Category: Equitablog

Should-Read: Jesse K. Anttila-Hughes et al.: Mortality from Nestlé’s Marketing of Infant Formula in Low and Middle-Income Countries: “Intensive and controversial marketing of infant formula is believed to be responsible for millions of infant deaths in low and middle-income countries (LMICs)…

…yet to date there have been no rigorous analyses that quantify these effects. To estimate the impact of infant formula on infant mortality, we pair country-specific data from the annual corporate reports of Nestlé, the largest producer of infant formula, with a sample of 2.48 million births in 46 LMICs from 1970-2011. Our key finding is that the availability of formula increased infant mortality by 9.4 per 1000 births, 95%CI ¹ among mothers without access to clean water, suggesting that unclean water acted as a vector for the transmission of water-borne pathogens to infants. We estimate that the availability of formula in LIMCs resulted in approximately 66,000 infant deaths in 1981 at the peak of the infant formula controversy…

Should-Read: Ben Thompson: The End of Windows: “The story of Windows’ decline is relatively straightforward…

…a classic case of disruption:

• The Internet dramatically reduced application lock-in
• PCs became “good enough”, elongating the upgrade cycle
• Smartphones first addressed needs the PC couldn’t, then over time started taking over >* PC functionality directly

What is more interesting, though, is the story of Windows’ decline in Redmond…. A mere five years ago, when, in the context of another reorganization, former-CEO Steve Ballmer wrote a memo insisting that Windows was the future:

In the critical choice today of digital ecosystems, Microsoft has an unmatched advantage in work and productivity experiences, and has a unique ability to drive unified services for everything from tasks and documents to entertainment, games and communications. I am convinced that by deploying our smart-cloud assets across a range of devices, we can make Windows devices once again the devices to own. Other companies provide strong experiences, but in their own way they are each fragmented and limited. Microsoft is best positioned to take advantage of the power of one, and bring it to our over 1 billion users….

That memo prompted me to write a post entitled Services, Not Devices that argued that Ballmer’s strategic priorities were exactly backwards: Microsoft’s services should be businesses in their own right, not Windows’ differentiators. Ballmer, though, followed-through on…. buying Nokia… dysfunction… allowed to spend billions on a deal that allegedly played a large role in his ouster. That dysfunction was The Curse of Culture:

Culture is not something that begets success, rather, it is a product of it…. The espoused beliefs and values of their founder(s)… lead to real sustained success… slip from the conscious to the unconscious…. The founder no longer needs to espouse his or her beliefs and values to the 10,000th employee; every single person already in the company will do just that, in every decision they make, big or small. As with most such things, culture is one of a company’s most powerful assets right until it isn’t: the same underlying assumptions that permit an organization to scale massively constrain the ability of that same organization to change direction. More distressingly, culture prevents organizations from even knowing they need to do so….

The story of how Microsoft came to accept the reality of Windows’ decline is more interesting than the fact of Windows’ decline; this is how CEO Satya Nadella convinced the company to accept the obvious….

Should-Read: Paul Krugman: Trade Wars, Stranded Assets, and the Stock Market: “Even a trade war that drastically rolled back globalization wouldn’t impose costs on the economy comparable to the kinds of movement we’ve seen in stock prices…

…But the costs to the economy as a whole might not be a good indicator of the costs to existing corporate assets. Since about 1990 corporate America has bet heavily on hyperglobalization…. Apple could produce… entirely in North America, and probably would in the face of 30 percent tariffs. But the factories it would take to do that don’t (yet) exist. Meanwhile, the factories that do exist were built to serve globalized production–and many of them would be marginalized, maybe even made worthless, by tariffs that broke up those global value chains. That is, they would become stranded assets. Call it the anti-China shock…. My original question was why stocks are dropping so much more than the likely costs of trade war to the economy. And one answer, I’d suggest, is disruption–which business leaders love to celebrate in their rhetoric, but hate when it happens to them.

Should-Read: William Beveridge (1942): Beveridge Report: Social Insurance and Allied Services: “Three guiding principles may be laid down at the outset…

• The first principle is that any proposals for the future, while they should use to the full the experience gathered in the past, should not be restricted by consideration of sectional interests established in the obtaining of that experience. Now, when the war is abolishing landmarks of every kind, is the opportunity for using experience in a clear field. A revolutionary moment in the world’s history is a time for revolutions, not for patching.

