Amazon is just beginning to use robots in its warehouses

Saturday, July 8th, 2017

Amazon is just beginning to use robots in its warehouses and they’re already making a huge difference:

Amazon acquired Kiva for $775 million in 2012 but only started using the orange robots in its warehouses in late 2014. The deal was expected to make inventory management more efficient. It’s now beginning to become clear by how much.

The “click to ship” cycle used to be around 60-75 minutes when employees had manually to sift through the stacks, pick the product, pack it, and ship it. Now, robots handle the same job in 15 minutes, according to a Deutsche Bank note published Tuesday (June 14) based on Amazon’s metrics.

These robots are not only more efficient but they also take up less space than their human counterparts. That means warehouse design can eventually be modified to have more shelf space and less wide aisles. At the end of the third quarter of 2015, Amazon was using 30,000 Kiva robots across 13 warehouses. Each Kiva-equipped warehouse can hold 50% more inventory per square foot than centers without robots. In turn, the company’s operating costs have been sliced by 20% — or almost $22 million — per warehouse.

If Kiva robots are dispatched to the rest of the 110 Amazon warehouses, the tech giant could save almost $2.5 billion, according to Deutsche Bank. However, since it takes $15-$20 million to install robots in each warehouse, the one-time savings is expected to be closer to $800 million.

Disney’s biggest business is cable TV, for now

Friday, July 7th, 2017

Disney’s biggest business is cable TV, and kids are tuning out:

The troubles are twofold: a lack of hits and the broader move by audiences away from traditional television to digital alternatives. The shift to streaming services such Netflix Inc. and web-based platforms like Google’s YouTube is particularly pronounced among younger viewers targeted by these Disney networks.

[...]

Disney Channel programming is focused on children, while Freeform, which changed its name from ABC Family in January of 2016, is aimed at teenagers and young adults.

Cable TV has long been Disney’s biggest business, accounting for 30% of its revenue and 43% of profits last fiscal year. About 26% of cable revenue and profits come from entertainment networks like Disney Channel and Freeform, Morgan Stanley estimates, while the rest is generated by ESPN. (Disney doesn’t disclose the breakdown).

[...]

Also at stake for Disney is the exposure its TV channels offer for toys, clothes and other products that the company relies on for hundreds of millions of dollars annually in revenue.

As consumers “cut the cord,” Disney’s once fast-growing cable business has slowed down. Cable revenue is flat and operating income down 6% in the first half of the current fiscal year, which has alarmed Wall Street.

Disney Chief Executive Robert Iger has said that strengthening online accessibility for television programs is a priority and that the company is preparing to offer its channels, in part or whole, directly to consumers online rather than just through costly cable packages.

[...]

For the first six months of this year, the commercial-free Disney Channel’s ratings among in its core 2-11 and 6-14 demographics fell 23% in prime time and 13% and 18%, respectively, during the full day, compared with the same period a year ago, according to Nielsen. Ratings are also down at the smaller Disney Jr. and Disney XD networks, which fall under Mr. Marsh’s Disney Channel umbrella.

Have parents caught on to how Disney’s “family friendly” programming consists largely of bullying followed by laughter?

A quick stroll through grocery-store history

Wednesday, June 28th, 2017

Gary Hoover takes us on a quick stroll through grocery-store history:

By 1912, America’s first great retail chain, the Great Atlantic and Pacific Tea Company (“The A&P”) had 480 stores spread across many states. The founder’s son John Augustine Hartford thought the highly successful company could do better if they lowered prices, but his father and conservative brother would not hear of it. Finally, he wore them down and they said, “Ok, you can open one of your cheap store ideas a few blocks from an A&P. But you cannot call it A&P and you can only have $3,000 with which to open the store.” They figured this would prove the stupidity of his “Economy Store” concept. Within months, the regular A&P around the corner had to close as customers loved the new concept. By 1927, only fifteen years later, A&P had opened 15,671 of these little stores, sometimes just a block apart in major urban centers. By 1929, the A&P had become one of America’s first companies to achieve $1 billion in annual revenue. The largest retailer in the land, these revenues were greater than those of #2 Sears, Roebuck and #3 FW Woolworth combined.

