The consequences of increasing concentration and decreasing competition—and how to remedy them

By William A. Galston and Clara Hendrickson – Our paper, “A policy at peace with itself: Antitrust remedies for our concentrated, uncompetitive economy,” shows why antitrust has become an object of public concern and documents the urgent need to reform antitrust enforcement, which has failed, in recent years, to stem rising concentration and prevent declining competition.

Not only are today’s firms astoundingly profitable, they are persistently profitable. While a profitable American firm in the 1990s had a 50 percent chance of finding itself similarly successful 10 years on, a very profitable American firm today enjoys over an 80 percent chance.

That persistently high profits remain unchallenged suggests many firms may be receiving a return on market power.

Under-enforcement has harmed consumers as many mergers have led to higher prices. Declining competition has also resulted in rising inequality as inter-firm earnings disparities deepen the economic divide among workers. more>

Updates from GE

Power Play: This Software Takes The Guesswork Out Of Energy Demand
By Bruce Watson – Predicting power demand used to be a simple science: People use more power during certain times — like the morning, when they cook breakfast and turn on their lights — and less during others, like when they hit the sack. Relying on predictable sources of electricity — like gas- and coal-fired power plants — utilities were able to balance supply and demand with some fairly straightforward math based on historical records and other data.

But the steady rise of renewable energy made the power landscape infinitely more complicated. On the supply side, changes in wind or cloud cover can sharply shift the amount of power available. Demand has also become harder to nail down as more consumers manage their power use with smart thermostats and appliances like connected ACs.

At the same time, market forces demand better power forecasts. Power plants and fuel are expensive, and they don’t want to operate or buy more equipment than they may need. “In some countries, regulators are asking power generators to guarantee the quality of their forecasts,” says Olivier Cognet, CEO of Swiss-based startup Predictive Layer.

“It’s no longer possible to say ‘We’ll sell you 20 turbines and see what they produce.’ It’s ‘We’ll produce x amount of energy by noon, y amount of energy in two hours and z energy in one month.” more>

When Welfare Sabotages Lives

BOOK REVIEW

Scarcity: Why Having Too Little Means So Much, Authors: Sendhil Mullainathan and Eldar Shafir.

By Ngaire Woods – The first lesson is that people – rich and poor – often make bad choices when they lack a key resource, like money or time. For example, ruinously expensive “payday loans” can be appealing to cash-strapped borrowers, even if the terms of these loans tend to push people deeper into debt.

This is not because people lack education. But poor decisions can result from conditions of scarcity and stress.

Britain’s new program was championed as a way to reduce costs and incentivize better decisions, thereby moving more people into work and reducing benefit claims. But, so far, there is little evidence to support this rosy scenario.

By reducing benefits received by the poor, the government is ensuring that scarcity surges and poor decisions multiply. And by changing the system frequently and making it more complicated to access, Britain’s leaders are also forcing the poor to consume more mental bandwidth. Taken together, these factors are leaving welfare recipients worse off. <a href="http://Britain’s new program was championed as a way to reduce costs and incentivize better decisions, thereby moving more people into work and reducing benefit claims. But, so far, there is little evidence to support this rosy scenario.

By reducing benefits received by the poor, the government is ensuring that scarcity surges and poor decisions multiply. And by changing the system frequently and making it more complicated to access, Britain’s leaders are also forcing the poor to consume more mental bandwidth. Taken together, these factors are leaving welfare recipients worse off." more>

Can capitalism be saved from itself?

By Homi Kharas – 2018 may yet turn out to be the year when a great battle of ideas takes place between those who argue for unfettered markets and those who would try to save capitalism from itself.

The first battle is about getting prices right. Capitalism is a great engine, but the road it takes is signposted by prices.

Get the prices wrong and the engine moves fast but in the wrong direction. And, going into 2018, many prices are wrong.

