Wednesday, March 27, 2019

Amazon HQ2


Queensbridge Houses.jpg
Queensbridge Houses (Wikipedia)
Kudos to Marty Goodman, Socialist Action's (SA) reporter on the Amazon HQ debacle in Long Island City. SA is rare on my beat in covering the situation at all--there is nothing in The Militant, nor has Solidarity said anything. Neither has Louis Proyect. Mr. Goodman's two articles are entitled New York Democrats shower Amazon with $billions and Protests bust up New York's Amazon deal.

It's a pity, then, that Mr. Goodman misunderstands almost everything. His confusion is so typical of my Trotskyist friends that it's worth a post to clarify.

The lede paragraphs from the first article:
On Nov. 13, after long secret negotiations, two New York “progressive” Democrats, Governor Andrew Cuomo and New York City Mayor Bill de Blasio, jointly announced that Amazon will place one of two new corporate “headquarters” in New York City and the other in Arlington, Va. 
Virtually kissing the feet of Jeff Bezos, Amazon’s CEO, whose personal wealth is $166 billion, both Democrats have bestowed upon Amazon about $3 billion in tax breaks and construction grants, which include even a nifty helipad for its owner.  ...
New York State offered $1.525 billion and the city is giving $1.28 billion to locate in Long Island City, in rapidly gentrifying Queens, a short train ride from Manhattan. The Wall Street Journal reports a “condo gold rush” in Queens.
This data can all be checked by simple Google searches. At today's price one share of AMZN costs $1759. There are 500 million shares outstanding, so multiplication yields total capitalization at $880 billion. Mr. Bezos owns about 79 million shares, worth $138 billion. He has a few other assets (e.g., Blue Origin), but his net worth likely isn't much more than $140 billion at today's market price.

Mr. Goodman should note how hypothetical that all is. It assumes that Mr. Bezos could sell all of his shares at today's market price. Of course he can't--putting that many shares on the market would crash the price. Further, we can suppose Mr. Goodman wants to confiscate his wealth. But if he did he'd end up only with a pile of worthless stock certificates--nobody will buy stock in a company whose assets are routinely confiscated.

Mr. Goodman will claim he doesn't care about the certificates, but instead only wants the physical assets: warehouses, offices, computers, etc. And yes, he could confiscate those, and perhaps those would have some residual value above zero. But the company Amazon is a whole lot more than the physical assets--it is a business that depends crucially on its management, specifically on Mr. Bezos. Take Mr. Bezos out of the picture and Amazon is reduced to a pile of trash.

Mr. Goodman is correct that the handouts offered to Amazon are tax breaks. Those bennies are contingent on Amazon upholding its part of the agreement, e.g., hiring the promised number of employees, and are payable many years in the future. Of the $3 billion in handouts, very little of it is money in the bank that can be reallocated to schools, housing, welfare, etc. As Tyler Cowen puts it,
There is no $3 billion that NYC gets to keep if Amazon does not show up. That “money” was a pledged reduction in Amazon’s future tax burden at the state and local level.
By comparison, the annual NY State budget is about $150 billion, while the City budget is roughly $89 billion. The (mostly virtual) gifts to Amazon are small change--Mr. Goodman blows the whole issue way out of proportion.

Mr. Goodman's fixation on "handouts" is a red herring.

Then Mr. Goodman is against the "gentrification" of Queens. Why? Is he against new housing? Does he prefer that construction workers be unemployed? Does he really think that everybody should be forced to live in the low-quality, slum-like conditions present in public housing? Is he opposed to new restaurants, shops, and grocery stores, all of which employ people? Should the subway not be rehabilitated?

Those questions are not rhetorical. The honest answer to all of them is "yes." Mr. Goodman is very much Pro-Poverty!

The best argument he can muster for more poverty is this:
For its part, Amazon promises 25,000 new jobs in New York City, with an average salary of $150,000, far above the average salary of the nearby Queensbridge Houses, the largest housing project in the U.S., where the poverty rate is near 50% and the average income is below $20,000. Amazon says it will spend $5 million in training. ...
Raymond Normandeau, a resident of Queensbridge Houses since 1973, told the on-line Gothamist, “It’s pure bullshit. They’re never going to hire us for these jobs. Only a country bumpkin like de Blasio or Cuomo would believe this shit.”
Because of Queensbridge, nobody else should be allowed to earn any money.