Despite this huge success, the A&P was not without competition. In 1929, Kroger of Cincinnati, Safeway of San Francisco, American Stores of Philadelphia, National Tea of Chicago, and First National of Boston operated an additional 14,188 stores. Grocery chains represented 4 of the 10 largest retail companies in America.

Then, on August 4, 1930, Michael J. Cullen opened his King Kullen store in Jamaica, Queens, New York, generally accepted as the first true supermarket. Cullen, a veteran of A&P and Kroger, had tried to convince the leaders of Kroger to try his new idea, described as “a new type of food store with a focus on low prices, cash sales, and without delivery service, in larger stores (at low rents) with ample parking.” These were to be “monstrous” stores, about forty feet wide and hundred and thirty to a hundred and sixty feet deep, located one to three blocks off the high rent district with plenty of parking space, to be operated as a semi-self-service store — twenty percent service and eighty percent self-service. Cullen suggested that this new type of store could achieve 10 times the volume and profits of the average Kroger or A&P. But his letter never even made it to the head of Kroger, as the chief’s lieutenants knew the idea was crazy.

But it wasn’t crazy. King Kullen and others around the nation added meat and produce to the standard mix of “dry groceries,” added parking, but most of all deep discounts. Others followed Cullen: two years later, Big Bear opened in New Jersey in the former Durant auto factory, its single store doing the revenue of 100 A&P’s.

Within a few years, the industry leaders woke up to the new concept. In 1937 A&P, ever ready to evolve under the same brilliant John Hartford, began closing its tiny stores and replacing them with the new “giant” supermarkets. In just thirteen years, by 1950 A&P had dropped from more than 14,000 stores to just over 4,000, but their revenues rose from $800 million to $3 billion. In 1955, 11 of the 25 largest American retailers were grocery store chains.

During the 1960s, the new concept of the discount store — general merchandise but no food — spread across America. Over time, many retailers attempted to integrate general merchandise with food: Walgreen’s and St. Louis’s Schnuck’s grocery chain, Skaggs/Albertson’s from the western US, Kmart and Detroit’s Allied Supermarkets, and others tried to make it work, with mixed success at best. Weekly “convenience goods” shopping for low margin groceries did not fit with the less frequent and more leisurely “shopping goods” trips for clothing, home furnishings, hardware, and other categories. The industry mentalities and restocking processes were radically different. A few regional firms made it work — Schwegmann’s in New Orleans, Meijer’s Thrifty Acres in Michigan, and Fred Meyer in Oregon. But none of the industry giants could figure it out.

Fast forward to 1987. Booming discount chain Walmart — still smaller than Sears or Kmart — opened an experimental store combining the general merchandise (non-food) that it knew well with groceries, a new category in an already fiercely competitive field. The store was called Hypermart USA, modeled on the “hypermarches” which were sweeping through Europe, led by France’s Carrefour. The store did not work and was soon closed.

Nevertheless, ever-experimenting Walmart opened its first “Supercenter” the next year (1988) in Washington, Missouri. This time it worked. For the next several years, the company gradually replaced most of its discount stores with the new food and general merchandise combination stores. As of January 31, 2017, there were 3,522 Walmart Supercenters in 49 of the 50 U.S. states, the District of Columbia, and Puerto Rico. Everywhere but Hawaii. Walmart is by far the largest food retailer in the world, with revenues almost twice those of runner-ups France’s Carrefour and Britain’s Tesco combined. Kroger remains the largest pure food chain in the US, and the only company to finish among America’s top ten retailers ever since 1929, a remarkable record in itself.

Yet another breakout of the 1970s and 1980s was the invention of the warehouse club with Sol Price’s Price Club in San Diego. Costco and Walmart’s Sam’s Club came along soon after. Costco later acquired the original Price Club organization. No retailer in American history has lived with such low profit margins as these stores, relying on membership fees for profitability (not unlike Amazon). Between 2000 and 2016, Amazon grew its North American revenue by $76 Billion, while Costco added $63 Billion.