A few examples: the price of carbon, the price of dumping plastic into oceans, and the price of unpaid family care. As a broad proposition, there is a paradox in our system; in most countries, labor is taxed and fossil fuels are subsidized, while politicians and citizens in these countries insist they want more jobs and less pollution. With carbon emissions rising to record levels and employment rates falling, the price distortions are taking a toll.

In 2017 alone, natural disasters cost America $306 billion—almost equal to what economic growth last year added to GDP ($364 billion).

The second battle is around competition. Capitalism delivers for society as a whole when there is strong competition. It delivers for individual companies and their shareholders when competition is weak.

Today’s economies are seeing more concentration. In the U.S., 75 percent of industries have become more concentrated over the past two decades, generating abnormal returns. With more companies enjoying economic rents from patent and copyright returns, competition is becoming harder to achieve and winner-take-all companies are emerging.

Individual countries are unlikely to drive systemic change—this is a case where collective action on a negotiated path forward is most desirable. Yet wholesale change is also the least likely scenario. more>

Restoring Social Cohesion: A Project For 2018 And Beyond

By Michael D. Higgins – Addressing the changes and the fracture in the relationship between the citizen and society has been a matter of great importance for me throughout my Presidency.

It is a relationship that was fraying long before the onset of the Global Financial Crisis, but it has markedly lost cohesion in these last ten years, aggravated by a global macro-economic policy response that saw the losses in so many economics socialized while the gains of the financial sector were not just privatized, but concentrated at the peak of the wealth and income pyramid. Unprecedented programs of austerity became mainstream for citizens and countries reeling from the consequences of an era characterized by a new form of lightly regulated speculative capital.

The transition, in its day, between The Theory of Moral Sentiments (1759) of Adam Smith and his Wealth of Nations (1776) drew a more extensive debate in the eighteenth century than the changes in contemporary international economies, that are in our time presented as near inevitable, and that are being delivered as their sole policy choice to publics suffering the burden of what Pope Francis has called a ‘plague of indifference’. This includes not just the authors of policies but weary publics that are looking away, averting their gaze from deepening inequalities, the welfare of workers, the plight of migrants. He was referring to publics that, in the absence of technical literacy, felt they could not initiate change, were forced to accept what was socially damaging as ‘inevitable’.

The persistence of a failure to critique or challenge a political economy which maintains and even deepens existing inequalities of income, wealth, power and opportunity within societies and between nation-states is eroding social cohesion. more>

Bitcoin Energy Consumption Index

Digiconomist – Ever since its inception Bitcoin’s trust-minimizing consensus has been enabled by its proof-of-work algorithm. The machines performing the “work” are consuming huge amounts of energy while doing so. The Bitcoin Energy Consumption Index was created to provide insight into this amount, and raise awareness on the unsustainability of the proof-of-work algorithm.

Note that the Index contains the aggregate of Bitcoin and Bitcoin Cash (other forks of the Bitcoin network are not included). A separate index was created for Ethereum, which can be found here.

To put the energy consumed by the Bitcoin network into perspective we can compare it to another payment system like VISA for example. According to VISA, the company consumed a total amount of 674,922 Gigajoules of energy (from various sources) globally for all its operations. This means that VISA has an energy need equal to that of around 17,000 U.S. households. We also know VISA processed 111.2 billion transactions in 2017.

With the help of these numbers, it is possible to compare both networks and show that Bitcoin is extremely more energy intensive per transaction than VISA. more>

The real Adam Smith

By Paul Sagar – If you’ve heard of one economist, it’s likely to be Adam Smith. He’s the best-known of all economists, and is typically hailed as the founding father of the dismal science itself.

As he put it in The Wealth of Nations: ‘People of the same trade seldom meet together, even for merriment and diversion but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’

The merchants had spent centuries securing their position of unfair advantage. In particular, they had invented and propagated the doctrine of ‘the balance of trade’, and had succeeded in elevating it into the received wisdom of the age.