My brief encounter with housing projects leads me to believe that most residents are old, disabled, and/or sick. So obviously they're not candidates for high-stress jobs at Amazon. Beyond which, residents of the Houses, even if not debilitated, do not have the skill set necessary for such employment. Because if they did they'd already have high-paying jobs and wouldn't be living in the projects. It's not like there is a surplus of skilled labor in the country.

The Queensbridge residents live almost entirely on taxpayer largesse, and occupy some of the most valuable real estate in the world. Nevertheless, they won't be displaced no matter what company moves to Queens--"gentrification" is not a problem for them.

Quite the contrary, their self-interest is that more people should earn enough to pay taxes. Of all people, they should support Amazon. An employee earning $150K will pay about $10K in state and city income taxes, for an annual haul of $250 million. That's just income tax--it doesn't include sales or property taxes, nor does it include taxes paid by construction workers, suppliers, and vendors who support Amazon and its employees.

It is truly bizarre that a few Queensbridge residents, along with Mr. Goodman, are so blinded by envy and ideology that they can't see the huge, indirect benefit that Amazon potentially provides for poor people in the Queensbridge Houses.

A bunch of Democrats (stupid ones), as pro-poverty as Mr. Goodman, pushed Amazon away, depriving the state and city of tens of billions of dollars in real revenue (as opposed to the hypothetical "handouts"). Progressive heroine Alexandra Ocasio-Cortez led the charge. She may win plaudits in her district, but her future in state and national politics is now foreclosed.

Most people are against poverty. Mr. Goodman is a rare exception.

Further Reading:

Thursday, March 21, 2019

Louis Proyect and Peter Thiel

Peter Thiel and Louis Proyect will both be astonished to learn that they agree with each other. Neither of them is enthusiastic about the process of "creative destruction," albeit for very different reasons. Mr. Thiel expresses his opinion in a fascinating Youtube video of a conversation between him and Cornel West (along with another unidentified gentleman) in a Harvard University classroom. (It's nearly two hours long. I watched it yesterday and do not have a transcript. My comments are based entirely on memory.)

Mr. Proyect's thoughts are recorded in a post entitled The Boeing 737 Max 8: a case-study in uncreative destruction. The lede paragraph:
On October 29, 2018, a Boeing 737 Max 8 belonging to Lion Air in Indonesia crashed into the Java Sea 12 minutes after take-off. All 189 passengers and crew members were killed instantly. It is extremely unusual for planes to suffer such accidents in clear weather after having reached their cruising altitude. Flight experts concluded that the pilots were not adequately trained in the Maneuvering Characteristics Augmentation System (MCAS), a robotics technology that lowers the nose of a plane to prevent a stall. Although there is no definitive judgement on exactly what happened, it appears to be a combination of inadequate training for the pilots and a malfunctioning MCAS.
His larger argument is that flying has become deskilled, and therefore pilots less competent. Similarly, he bemoans the rise of driverless cars. Noting that pedestrians have been killed by such vehicles, he writes,
Despite such incidents (there have been 4 fatalities already), the bourgeoisie is determined to push ahead since the savings in labor costs will make up for the collateral damage of dead pedestrians. While I am skeptical that completely driverless cars will ever become the norm for Uber or Lyft, I can see people with little driving experience being paid minimum wage just to be a back-up to the computer system—as long as they don’t watch TV on the job. (Fat chance with such a boring job.)
Mr. Thiel agrees with him--the dead pedestrians are a problem. Indeed, Thiel goes further and suggests that driverless cars are mostly propaganda and won't happen for decades, if ever. The reason--we have become way too risk averse. He mentions that two dozen people died from polio vaccines when they first came out--there was a lot of uncertainty about the correct dosage. Had that happened today the whole vaccine effort would have been put on ice--the FDA would never approve a polio vaccine today.

Mr. Thiel's larger point is that we can no longer organize large-scale collective effort. That's readily apparent in public works: the NYC subway, public schools, NASA, Obamacare, etc. But Thiel argues that the rot is spreading into the private sector. The 737 scandal is not simple error or corruption on the part of some individuals--it is instead because the US can no longer manufacture aircraft. It's too complicated and we're increasingly incompetent.

I always thought Mr. Proyect was a pessimistic Luddite, but when it comes to pessimism Mr. Thiel has him beat by a mile. Don't watch the video if you're in need of cheering up.