Step ahead another 30 years to today. Convenience stores are getting a rising share of the food dollar, led by Sheetz, Wawa, 7-Eleven, and many smaller firms. Walgreen’s, in the 1970s a sleeping giant, and CVS, back then a small division of shoe giant Melville Corporation, are now adding more food on virtually every good street corner in America, often facing each other. Family Dollar, Dollar General, and DollarTree are adding stores and expanding in food. Aldi and Lidl are invading in spades. Those in the traditional supermarket industry in the “know” consider privately owned Publix, HEB, and Wegman’s as among the best in class — conclusions supported by surveys of customer loyalty and satisfaction.

According to Statista, in 2016 Walmart sold 17.3% of the food sold in America (excluding restaurants), followed by Kroger at 8.9%, Albertson’s/Safeway at 5.6%, Costco at 5.1%, Ahold Delhaize at 4.2%, Sam’s Club and Publix tied at 3.4%, HEB at 1.9%, Whole Foods and ShopRite at 1.7%, Target at 1.5%, Meijer at 1.4%, and Aldi at 1.3%. Further down the list were Trader Joe’s at 1.1%, and Wegman’s and Amazon tied at 0.8%. That is a LOT of upside for Amazon and the other tiny players, just as Whole Foods’ leaders realized 35 years ago.

Ceremony is central to the creation of civilization

Sunday, June 25th, 2017

Longtime friend of the blog Aretae has another book out. It’s called Ceremony: A Profound New Method for Achieving Successful and Sustainable Change:

Secreted away inside of weddings, graduations, religious services, and sporting events are powerful ceremonial techniques for dramatically increasing human performance — ways to increase productivity, strengthen relationships, and effectively manage change.

Ceremony is central to the creation of civilization. It is an intrinsic tool in religions, militaries, schools, and governments. Yet executives, entrepreneurs, and front-line managers cannot formally describe what it is, how it works, or how to leverage it in their organizations.

Surprisingly, ceremony as a conscious organizing strategy remains almost unknown in the business world. It has been ignored by an entire generation of business consultants. But there is hope. For two decades, the agile software development community has been quietly demonstrating the power of directed ceremony. In this book, we share insights gathered over the last two decades, first on agile software teams and later across entire organizations.

Does your staff come to work because they love what they do, or simply because they are paid? Ceremony builds a workplace people love.

Do people look forward to attending meetings, or do they sneak out of them at the first opportunity? Ceremony creates productive gatherings people want to attend.

Are you able to implement significant change rapidly, or do a whole generation of employees need to retire before real change succeeds? Ceremony enables quick, painless, and effective change.

Do you need to raise productivity, improve quality, and reduce costs, all at the same time? Ceremony is a strategy for doing all three. And it can be implemented in tiny, incremental, low-risk steps.

Ceremonial systems are humanity’s true heritage; rediscover their power.

Coal mines make expensive batteries

Tuesday, June 6th, 2017

The growth of not-so-on-demand renewable power sources has people looking at converting coal mines into pumped-hydro energy-storage systemes:

Compared with other types of energy storage, the underground pump concept is expensive but designed to last longer than a chemical battery.

The cost of the German system is about €2,750 ($3,075) per kilowatt-hour. New Jersey-based Eos Energy Storage, a cutting-edge battery company, offers a storage system powered by zinc-hybrid batteries for $168 a kilowatt-hour that can last around 20 years, according to the company’s director of business development, Charles Russell.

“The advantage of pumped hydro is that it’s high capex, but it’s there for 100 years,” said Gerard Reid, a founding partner at Alexa Capital, a London-based corporate finance firm specializing in energy technology and infrastructure.

The engineer’s report described the pump as “long-lasting and virtually maintenance free.”

But there is another problem affecting all types of power-storage systems. Even if an investor fronted the money to build the pump, the low price of electricity on both sides of the Atlantic would make it difficult to turn a profit. For the pump to make money, it needs wide spreads in the wholesale power market, so it can buy power when prices are low and sell when prices are high.

Right now, wholesale electricity is cheap pretty much all the time.

A cruise ship is not a democracy

Monday, June 5th, 2017

While cruising to Bermuda, Bryan Caplan concludes that cruise ships show the logic of open borders:

On a cruise ship, people of all nations — and all skill levels — work together. Top-notch pilots and mechanics from Scandinavia ply their craft alongside cabin stewards and janitors from the Third World. Via comparative advantage, their cooperation allows them to provide an affordable, high-quality vacation to eager consumers.

A Bastiat fan notes that a cruise ship is not a democracy.

China and Namibia are all-weather friends

Thursday, June 1st, 2017

Is China the world’s new colonial power?

China’s gravitational pull can be felt today in every nook of the globe. Few countries feel the tug more strongly than Namibia, a wind-swept nation with a population of 2.4 million — barely a tenth the size of Beijing’s — some 8,000 miles away from the Chinese capital. The desert where the Husab mine has materialized in recent years used to be known only for the presence of Welwitschia mirabilis, the short, droopy national plant that grows just two leaves — and can live for more than 1,000 years. Now, in little more than 1,000 days, China’s reach has spread far beyond the uranium mine.

Just north of Swakopmund, a Chinese telemetry station sprouts from the desert floor, its radar dishes pointing skyward to track satellites and space missions. Twenty-five miles south, in Walvis Bay, a state-owned Chinese company is building an artificial peninsula the size of 40 baseball fields as part of a vast port expansion. Other Chinese projects nearby include new highways, a shopping mall, a granite factory and a $400 million fuel depot. Chinese trade flows through the port: shipping containers filled with cement, clothing and machinery coming in; tiles, minerals and — in some cases — illegal timber and endangered wildlife heading out to China. The activity is so frenzied that rumors of a proposed naval base in Walvis Bay, though vehemently denied by Chinese officials, do not strike locals as implausible.

This small outpost offers a glimpse of what may be the largest global trade-and-investment spree in history. Driven by economics (a hunger for resources and new markets) and politics (a longing for strategic allies), Chinese companies and workers have rushed into all parts of the world. In 2000, only five countries counted China as their largest trading partner; today, more than 100 countries do, from Australia to the United States. The drumbeat of proposed projects never stops: a military operating base, China’s first overseas, in Djibouti; an $8 billion high-speed railway through Nigeria; an almost-fantastical canal across Nicaragua expected to cost $50 billion. Even as China’s boom slows down, its most ambitious scheme is still ramping up: With the “One Belt, One Road” initiative — its name a reference to trade routes — President Xi Jinping has spoken of putting $1.6 trillion over the next decade into infrastructure and development throughout Asia, Africa and the Middle East. The scheme would dwarf the United States’ post-World War II Marshall Plan for Europe.

China’s relationship with Africa goes back to the 1960s, when Chairman Mao Zedong promoted solidarity with the developing world — “Ya Fei La,” as he called it, using the first syllables for Asia, Africa and Latin America. Though it was poor and mired in the chaos of the Cultural Revolution, China won new allies in Africa by finishing, in 1976, a 1,156-mile railroad through the bush from Tanzania to Zambia. Aid continued to trickle in, but there were no other big projects for nearly 30 years, as China focused on building up its domestic economy, following its leader Deng Xiaoping’s prescription to “hide your strength and bide your time.” That ended in the 2000s, when Beijing, recognizing the need for foreign resources and allies to fuel its economic growth, exhorted the nation’s companies to “go out” into the world.

Today, if you take the red-eye flight from Shanghai to Addis Ababa, the Ethiopian capital, chances are you’ll be seated among Chinese workers heading to a construction site in oil-rich Equatorial Guinea, a cotton-processing plant in Mozambique, a telecom project in Nigeria. China’s trade with African nations has increased fortyfold in the past 20 years. The workers and migrants carrying out China’s global vision are now so ubiquitous in Africa — as many as a million of them, according to one estimate — that when my wife and I wandered into a Hunanese restaurant in Addis, the red-faced workers devouring twice-cooked pork blurted out: “Ah, laowai laile!” “Foreigners have come!” It seemed rude to point out that they were foreigners, too.