The basic idea was that each nation’s wealth consisted in the amount of gold that it held. Playing on this idea, the merchants claimed that, in order to get rich, a nation had to export as much, and import as little, as possible, thus maintaining a ‘favorable’ balance. They then presented themselves as servants of the public by offering to run state-backed monopolies that would limit the inflow, and maximize the outflow, of goods, and therefore of gold.

But as Smith’s lengthy analysis showed, this was pure hokum: what were needed instead were open trading arrangements, so that productivity could increase generally, and collective wealth would grow for the benefit of all.

When he argued that markets worked remarkably efficiently – because, although each individual ‘intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention’ – this was an appeal to free individuals from the constraints imposed upon them by the monopolies that the merchants had established, and were using state power to uphold. The invisible hand was originally invoked not to draw attention to the problem of state intervention, but of state capture. more>

Instability, Not Productivity, Is The Economic Problem

By Gerald Holtham – If slow growth is real, what causes it?

I don’t claim to know but it is noticeable that periods of slow productivity growth often follow large macroeconomic shocks. Quite possibly productivity will pick up again as the global economy settles down, just as it did before.

But there’s the rub. The economy needs to avoid another shock. The real concern is that whether it is growing fast or slow the economy has become dangerously unstable and a succession of recessions is quite likely.

The world has found a solution of sorts: make credit cheap. After the dot.com crash and recession of the early 2000s easy money led to an inflation of property prices and massive equity withdrawal that allowed households to increase their spending despite static wages. This was particularly marked in the “Anglosphere” countries. But the property bubble led to a crash of the housing market eventually and a worse recession in 2008/9.

In a world of deficient demand and shortage of “jobs”, all countries want to run an export surplus. Easy money everywhere eliminates the possibility of competitive devaluation – everyone is trying it so no-one can do it. The country that expands its fiscal deficit quickly ends up with a current account deficit. Calls on surplus countries to take their share of the burden of raising demand fall on deaf ears. more>

Updates from Boeing

Analyzing the 2017 Orders & Deliveries Race
By Randy Tinseth – For the 6th year in a row, Boeing out-delivered the competition and set a new industry record by pushing 763 airplanes out the door.

At the start of 2017, we set a delivery target of 760 to 765 airplanes. To land in the middle of that target speaks to the dedication of our employees and supplier partners to deliver on the commitments to our customers. You’ve heard me say it before—deliveries matter. It’s the true measure of success, and we nailed it once again in 2017 at the same time we went up on 737 production rate and introduced the MAX.

Our net order total of 912 commercial airplanes was the 7th largest yearly order book in Boeing’s more than 100-year history. Not only was our order book big, it was deep and broad. Our sales team took in orders from 71 customers across the globe. The 737 MAX had another strong year, fueled in part by the MAX 10 launch. And anytime you can book almost 200 twin-aisle airplanes with products clearly preferred by the market, it’s a good year. The sales success we had in 2017 once again confirms our strategy to raise production rates on the 737 and 787 programs. more>

Updates from Ciena

Retail Digitization… Friend or Foe?
By Brian Lavallée – The retail industry is one of the most competitive industries today, placing enormous pressure on the retailers who are continually striving to reinvent, reinvigorate, and rejuvenate their position with buyers, who are more informed than ever due to readily available online resources, long before they enter a brick and mortar store.

The same assets that consumers use to become increasingly informed can and are also being leveraged by retailers to best become the store of choice to sell their products – networks and data analytics.

The wealth of readily available and free online resources allows customers to perform advanced reconnaissance by researching product specifications, product field performance, as well as comparative product analysis pricing, performance, warranty, and user experience. This means that consumers are extremely informed before they purchase a product and often more so than the salesperson.

In short, the digital transformation has forever reshaped customer behavior and the shopping experience, which means retailers must change to this new shopping environment often by leveraging the very same tools that created the shopping ninja – networks and analytics – which allow retailers to create the required digital shopping experience that today’s consumers want and need. more>