Mr. Proyect's anti-technology bias does show through big-time, however. He bemoans automation on the flight deck, suggesting it deskills pilots. And it is true: nearly the entire commercial flight is by wire: from accelerating down the runway until landing, the pilots do nothing but oversee the computers. They are still in charge of landing the plane--the last hundred feet descent to the runway still requires human control.

They retain responsibility for when something goes wrong. Most dramatically that happened in 2009 when "Sully" Sullenberger successfully landed an Airbus 320 in the Hudson river after bird strikes had knocked out both engines, saving all lives on board. Mr. Sullenberger was 1) a skilled pilot with military experience; 2) had spent countless hours in a simulator rehearsing emergency procedures; and 3) had a genius IQ. Lucky passengers!

Somebody in the video says "no human should be condemned to do work that a machine can do better." A computer can do straight and level flight much better than a human being. It's not a hard job (even I, a novice flight student, can do that), but it requires unflagging attention. People aren't good at that--certainly not on 14 hour trans-Pacific flights. Computers are much better.

I think Mr. Proyect believes we should go back to digging ditches with picks and shovels. Let's return to the days when men did real work!

Mr. Proyect thinks that we're on the cusp of pilotless planes. I think he's wrong--no computer will ever be able to deal with an emergency. Driverless trucks, if they run into problems, can simply pull over to the side of the road and wait for human assistance. An airplane can't do that; it has to land, one way or the other. For any circumstances outside the training of AI, a human being will have to be on board. Perhaps we'll reduce the number of pilots in the cockpit, but we'll never eliminate them.

I'm more optimistic than Mr. Thiel. I do think driverless trucks on the interstate are on the near horizon. Driverless taxis will be possible in simpler environments--say in small and mid-sized towns. Though it will be a long time before they're feasible in complex places like Manhattan or Mumbai.

Mr. Thiel does not bemoan creative destruction. It is a symptom of technological progress, and at the end of the day any durable improvement in our standard of living is because of new technology. The fact that (in his opinion) technology has come to a standstill means that per capita economic growth is now zero. There is not too much creative destruction, but rather too little. Or maybe none at all.

I'll observe that our current circumstance--full employment at low wages--supports Mr. Thiel's point of view. Technological change implies a lot of churn in the labor market, and that's what pundits keep predicting. (It's even what I predicted in my book on careers.) But perhaps there is no technological change. Perhaps, instead of churn, the problem is stasis. Then everybody works as hard as they can just to stay in the same place. No creativity, and also no destruction.

The worst outcome is zero growth, which is where Mr. Thiel believes is where we're at. Then everything becomes a zero-sum game. In a zero-growth world there is no room for charity.

I hope he's wrong.

Further Reading:

Monday, March 11, 2019

The Philippines

I just got back from a two week visit to the Philippines. Most of my time was spent in and near Metro Manila, but we did do some island hopping--to Cebu, Bohol, and Dumaguete.
My first visit to the country was in 1988, and the last time I was there was 1995. So it's been 24 years--and gosh, the country sure has changed! It's much richer than before.

Manila traffic is still awful, but it's not as bad as I recall from my previous trips. They have expanded rail transit significantly. Just as important, they have built out the expressway and toll road system around Manila. The famous boulevard--Epifanio de los Santos Avenue, known universally by its initials, EDSA--has been converted to a full-fledged expressway. That cuts the heart out of the city, but it has hugely improved traffic flow.

EDSA, you may recall, was the site of the mass demonstrations that overthrew the Marcos dictatorship in 1986. The date, February 25th, is celebrated as Revolution Day and is a national holiday. EDSA today could not host such an event--it would be like holding a mass rally on the Dan Ryan Expressway. I'm not real clear where a revolution today might happen. Rizal Park? Triangle Park in Makati? Roxas Blvd? I'd vote for the latter.

Manila used to be very polluted--everybody wore face masks. I'd end each day with my nose, eyes and ears filled with diesel dust. Today this is much improved, largely because the country is gradually banning the diesel-burning, smoke-spewing jeepneys. These iconic vehicles are being replaced by less attractive but much cleaner, gasoline powered minibuses.
Image result for jeepney
Filipino Jeepney (Picture credit)
They've also banned smoking! There is no smoking in any mall, store, or restaurant. Indeed, apparently it's illegal to smoke on the street--I didn't see anybody doing it. I did see the occasional Jeepney driver lighting up.