• The second principle is that organisation of social insurance should be treated as one part only of a comprehensive policy of social progress. Social insurance fully developed may provide income security; it is an attack upon Want. But Want is one only of five giants on the road of reconstruction and in some ways the easiest to attack. The others are Disease, Ignorance, Squalor and Idleness.

• The third principle is that social security must be achieved by co-operation between the State and the individual. The State should offer security for service and contribution. The State in organising security should not stifle incentive, opportunity, responsibility ; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.

The Plan for Social Security set out in this Report is built upon these principles. It uses experience but is not tied by experience. It is put forward as a limited contribution to a wider social policy, though as something that could be achieved now without waiting for the whole of that policy. It is, first and foremost, a plan of insurance–of giving in return for contributions benefits up to subsistence level, as of right and without means test, so that individuals may build freely upon it….

Abolition of want requires, first, improvement of State insurance that is to say provision against interruption and loss of earning power…. Abolition of want requires, second, adjustment of incomes, in periods of earning as well as in interruption of earning, to family needs, that is to say, in one form or another it requires allowances for children. Without such allowances as part of benefit – or added to it, to make provision for large families, no social insurance against interruption of earnings can be adequate…

Should-Read: Martin Wolf: The Chinese economy is rebalancing, at last: “Consumption is at last becoming the most important driver of demand in the Chinese economy…

…This is a long-awaited and desirable adjustment…. But it still has a long way to go…. In 2007, premier Wen Jiabao argued rightly that “the biggest problem with China’s economy is that the growth is unstable, unbalanced, uncoordinated and unsustainable”. In that year, gross national savings were 50 per cent of gross domestic product, up from 37 per cent in 2000. These huge savings financed domestic investment of 41 per cent of GDP and a current account surplus of 9 per cent. Then came the global financial crisis. The Chinese authorities promptly realised that the current account surplus had become unsustainable. In the short run, the only way to avoid a slump was to expand investment further. In 2011, gross investment reached 48 per cent of GDP and the current account surplus fell to 2 per cent. But national savings remained at 50 per cent of GDP.

This solution brought new problems. The first was a declining return on investment…. The second problem is that the increased investment was driven by a huge rise in debt…. Up to 2014… nothing had happened to make the Chinese economy seem any less unstable, unbalanced, uncoordinated and unsustainable….

The past three years have witnessed change at last: investment has fallen by 3 per cent of GDP, while public and private consumption have risen by much the same proportion. As a result, consumption has become a more important source of additional demand than investment. Thus, in 2017, notes a background paper to this year’s China Development Forum, final consumption contributed 59 per cent of GDP growth…. The rise in indebtedness has also (apparently) stopped. Behind this has been a willingness to substitute quality for quantity of growth…. While the shifts are slow and the full adjustment to more reasonable levels could take until the middle of the next decade, we are seeing early signs of the necessary change in the structure of the Chinese economy towards one that is less unbalanced and, above all, one that is more reliant on the consumer demand of China’s vast population. That would, in turn, be good for China and for the rest of the world….

The story told by former premier Wen is far from over. But we can now at least envisage a happy ending.

Should-Read: Remember this negative singularity of idiocy? I am still unaware of any “I’m sorrys” or any “I have had to rethink my vision of the Cosmic All” from any of the signers, and it has been more than seven years: Michael J. Boskin, Charles W. Calomiris, John F. Cogan, Niall Ferguson, Kevin A. Hassett, Douglas Holtz-Eakin, David Malpass, John B. Taylor, and others not worth mentioning: (November 15, 2010): Open Letter to Ben Bernanke: “We believe the Federal Reserve’s large-scale asset purchase plan (so-called ‘quantitative easing’) should be reconsidered and discontinued…

…We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.

We disagree with the view that inflation needs to be pushed higher and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

The Fed’s purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems

Cliff Asness, Michael J. Boskin, Richard X. Bove, Charles W. Calomiris, Jim Chanos, John F. Cogan, Niall Ferguson, Nicole Gelinas, James Grant, Kevin A. Hassett, Roger Hertog, Gregory Hess, Douglas Holtz-Eakin, Seth Klarman, William Kristol, David Malpass, Ronald I. McKinnon, Dan Senor, Amity Shlaes, Paul E. Singer, John B. Taylor, Peter J. Wallison, Geoffrey Wood

Should-Read: Janet Yellen: Statement on the Appointment of John Williams as President of the Federal Reserve Bank of New York: “I strongly support the appointment of John Williams as President of the Federal Reserve Bank of New York… Continue reading “Should-Read: Janet Yellen: Statement on the Appointment of John Williams as President of the Federal Reserve Bank of New York” →