China’s advances have come as the West seems to be retreating. United States engagement in Asia, Africa and Latin America declined after the Cold War, when the regions served as proxies for superpower rivalries. China’s rise and the wars in the Middle East also pulled away resources and attention. And now, with Washington raising doubts about global agreements on issues like free trade and climate change, Beijing has more leverage to push its own initiatives and show its capacity for global leadership. President Trump’s disdain for the Trans-Pacific Partnership has already made Beijing’s trade proposals, which exclude the United States, more appealing. “In certain parts of the world, the relative inattention of the Trump administration is definitely creating an opening for China to fill,” says David Shambaugh, director of the China Policy Program at George Washington University and author of the 2013 book “China Goes Global.” But “China remains very much a partial power — and only offers other countries an economic relationship.”

Still, for a nation like Namibia, China’s pitches can be irresistible partly because they’re rooted in historical solidarity. Beijing backed the black nationalist movement’s liberation struggle against apartheid and its white South African overlords. Sam Nujoma, the leader of the South West Africa People’s Organization (Swapo), visited Beijing in search of guns and funds in the early 1960s. When Namibia finally claimed independence in early 1990, with Nujoma as president, China became one of its first diplomatic allies, pronouncing the two countries “all-weather friends.” (Beijing was also desperate for allies to break its diplomatic isolation after its violent crackdown on the 1989 democracy movement.)

I can’t help but think of Amy Chua’s World on Fire and its market-dominant minorities:

James and Rose are part of the early wave of Chinese immigrants who landed in Africa 20 years ago and never left. The Chinese diaspora has a long history of finding a foothold, and then thriving, in some of the world’s most remote places: I’ve bumped into Chinese merchants everywhere from the Arctic tundra of Siberia to mining towns in the Andes. In Africa, entrepreneurs like James and Rose found a new frontier with the space, freedom and opportunities that many early settlers saw in the American West. “My husband came to look at business here, and he fell in love with the wide-open spaces,” Rose told me. “But we’re still Chinese first and foremost.” Like many Chinese immigrants around the world, the couple began by opening a small mom-and-pop shop, filling the shelves with cheap clothes, shoes and bags shipped by container from China. Their store, James and Rose, still stands at a central intersection of Walvis Bay, even as their ventures have expanded to include a hotel, a restaurant, a karaoke bar, a massage parlor and a trading company. Today there are such Chinese-run stores in nearly every town in Namibia — and thousands more across Africa. On a recent Sunday in Windhoek’s Chinatown, where dozens of shops occupy a series of long warehouses in the city’s industrial district, Namibian families strolled the lanes, haggling over everything from knockoff Nikes and plastic children’s toys to solar panels and secondhand mobile phones. One man told me he liked the low prices, even as he complained about the goods’ poor quality — and the harm they did to the local garment industry. Wu Qiaoxia, a Chinese entrepreneur whose real estate business began with a simple store in the northern town of Oshakati, waves off such criticism. “Many Namibian children didn’t even have shoes before we got here,” Wu says. “The people here needed everything, and we sold it to them, cheaply.”

Money earned is a reasonable approximation of the value you’re creating

Tuesday, May 30th, 2017

Amazon is the most defensible company on earth — for not-so-obvious reasons:

It’s the fact that each piece of Amazon is being built with a service-oriented architecture, and Amazon is using that architecture to successively turn every single piece of the company into a separate platform — and thus opening each piece to outside competition.

I remember reading about the common pitfalls of vertically integrated companies when I was in school. While there are usually some compelling cost savings to be had from vertical integration (either through insourcing services or acquiring suppliers/customers), the increased margins typically evaporate over time as the “supplier” gets complacent with a captive, internal “customer.”

There are great examples of this in the automotive industry, where automakers have gone through alternating periods of supplier acquisitions and subsequent divestitures as component costs skyrocketed. Divisions get fat and inefficient without external competition. Attempts to mitigate this through competitive/external bid comparison, detailed cost accountings and quotas usually just lead to increased bureaucracy with little effect on actual cost structure.

The most obvious example of Amazon’s SOA structure is Amazon Web Services (Steve Yegge wrote a great rant about the beginnings of this back in 2011). Because of the timing of Amazon’s unparalleled scaling — hypergrowth in the early 2000s, before enterprise-class SaaS was widely available — Amazon had to build their own technology infrastructure. The financial genius of turning this infrastructure into an external product (AWS) has been well-covered — the windfalls have been enormous, to the tune of a $14 billion annual run rate. But the revenue bonanza is a footnote compared to the overlooked organizational insight that Amazon discovered: By carving out an operational piece of the company as a platform, they could future-proof the company against inefficiency and technological stagnation.

In the 10+ years since AWS’s debut, Amazon has been systematically rebuilding each of its internal tools as an externally consumable service. A recent example is AWS’s Amazon Connect — a self-service, cloud-based contact center platform that is based on the same technology used in Amazon’s own call centers. Again, the “extra revenue” here is great — but the real value is in honing Amazon’s internal tools.

If Amazon Connect is a complete commercial failure, Amazon’s management will have a quantifiable indicator (revenue, or lack thereof) that suggests their internal tools are significantly lagging behind the competition. Amazon has replaced useless, time-intensive bureaucracy like internal surveys and audits with a feedback loop that generates cash when it works — and quickly identifies problems when it doesn’t. They say that money earned is a reasonable approximation of the value you’re creating for the world, and Amazon has figured out a way to measure its own value in dozens of previously invisible areas.

But this much is obvious — we all know about AWS. The incredible thing here is that this strategy — in one of the most herculean displays of effort in the history of the modern corporation — has permeated Amazon at every level. Amazon has quietly rolled out external access in nooks and crannies across their entire ecosystem, and it is this long tail of external service availability that I think will be nearly impossible to replicate.

There’s a lot to like about cutting corporate taxes

Monday, May 15th, 2017

There’s a lot to like about cutting corporate taxes:

One reason is that corporate taxation isn’t the greatest way of raising revenue. When you tax a corporation, it’s not just the shareholders who pay. Prices for customers go up to some degree, and take-home wages for employees — both at the top and the bottom of the pay scale — go down. It’s difficult to tell who pays what — some economists estimate that shareholders pay essentially all of the tax, while others conclude that workers pay the lion’s share.  There’s also a chance that some piece of the corporate tax might fall on those who can least afford to pay, specifically low-wage workers and poor people. That uncertainty implies that society should shift the tax burden from corporations to wealthy individuals. That will ensure that less of the cost of government falls on the poor. Since corporate tax represents only 11 percent of U.S. revenue, replacing some of that with higher top-end income taxes shouldn’t be too difficult.

There’s also the question of whether corporate taxes reduce investment. In the 1980s, some economists concluded that taxes on capital — of which corporate taxes are one variety — should be zero. Since capital — the physical kind, buildings and machines and so on — allows greater production in the future, taxing it today just means a smaller economy, and therefore a smaller tax base, down the road. That result came from a highly unrealistic model, and later economists showed that when you tweak the model a bit, the optimal corporate tax is no longer zero. Still, the U.S. should be focusing on ways to boost business investment, which has fallen as a share of output in recent years:

There is plenty of evidence that corporate tax cuts can raise investment levels. A 2009 paper by economists Simeon Djankov, Tim Ganser, Caralee McLiesh, Rita Ramalho, and Andrei Shleifer found that lower corporate taxes are correlated with more investment. And when Canada cut taxes for some kinds of companies but not for others in the early 2000s, the companies that got tax cuts invested more. A number of other studies find similar results. So in this climate of low investment, the U.S. should try corporate tax cuts as one method of getting businesses to spend more.

