Economics, The Welfare of The Poor And Middle Class OR The Numbers Game

Last night I was at the Hoover Institution.  It was the inaugural talk on public policy, a new thing they will be doing.  You can follow the conversation on Twitter at #policyed.  Economist Russ Roberts gave the presentation.  If you don’t know him, he produces the Econ Talk podcast which I really like. The topic of this particular presentation was “Is growth good for everyone or just the top 1%? Does growth reduce poverty? How is the middle class really doing over the last 40 years?”

It’s a pretty interesting topic when you get into it.  There is a lot of discourse in our mainstream lives about how the poor and middle class are doing.  Politicians have demonized the “1%”.  Many of the US public policies enacted as far back as The New Deal were designed to help people get out of Continue reading "Economics, The Welfare of The Poor And Middle Class OR The Numbers Game"

When More Women Join the Workforce, Wages Rise — Including for Men

Don Farrall/Getty Images

The increase of women in the paid workforce was arguably the most significant change in the economy in the past century. In the U.S., women’s participation in the labor market has nearly doubled, from 34% of working age women (age 16 and older) in the labor force in 1950 to almost 57% in 2016. When it passed 50% in 1978, working women became the norm.

Yet although the female labor force participation rate has been rising steadily in the country, it has not done so evenly across cities. In places like Gadsden, Alabama, and Punta Gorda, Florida, less than half of working age women (46% and 42%, respectively) were in the paid workforce in 2010; cities like Madison, Wisconsin, had 73% and Fargo, North Dakota, had more than 75% (the highest in the nation) of women in the workforce. There is also significant variation within

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There Is One Bear Market

With the continuous record highs being set in the stock market and crypto market people might wonder where to find a bear.  Tim Knight at Slope of Hope might be the last bear left on the planet.  The rest have gone into hibernation.  However, if you are a bear you might take a peek at US Treasuries.  I think things are heating up there finally.
10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts

To give you some context, interest rates have been zero or near zero since the financial crisis in 2008.  People that grew up in my generation have lived through two extremes in interest rates.  In the 1970’s and early 1980’s they were extremely high with three-month T-Bills hitting 21% at one point.  Since 2008, basically 0%.  QE was necessary the first time, perhaps the second.  Since then it has been a Continue reading "There Is One Bear Market"

Things That Make You Go Hmmmmm

Kodak. Kodakoin.

Utilizing blockchain technology, the KODAKOne platform will create an encrypted, digital ledger of rights ownership for photographers to register both new and archive work that they can then license within the platform. With KODAKCoin, participating photographers are invited to take part in a new economy for photography, receive payment for licensing their work immediately upon sale, and for both professional and amateur photographers, sell their work confidently on a secure blockchain platform. KODAKOne platform provides continual web crawling in order to monitor and protect the IP of the images registered in the KODAKOne system. Where unlicensed usage of images is detected, the KODAKOne platform can efficiently manage the post-licensing process in order to reward photographers.

KODK Chart

KODK data by YCharts

From Kodak’s last earnings call:
In the third quarter, revenues were $379 million with operational EBITDA of $15 million. On a constant-currency basis year-over-year, our revenues were down $35 million or 9%, and operational

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The “Quiet Life” Hypothesis Is Real: Managers Will Put Off Hard Decisions If They Can

Kenneth Andersson for HBR

In competitive markets, managers have a strong incentive to give their best effort. But economists have long argued that when companies are insulated from competition, their managers may not be motivated to maximize the profit of the firm and instead may choose to enjoy the “quiet life.” Similarly, without sufficient monitoring by owners of the firms or the stock market, managers might be tempted to enjoy the quiet life instead of making hard decisions or taking on difficult tasks.

But are the economists right? Do managers really work less hard without competition and monitoring? Left to their own devices, do managers really prefer the quiet life?

My recent paper, coauthored with Naoshi Ikeda and Sho Watanabe of Tokyo Institute of Technology, empirically tests this quiet life hypothesis with Japanese data. We employ cross-shareholder ownership — in which a company has interlocking stock ownership with other firms

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Growth Next Year

The Trump tax cut became law this year.  Most of America got a tax cut.  I was glad to see the SALT subsidy go away.  If you are feeling the pain of losing the subsidy, contact your local politicians. They can lower taxes you know.  The biggest part of the tax bill that is totally unquantifiable is how corporates will react to lower tax rates.