Apart from the rail system (which I never used) public transit in the country is all privately owned and operated, beginning with the Jeepneys or their replacements. Bus lines are private, as are all the ferry boats. The latter are clean, punctual, safe, and cheap. Domestic air travel is also cheap, the result of competition between Philippine Airlines and Cebu Pacific. The toll roads are privately operated--I'm not sure who owns them or how the right-of-way was procured. They are in good shape, but the tolls are pretty steep. Accordingly there isn't too much traffic, and most users are trucks, buses and other commercial vehicles. By contrast, publicly-owned EDSA (which is not tolled) is a parking lot for much of the day.

Approximately 25% of all Filipinos are part of the global poor. The definition roughly corresponds to the United Nation's--less than $3/day. That means 75% of the country has moved into the global middle class, i.e., possesses some discretionary income.

Grab drivers (the Filipino equivalent of Uber) earn about $15/day (net of expenses). I think store clerks are paid similarly (there are a lot of them!). That's enough money to occasionally eat in a fast food restaurant, buy toys or cosmetics, or once in awhile take a day off and go to the beach. On the other hand, one of my wife's relatives is the director of a large Catholic school (more CEO than principal)--she earns $2,000 per month.

My wife grew up in a rural barangay ("village," or "neighborhood") 100 km south of Manila, known to locals by its initials: GKBB. It consists of a single road, lined on both sides by large, mostly unoccupied houses. The story of who built, owns, and occasionally lives in those houses is the story of the Philippine economy.

The country produces no industrial exports. Agricultural land is in short supply, and used mostly for local consumption. Regards services, since English is widely spoken many work in call centers, assisting American customers. Finally there is tourism--mostly oriented around beaches and diving.

By all rights the Philippines should be a very poor country--rather like Haiti--foreign exchange coming only from low-grade services and tourism. But it's much richer than that. It's because they export people.

One third of the world's seafarers are Filipino (source). Filipinos are favored employees for cruise lines--they're 60% of the crew on Royal Caribbean vessels (source).

While unskilled labor in the Persian Gulf comes mostly from India and Pakistan, the skilled trades and mid-level engineering jobs are held mostly by Filipinos. My wife's cousin spent 20 years in Saudi Arabia, before coming home to live off the proceeds.

Thousands of Filipina women work as domestics in Hong Kong and Singapore. Hong Kong's infamous yayas (nannies) lead very hard lives, as they do also in Singapore. The movie Ilo Ilo movingly relates the story of a yaya in Singapore. Filipinas by the tens of thousands staff brothels throughout East Asia and Australia.

In the United States Filipinos are concentrated in health professions--all the way from orderly to cardiac surgeon. You will also find them in engineering and hospitality jobs. The Filipino population in the US is estimated to be around 3.4 million (source).

The Philippine diaspora is truly global. My wife, children and I spent a year in Uganda--and sure enough we found a thriving community of several hundred Filipinos already there.

All those people send money home--money that's used to build fancy houses in their ancestral home towns such as GKBB, which they'll occupy when they visit or retire. In the meantime they sit mostly empty.

Of course this works--as long as the global economy grows, the Philippine economy grows with it. It's obviously grown like gangbusters since 1995--that's why the country is so much richer today than in 1995.

The precondition for the business model is that the Philippines has enough people to export. And sure enough, it has the highest fertility rate in East Asia. About 37% of the population in the central Visayas (Cebu) is below 10 years old (source). Filipinos are rightly proud of their shopping malls, but the biggest difference between those and malls in the US is this: In the Philippines they have lots of babies, while in the United States they have lots of baby boomers. (It's an added bonus for the tourist since Filipino children are crazy cute!) The Philippines is today a lifeline to places like Japan and South Korea, peoples so obsessed with birth control that they can't even reproduce themselves.

While the Filipino fertility rate is still about 3.0 (source), it is down from 3.5 in 2000 (source). A continuation of that trend spells disaster for the country--you can't export people if you don't have any. Without people, the country becomes as poor as Haiti.

But, being optimistic, let's hope they maintain their birth rates. Then the future belongs to the Filipino. And that's not a bad future. Not bad at all.

This isn't a travel blog. Still, here are a few pics from my trip.
Momo Beach on Panglao Island. Cebu Island is visible in the distance.
Manila Bay and city skyline--from our hotel (TRYP at Mall of Asia).
Cross of the Holy Child--Magellan's Cross in Cebu
Magellan was killed fighting for King Humabon against the Lapu-Lapu on neighboring Mactan Island.
The Chocolate Hills, Bohol

Further Reading: