31, 2022 were due to be laid before shareholders in the Annual General Meeting by September 30, 2022.

We have also not received any communication on the resolution of the audit report modifications in respect of the year ended March 31, 2021, status of the audit readiness of the financial statements and the underlying books and records for the year ended March 31, 2022 and we have not been able to commence the audit as on date.

As a result, there will be significant impact on our ability to plan, design, perform and complete the audit in accordance with the applicable auditing standards. In view of the aforesaid, we are tendering our resignation as statutory auditors of the company with immediate effect.

Third, its three largest investors, Sequoia, Naspers, and Chan Zuckerberg Initiative, have quit the company's Board, leaving it with only family members - husband, wide, and brother. The resignation came just after Byju's firmly denied any resignations, thereby clearly pointing to problems with all its investors. 

Byju's should count alongside the likes of WeWork in having acutely deficient corporate governance  standards, promoters with questionable integrity, and defrauding investors. I'm inclined to believe that the only reason the Government is not actively pursuing the various investigations, including by the Serious Fraud Investigations Office (SFIO), is that it does not want the unravelling to rock the Indian start-up ecosystem. In other words Byju's is too big to fail, and therefore its end game has to be a gradual phase down. 

On Edtech, Andy Mukherjee is spot on in his assessment of the market potential

As it has always been, the real money is in coaching 16-year-old Indians from big cities and small towns, helping them get into a top engineering, medical or management program. Most will fail because of the sheer demand-supply gap, but all will pay to try. For this segment, online resources like question banks are valuable, but only as a supplement. They are no substitute for talented teachers whose reputations fill stadium-sized classes.

9. A bribes for jobs scandal has erupted in TCS, India's largest software firm. It has been uncovered, following a whistleblower complaint, that a few senior personnel at the company were accepting bribes from staffing firms for giving jobs to their candidates, for years. The company's internal investigations appear to have confirmed the practices and the global head of recruitment has been sacked and debarred from coming to the office. It's estimated that the officials may have earned atleast Rs 100 Cr through commissions in the last three years when the company hired 300,000 people. 

This does not involve any loss of public money, so does not attract indignation in the media. But I'm strongly. inclined to believe that such practices are not uncommon in almost all the major Indian companies in procurements and recruitments. After all the social norms, which allow such corrupt practices, are the same whether in the public or private sectors. 

10. Donald Shoup proposes replacing the free street parking slots in New York City with paid parking. His idea is to recover parking charges and use it to pay for benefits in the area.  

Several US cities have established parking benefit districts that charge demand-based prices for curb parking within a selected area and use the resulting revenue to pay for public services on the metered blocks. The purpose of a parking benefit district is to convince stakeholders they want to charge for their curb parking, by connecting those fees to visible neighborhood amenities. If stakeholders see substantial local benefits from the meter revenue, a new golden rule of parking prices may emerge: Charge others what they would charge you.

Revenue generated by the meters can be used to pay for public services, such as repairing sidewalks, planting street trees or providing other improvements. Few will pay for curb parking but all will benefit from public services. For example, Boulder, Colorado, uses its downtown meter revenue to buy transit passes for all downtown workers. Drivers who park on the street subsidize commuters who ride the bus. If the meter revenue pays for public services that residents and area business owners want and will get only if the city charges for curb parking in their neighborhood, market prices begin to make political sense.

He estimates this to generate $237 million a year in revenues if implemented in New York's Upper West Side district's 12300 free curb spaces.  

Suppose the city spends this revenue to buy an MTA transit pass ($33 a week) for each of the Upper West Side’s 111,000 households. The total cost would be $189 million a year. The remaining revenue could be used to clean and maintain the Upper West Side’s 14 subway stations. Curb parkers would improve life for many more transit riders. Parking revenue would pay the transit fares, and the fare-free transit for residents would boost MTA ridership.

The FT has an article which describes US cities as one big parking lot. This is striking

“At the centre of our biggest cities, some of the most valuable public land on earth has been exclusively reserved for the free storage of private cars,” writes Henry Grabar, author of Paved Paradise: How Parking Explains the World. There are more square feet of housing in the US for each car, he notes, than there are for each human... The authors of A Pattern Language, the classic 1977 study of livability and urban design, note that cars require a thicket of infrastructure useless to carless humans — driveways, garages, asphalt. When there are too many cars, residents feel "that the outdoors is not meant for them, that they should stay indoors, that they should stay in their own buildings, that social communion is no longer permitted or encouraged". The authors suspected that 9 per cent of an area's land devoted to parking was the threshold. Yet fully 30 per cent of central Detroit is devoted to parking. So is 28 per cent of Louisville, 24 per cent of Dallas and 21 per cent of Phoenix. Swaths of city centres across the country exist solely to house cars. Some 20 per cent of all studied city centres were parking lots.

This is a stunning map of downtown Detroit 

And this of downtown Dallas

11. China may be set to reglobalise, as the share of its manufacturing output set for exports is expected to grow.

12. As Nvidia goes past one trillion dollar market capitalisation, Brad Setser points to the fact that the company pays negligible federal income tax in the US! Its effective tax rate was 1.9%, 1.7% and 5.9% in 2022, 2021, and 2020 respectively. 

Working papers compilation - I

1. Outsourcing creates a trade-off - outsourced workers experience large wage declines while domestic outsourcing may raise aggregate productivity. This paper finds, 

Three implications arise. First, more productive firms are more likely to outsource to save on higher wage premia. Second, outsourcing raises output at the firm level. Third, contractors endogenously locate at the bottom of the job ladder, implying that outsourced workers receive lower wages. Using firm-level instruments for outsourcing and revenue productivity, we find empirical support for all three predictions in French administrative data. After structurally estimating the model, we find that the rise in outsourcing in France between 1996 and 2007 raised aggregate output by 3% and reduced the labor share by 0.7 percentage points. A 9% minimum wage increase stabilizes the labor share and maintains two thirds of the output gains.

The point is then about an appropriate minimum wage that can stabilise labor share without significantly denting output gains.   

2. Another paper discusses the economic, social and development impact of Covid 19 by summarising the findings of various studies done so far. It has a nice summary of all the various kinds of micro-impacts, especially across low and middle income countries (LMICs). 

3. One more paper highlighting the importance of access to opportunities in the form of big push like investments to help people break out of the poverty traps. The paper studies a 11 year panel in rural Bangladesh on the impact of an asset transfer and finds,

People stay poor because they lack opportunity. It is not their intrinsic characteristics that trap people in poverty but rather their circumstances. This has three implications for how we think about development policy. The first is that big pushes that enable occupational change can play a role in alleviating the global poverty problem. Small pushes will work to elevate consumption but will not free people from the poverty trap. The magnitude of the transfer needed to achieve occupational change may be much larger than is typical with current interventions, though importantly it can be time-limited. The fiscal cost of permanently getting people out of poverty through a large, time-limited transfer might therefore actually be lower than relying on continual transfers that raise consumption but have no effect on the occupations of the poor.

The second is that big push policies can have long-lasting effects. Our analysis of long-run dynamics indicates that the asset, occupation and consumption trajectories of above-threshold beneficiaries diverge from those of below-threshold beneficiaries over time. This finding is important as it indicates that, by engendering occupational change, one-time pushes can have permanent effects.

The third is that poverty traps create mismatches between talent and jobs. We have shown that misallocation of labor is rife among the poor in rural Bangladesh. Indeed, we show that the vast majority of the poor in rural Bangladesh are not engaged in the occupations where they would be most productive. They are perfectly capable of taking on the occupations of richer women but are constrained from doing so by a lack of resources. The value of eliminating misallocation is an order of magnitude larger than the cost of moving all the beneficiaries past the threshold. This is important as it implies that poverty traps are preventing people from making full use of their abilities and indeed it is the mass squandering of people’s abilities that is the key tragedy of poverty.

Its empirical findings comparing across programs,

Assuming the household works each of the 100 days they are entitled to, the value of NREGA is 0.13 of annual per-capita expenditure. BRAC typically offers entry microloans between 100 USD and 200 USD, which correspond to 0.18 and 0.3 of average annual per-capita expenditure. Thus, two of the main programs designed to tackle poverty are too small-scale to make a long-term difference for the majority: our simulation suggests that they would allow fewer than 20% of households to escape poverty... In a first set of simulations, we resimulate the model under the assumption that all households are given a transfer equal to an increasing percentage of annual per capita consumption expenditure, until the point at which misallocation equals zero. This exercise suggests that the value of misallocation — measured as before against the maximum payoff available at the upper mode of the distribution of productive assets excluding land — would be zero if all ultra-poor households were given a transfer equal to 3.95 times the average level of baseline per capita consumption expenditure among ultra-poor households.

It's headline policy finding,

Our results point to the existence of a poverty threshold such that households with a starting level of productive assets below that threshold are trapped in poverty while households who are able to get past the threshold accumulate capital and approach the asset level of the richer classes. This allows them to switch occupations from casual laborers to the more productive business activity of livestock rearing, which in turn facilitates further asset accumulation. The existence of such a poverty threshold has important implications for policy design. Transfer programs that bring a large share of households above the threshold will see large effects on average, while transfers that fall short of this might have small effects in the long run.

The takeaway is that a large enough cash or asset transfer can provide the big push to get people over the threshold and into an enabling path to access different livelihood opportunities. There are at least two problems. One, the fiscal cost of such transfers (3.95/0.13 = 30 times the NREGS transfer) is prohibitive and clearly off the table. Two, more importantly, the economic system's ability to absorb such large shocks (even if staggered in a reasonable manner) by providing the requisite economic opportunities in a sustainable manner is deeply questionable. 

And I am not even talking about the numerous and unanticipatable second and further order consequences of such large asset or cash transfers. 

The point is that cash or asset transfer based pathways out of poverty are at best marginal and unscalable interventions and there is no substitute to sustained economic growth and broad-based development for poverty elimination. 

4. This paper examines the impact of distortions in land rental markets across Indian states on their agriculture productivity. In 2010, the real-value added per Indian worker in non-Agriculture activities was 32% of that in the US, whereas the ratio was just 5% in use of agriculture workers. Besides, the variation in GDP per workers in agriculture across states in 2011-12 is a factor of 13.5. The paper's findings,

First, we show that an efficient reallocation of land can substantially increase agricultural productivity in all states, even relative to Punjab, the state with the least distorted land market in our sample. On average, an efficient reallocation of land increases agricultural productivity by 33 percent (15 percent relative to Punjab). In Tamil Nadu and Karnataka, the increase in agricultural productivity is 89 and 49 percent (63 and 34 percent relative to Punjab)... Such an increase in agricultural TFP would have a much larger effect on agricultural labor productivity because of the reallocation of labor away from agriculture and other productivity enhancing effects such as better selection into agriculture, investment in productivity, the adoption of modern technologies, among others... Second, we decompose the contribution between farm-and state-specific distortions and find that farm distortions contribute to about one-third of the reallocation gains, whereas state-level land wedges contribute the remaining two-thirds. We also show that an efficient reallocation of land would involve substantial increases in both the share of farmers renting (participation in the rental market) as well as the share of land operated by the most productive farms... The largest TFP gains are in states with the least active rental markets.

The paper has an informative table summarising the status of tenancy reforms in various Indian states, including the nature of restrictions on leasing land.

5. How does going public impact the performance of companies?

Public attention to a firm may provide valuable monitoring, but it may also have a dark side by constraining management’s decisions and distracting it. We use inclusion in the S&P 500 index as a positive shock to public attention. Media coverage, Google searches, SEC downloads, SEC comment letters, shareholder proposals, analyst coverage, and lawsuits increase following inclusion. Post-inclusion performance falls and is negatively related to the increase in attention. Included firms’ investment and payout policies become more similar to those of index peers and the increase in similarity is positively related to the size of the attention increase.

6. The moral hazard from seat belt use is more than offset by its safety benefits, 

Using data from the Fatality Analysis Reporting System for the period 1983-1997, Cohen and Einav (2003) found that mandatory seatbelt laws were associated with a 4 to 6 percent reduction in traffic fatalities among motor vehicle occupants. After successfully replicating their two-way fixed effects estimates, we (1) add 22 years of data (1998-2019) to capture additional seatbelt policy variation and observe a longer post-treatment period... investigate pre-treatment trends and explore lagged post-treatment effects. Consistent with Cohen and Einav (2003), our updated estimates show that primary seatbelt laws are associated with a 5 to 9 percent reduction in fatalities among motor vehicle occupants.

7. Gabriel Kreindler has a paper examining the likely impact of congestion pricing on traffic congestion in Bangalore,

I study the peak-hour traffic congestion equilibrium in Bangalore. To measure travel preferences, I use a model of departure time choice to design a field experiment with congestion pricing policies and implement it using precise GPS data. Commuter responses in the experiment reveal moderate schedule inflexibility and a high value of time. I then show that in Bangalore, traffic density has a moderate and linear impact on travel delay. My policy simulations with endogenous congestion indicate that optimal congestion charges would lead to a small reduction in travel times, and small commuter welfare gains. This result is driven primarily by the shape of the congestion externality. Overall, these results suggest limited commuter welfare benefits from peak-spreading traffic policies in cities like Bangalore.

The relative lack of impact from congestion pricing in Bangalore is understandable and important to be borne in mind. In most developing country contexts, infrastructure augmentation by way of new roads, widenings etc continue to remain relevant and higher priority than ideas like traffic congestion. This however does not mean that traffic congestion policies are not important. In specific areas, where the demand elasticity of response is likely higher, congestion pricing can have significant impacts. 

8. A new working paper finds that Amazon systematically manipulates its algorithms to favour its private label brands in its search results.

We study whether Amazon engages in self-preferencing on its marketplace by favoring its own brands (e.g., Amazon Basics) in search. To address this question, we collect new micro-level consumer search data using a custom browser extension installed by a panel of study participants. Using this methodology, we observe search positions, search behavior, and product characteristics. We find that Amazon branded products are indeed ranked higher than observably similar products in consumer search results... All specifications shown, as well as a number of additional checks, including specifications with interaction terms and machine learning approaches, indicate that carrying an Amazon brand is a meaningful predictor of greater prominence in search. The effect of Amazon brands tends to be 30% to 60% as large as the effect of sponsoring.

Weekend reading links

1. From Japan Times

... in many parts of Japan... the number of akiya (abandoned buildings) swells to worrying levels nationwide. In 2018, these structures — the result of unsustainable growth for several decades followed by sharp demographic decline — totaled 8.5 million units, or 14% of Japan’s overall housing stock, according to government figures. The Nomura Research Institute has estimated that this figure could exceed 30% by 2033. According to government statistics, the total combined area of uninhabited properties in Japan is greater than the area of land on the island of Kyushu.

2. FT writes how the Russian invasion has united the west. 

3. Interesting question about reviving nuclear power generation in Germany,

With sanctions against Russia likely to disrupt Germany’s energy supply, why, asked MP Marc Bernhard, couldn’t Berlin just restart its mothballed nuclear power stations? “If we reactivate the three plants that were switched off last December they could, together with the three that are still operating, replace all the coal we import from Russia or 30 per cent of the Russian gas,” the Alternative for Germany MP told Olaf Scholz, Germany’s chancellor, in the Bundestag earlier this month.

Clearly the answer in the negative is a measure of the political opposition to nuclear power in the country.

4. Martin Sandbu urges caution at excessive monetary tightening by the Fed. He points to the sectoral shift in consumption away from services (which continues to remain depressed) and towards consumer durables and non-durables, and the need for reallocation away from certain sectors. In this context, he argues for caution with monetary policy,

A recent paper by Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub and Iván Werning shows that if keeping interest rates low makes reallocating resources easier, the optimal stance for a central bank is looser than it would otherwise be. Thus, if it is clear that labour and capital must move from one sector to another — and the faster the better — how can it possibly be right to tighten monetary policy, making investments in new capacity both more expensive and less attractive as demand growth slows... Since insufficient reallocation means lower productive potential in the future than could otherwise be had, it also means an overzealous fight against inflation today will either raise inflation in the future or increase the cost of keeping it low. What these questions together amount to can be put more simply. Today a pandemic, a war and a climate crisis all necessitate huge structural shifts — which may themselves maximise potential productivity and minimise long-term inflationary pressures. In such a situation, how could it be right for central banks to delay investment and jobs growth, and with them the needed reallocations?

5. Is Rajapaksa family in Sri Lanka peak-nepotism?

Before the current crisis, members of the Rajapaksa family headed up a third of Sri Lanka’s 28 ministries, including Mahinda as prime minister, a brother Basil in charge of finance and another brother Chamal holding the irrigation portfolio.

6. FT highlights Germany's reliance on Russia to meet its energy needs

This is an excellent summary of the events that have led to this level of dependence on Russian energy.

As Germany’s energy policy shifted, it grew ever more reliant on Russian gas. Under former chancellor Angela Merkel, Berlin decided to phase out nuclear power in 2011 and later also moved to close all of the country’s remaining coal-fired power stations. Yet with the buildout of renewables stalling, gas as a bridge fuel to a low-carbon future began to loom even larger in the energy mix. “In the last 20 years we have shut down every alternative,” says Birnbaum. “The Germans didn’t want anything . . . no hard coal, no lignite, no nuclear, and all of a sudden we were overdependent [on Russia].” Even as Russia invaded Georgia, intervened in Syria, annexed the Crimean peninsula and fomented a separatist war in eastern Ukraine, Germany continued to expand its energy partnership with Russia. Not only did Merkel’s government back the Nord Stream 2 pipeline to increase the flow of Russian gas pumped directly to Germany across the Baltic Sea, it also stood by as key pieces of Germany’s energy infrastructure were snapped up by Kremlin-controlled companies. One example is the PCK oil refinery in the east German town of Schwedt that is now owned by Rosneft; another, Rehden, western Europe’s largest gas storage facility, is owned by Gazprom. Both acquisitions occurred after Russia invaded Crimea. Meanwhile, Berlin took decisions that locked it into Russian supplies of gas for decades to come, to the exclusion of other sources. The Nord Stream 1 and 2 pipelines destroyed the business case for building import terminals for liquefied natural gas, which would have allowed Germany to diversify its energy inflows.

7.  This is an excellent graphical feature on European dependence on Russian natural gas.

And this on how much of it can be substituted in the short-term.

8. Interesting point about football club ownership in Germany. the 50+1 rule.

In short, it means that clubs – and, by extension, the fans - hold a majority of their own voting rights. Under German Football League [DFL] rules, football clubs will not be allowed to play in the Bundesliga if commercial investors have more than a 49 percent stake. In essence, this means that private investors cannot take over clubs and potentially push through measures that prioritise profit over the wishes of supporters. The ruling simultaneously protects against reckless owners and safeguards the democratic customs of German clubs.

9. There is a lot of evidence to suggest that road widenings and lane additions do not reduce congestion, but creates induced (or generated) demand which worsen congestion. The latest from Todd Litman,

Traffic congestion tends to maintain equilibrium; traffic volumes increase until congestion delays discourage additional peak-period trips. If road capacity expands, peak-period trips increase until congestion again limits further traffic growth. The additional travel is called “generated traffic.” Generated traffic consists of diverted traffic (trips shifted in time, route and destination), and induced vehicle travel (shifts from other modes, longer trips and new vehicle trips). Generated traffic often fills a significant portion of capacity added to congested urban road.

This is a good article in the Times about how Portland, Oregon, one of the leaders in transport planning and promotion of biking and reducing vehicle commutes in the US, is grappling with the issue of whether to add more roads. And it's struggling to curb car growth and their usage.

The highway expansions in Portland illustrate a nationwide truth: Cities, even those with big climate ambitions, don’t always control their own destiny when it comes to transportation. In Texas, the city of Austin plans to invest billions of dollars in a new light rail system. But at the same time, the state is pushing ahead with a $5 billion plan to add four lanes to Interstate 35 through downtown. In Illinois and Washington, state officials are eyeing highway widening projects around Chicago and Seattle even as they set goals for slashing greenhouse gas emissions. Opponents of these projects say traffic can be more effectively managed with tools like congestion pricing, which involves charging fees during peak travel periods, in order to discourage some trips. But others say highway expansions are hard to avoid.

10. Good graphical presentation that puts inflation in the US in perspective. US 10-year Treasury yields are kissing the 3% threshold. 

11. Times long read on how farmers in the US are being impacted by the supply chain disruptions. As shipping containers become extremely scarce in supply, farmers are left struggling to transport produce which has already been purchased by foreign buyers - 1.1 billion pounds of almonds from last year's harvest are sitting in Californian warehouses. As demand for imports from China rises, shipping companies prefer to transport empty containers back to China instead of waiting to pick up goods from US ports. 

This about almonds and California,

Every year, California farmers produce more than three billion pounds of almonds, or about 80 percent of the world’s supply. Nearly all those nuts are harvested on more than 6,000 farms in the Central Valley — a flat, arid zone characterized by relentless sunshine, furnace-like summer heat and some of the most prodigious soils on earth.

12. Aaron Brown in Bloomberg points to an area of growth in US college admissions amidst the general trend of falling admission rates since 2010. 

There is one post-secondary educational sector with gangbuster growth. Enrollment in two-year agricultural sciences degrees rose 41% in 2021. Other hot two-year degrees include construction management - up 18% - while blue-collar technical fields are up an average of 7%... The students in these programs are usually working in their fields of study and looking for advanced instruction in theory and broader business skills so they can move up to management jobs or start their own businesses, taking positions that in the past would likely have been held by four-year college graduates without specific training... students in two-year programs making up about a third of all post-secondary students.

He makes an important point about the role of such education in driving innovation, job creation, and even fostering an equitable society,

Traditional thinking was that blue-collar workers learned rote skills and had to be protected from innovation. White collar workers were supposed to have general skills that could adapt to change, and professionals were the ones who could cause change and exploit its opportunities. But the experience of the last few decades seems to indicate that it was white-collar workers — mainly with college degrees in non-job-specific fields — who lost out to innovation, while blue-collar experience was more readily transported to fast-changing fields. In many cases it was former blue-collar workers and college dropouts driving change, not elite professionals with graduate degrees...

Many people view a traditional four-year liberal arts degree — without a focus on job training — as a cornerstone of an educated citizenry... Some people will demand political fixes to increase four-year liberal arts enrollments, particularly among non-Whites. But perhaps a more egalitarian and progressive stance is to instead to encourage two-year technical degrees that lead to more small business formation, more company promotions from within and a more diverse upper-middle class. Running a business or managing a team of people engaged in technical work may represent a form of education as valuable to society as a four-year degree in literature or sociology. Of course, society needs both, but maybe we overinvested in the latter and underinvested in the former.