I think the market has priced in a lot of corporate activity, and I think it’s a bit ahead of itself.  Corporate budgets for 2018 are done and were done before the tax bill passed.  In the first two quarters of this year, corporations aren’t going to redo budgets.  Instead, they will strategize.  McKinsey etc ought to be busy.  If I were an investment banker, I’d be strategizing who I could put together to create a Continue reading "Growth Next Year"

The Next Big Thing Is Hard

Economists will tell you it takes thirty years for a revolutionary new technology to infiltrate the world and really make a difference in our lives.  Over the past five to ten years, we have seen some really amazing things be created.  The hype on them is big, but the end results so far are not.  It’s all hope and promise.

Greg Ip writes in the Wall Street Journal, “Hype always runs well ahead of reality, bringing failure and dashed expectations. Jeffrey Funk, an independent researcher, studied the predictions of breakthrough technologies made by MIT Technology Review, a magazine published by Massachusetts Institute of Technology. Of 40 predictions it made between 2001 and 2005, most never became a market worth more than $5 billion by 2015, and only one—data mining—become a market worth more than $100 billion. Meanwhile, the magazine completely missed smartphones ($400 billion), cloud computing ($175 Continue reading "The Next Big Thing Is Hard"

What Is Going To Happen In 2018

This is a post that I am struggling to write. I really have no idea what is going to happen in 2018.

  • Will the crypto markets continue in their bull cycle? I have no clue. I was showing my daughter’s friend an app that helps people save and invest and he said to me “I don’t need that, I just buy some ETH every week.” I said “that’s a good plan until it isn’t.” I just don’t know when buying crypto will stop being a good idea. It was a great idea in 2017.
  • Will the economy extend its eight year expansion? I have no clue. The longest post WWII economic expansion was 10 years from 1991 to 2001. Can this one beat that one? Maybe. Will this one also burst over the collapse of another tech bubble? Maybe. But again, I have no idea when that might
    Continue reading "What Is Going To Happen In 2018"

What Happened In 2017

As has become my practice, I celebrate the end of a year and the start of a new one here at AVC with back to back posts focusing on what happened and then thinking about what might happen.

Today, we focus on what happened in 2017.


I went back and looked at my predictions for 2017 and I completely whiffed on the breakout year for crypto. I did not even mention it in my post on New Year’s Day 2017.

Maybe I got tired of predicting a breakout year for crypto as I had mentioned it in my 2015 and 2016 predictions, but whatever the cause, I completely missed the biggest story of the year in tech.

If you look at the Carlota Perez technology surge cycle chart, which is a framework I like to use when thinking about new technologies, you will see that a frenzy develops when

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Most people don’t understand economics at all.  They might take a class or two but then they don’t really internalize anything.  Could be it’s the professor’s fault for not drumming home the real meaning of economics. Politicians talk about “fair”.  Fairness is subjective.  If you engage with economics correctly, it’s about positive economics and incentives.  Robert Reich would be an example of someone that peddles false economics virtually all of the time.

We see the word “fair” a lot in our debate today.  As soon as you hear that word, you should immediately question everything that comes after it and the assumptions made to get there.

This piece by John Cochrane is excellent and illustrates the divide.

Cochrane has been on a roll lately.  Read his blog religiously and you will learn.  You can sense his disgust in the way he writes.

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Breaking Down the New U.S. Corporate Tax Law

Mihir Desai, a professor of finance at Harvard Business School, breaks down the brand-new U.S. tax law. He says it will affect everything from how corporate assets are financed to how business are structured. He predicts many individuals will lower their tax burdens by setting themselves up as corporations. And he discusses how the law shifts U.S. tax policy toward a territorial system of corporate taxes, one that will affect multinationals and national competitiveness. Finally, Desai explains what he would have done differently with the $1.5 trillion the tax cut is projected to cost.

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Create An Endowment Effect

Professor Richard Thaler just gave his Nobel lecture.  He is a pioneer in behavioural economics.  Often times, behavioural economics flies in the face of classical economics.  However, there are some pieces of behavioural economics that are really interesting to think about when it comes to startups.

Here is his lecture.

In the lecture, he talks about a few things that I think could really help startups. The Endowment Effect is particularly powerful. This bias occurs when we overvalue a good that we own, regardless of its objective market value (Kahneman, Knetsch, & Thaler, 1991). It is evident when people become relatively reluctant to part with a good they own for its cash equivalent, or if the amount that people are willing to pay for the good is lower than what they are willing to accept when selling the good. Put more simply, people place a greater value Continue reading "Create An Endowment Effect"

Early Stage Financings Drop

When I read the Techcrunch article on the early stage finance drop it resonated with me. It is where we invest in as a fund, and it’s what HPA did when I co-founded it way back in 2007.  Virtually all of my investments since 2007 that haven’t failed are still in process.  Most are doing quite well, but you don’t ring the cash register until they actually exit.  Fred Wilson blogged about it and his points also hit home with me.  Especially this,

When I talk to my friends who do a lot of angel investing, I hear that they are being more selective, licking some wounds, and waiting for liquidity on their better investments.

When I talk to my friends who started seed funds in the past decade, I hear them thinking about moving up market into larger funds and Series A rounds.

He also said,

SPY Chart
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The Liquidity Crisis

There is a problem that is solvable when it comes to startups. It’s liquidity. Over the past couple of years, I have seen Fund of Fund managers like Chris Douvos, Michael Kim, and Lindel Eakman talk about this problem on their blogs. I have also seen funds like Calpers talk about the liquidity problem in articles and documents.

Why is it a problem?

If you put money in, and can’t get out, it’s going to disincentivize investing. That means less money flows to innovation. Less money into innovation and that means society doesn’t propel itself forward. In a capitalistic society, it is critical to have creative destruction.

It also means that ordinary people cannot invest their money in public companies that are innovative. They have to wait and that means they can’t build wealth as easily. This also might explain the ICO craze. Risk capital is being invested in it Continue reading "The Liquidity Crisis"

How Blockchain Will Accelerate Business Performance and Power the Smart Economy – SPONSOR CONTENT FROM MICROSOFT

graphic 1_without logo-01

Political economist Francis Fukuyama predicted a future when social capital would be as important as physical capital, and that only those societies with a high degree of social trust would be able to create large-scale organizations capable of competing in the new economy.

Two decades later, an incredible tool is shoring up the foundations of social at the level of every transaction—blockchain. Originally gaining notoriety as the data technology underneath the cryptocurrency called bitcoin, today blockchain technology is expanding its reach far beyond the confines of currency and tackling issues involving transactional social trust throughout the world.

Blockchain is a cryptographically secure, shared data layer that enterprises can use to digitally track the ownership of assets across trust boundaries, opening up new opportunities for cross-organizational collaboration and imaginative new business models. As a shared source of trust, it can extend the scope of digital transformation from a single company to

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Why Wages Aren’t Growing in America

Glow Images/Getty Images

The majority of Americans share in economic growth through the wages they receive for their labor, rather than through investment income. Unfortunately, many of these workers have fared poorly in recent decades. Since the early 1970s, the hourly inflation-adjusted wages received by the typical worker have barely risen, growing only 0.2% per year. In other words, though the economy has been growing, the primary way most people benefit from that growth has almost completely stalled.

Understanding how and why this stagnation occurred is not just an academic question — it is essential to redesigning public policies so that more Americans share in the benefits of economic growth. In a recent Hamilton Project at Brookings report, we highlight what we believe are some of the most critical developments over the last few decades and consider what is necessary for the typical American to get a raise.

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Attention on Digital Monopolies

The dominant position of companies such as Google, Facebook, Amazon is sure receiving a lot more attention these days. There is critical media coverage, including in traditionally pro business publications such as the Wall Street Journal “Can the Tech Giants Be Stopped?” and Bloomberg “Should America’s Tech Giants Be Broken Up?”  There is also the Democratic Party’s “Better Deal” memo which focuses more broadly on the negative effects of corporate power. And then of course there is the European Union, which already fined Google 2.4 Billion Euros for manipulating search results and is considering another fine for Google’s alleged forced bundling of Google services with Android. While I am happy to see the attention on the issue, I am concerned that regulators are missing the fundamental source of monopoly power in the digital world: network effects arising from the control of data. This will continue to lead Continue reading "Attention on Digital Monopolies"

Something to Remember on the 4th

The 4th of July is an auspicious day in human history.  For the first time, a society was organized around the principle that the rights of humans came before the rights of the government, monarchy or ruler that administered them. President John Adams always said the day should be remembered with the proper pomp and circumstance.  Fireworks are perfect.  The explosion of human freedom that happened because of what the Founding Fathers did is simply amazing. When I read the story of Paul Revere, I was surprised at the level of fervor for individual liberty that was ingrained in every single American.  Property rights were paramount.  Markets organized society, not governments.  Revere and his peers would not be happy with the way America is today. Across the country, many of our governments have forgotten it’s not about them.  It’s about the citizens.  Both Democratic and Republican legislators have forgotten.  The Continue reading "Something to Remember on the 4th"