But perhaps the clearest reason to cut corporate taxes is the waste they generate through avoidance. A key, often overlooked fact about the U.S. corporate tax is that many businesses manage to pay little or nothing. One of the most common ways to do this is to shift profits overseas, through transfer pricing, inversions, or other perfectly legal methods, to a tax haven country like the Cayman Islands. There, a company can avoid taxes indefinitely, reinvesting the profits in its business and letting them compound. If the company wants to cash out, it has to repatriate its cash and pay taxes to the U.S., but the returns from delaying the date of payment can be substantial. And often, a corporation can avoid taxes altogether by waiting for the U.S. to enact a repatriation holiday. In addition to tax havens, there are many other legal loopholes businesses can exploit to avoid taxes.

As a result of avoidance, the U.S. doesn’t collect much more of corporations’ profits than other countries do, despite having a much higher official tax rate. A number of recent studies find that on average, U.S. companies pay about 27 percent to 30 percent of their profits in taxes, compared with 24 percent to 26 percent average for other nations.

Meanwhile, because of tax avoidance, the true rate isn’t closely tied to the headline rate. The official U.S. rate has remained at 35 percent since 1993, with only minor changes. But the percent of corporate profits collected through the tax system has fallen quite a bit.

All that avoidance costs real resources — hours of labor by tax accountants and financial professionals, buildings for them to work in, and computers to keep everything in order. By cutting the corporate tax rate, the U.S. would reduce the incentive for companies to waste all that money avoiding taxes.

Reducing the reward from tax avoidance might also lower an important barrier to entry in U.S. industries. Tax avoidance probably has big fixed costs — you have to hire teams of lawyers and set up foreign subsidiaries. Those fixed costs make it difficult from small startups to compete on a level playing field with big, established companies, worsening the problem of monopoly power in the economy. Cutting the corporate tax rate would make the system fairer.

The Bob Rubin trade

Monday, May 8th, 2017

Nassim Nicholas Taleb describes the Bob Rubin trade:

[A] system that doesn’t have a mechanism of skin in the game will eventually blow up and fix itself that way. We will see numerous such examples.

For instance, bank blowups came in 2008 because of the hidden risks in the system: bankers could make steady bonuses from a certain class of concealed explosive risks, use academic risk models that don’t work (because academics know practically nothing about risk), then invoke uncertainty after a blowup, some unseen and unforecastable Black Swan, and keep past bonuses, what I have called the Bob Rubin trade. Robert Rubin collected one hundred million dollar in bonuses from Citibank, but when the latter was rescued by the taxpayer, he didn’t write any check. The good news is that in spite of the efforts of a complicit Obama administration that wanted to protect the game and the rent-seeking of bankers, the risk-taking business moved away to hedge funds. The move took place because of the over-bureaucratization of the system. In the hedge fund space, owners have at least half of their net worth in the funds, making them more exposed than any of their customers, and they personally go down with the ship.

People don’t learn when they they are not the victims to their own mistakes:

Skin in the Game reduces, sometimes even eradicates, the following differences that arose as a side effect of civilization: action and cheap talk (tawk), consequence and intention, the practical and the theoretical, expert and pseudoexpert, entrepreneur and bureaucrat, Coventry and Brussels, the concrete and the abstract, the ethical and the legal, the genuine and the cosmetic, scholarship and academia, democracy and governance, science and scientism, politics and politicians, love and money, the spirit and the letter, Cato the Elder and Barack Obama, quality and marketing, commitment and signaling, and, centrally, the collective and the individual.

But, to this author, is mostly about justice, honor, and sacrifice as the core of human existence.

A more comprehensive and devious approach

Saturday, April 22nd, 2017

An enterprising group of hackers targeted a Brazilian bank with a more comprehensive and devious approach than usual:

At 1 pm on October 22 of last year, the researchers say, hackers changed the Domain Name System registrations of all 36 of the bank’s online properties, commandeering the bank’s desktop and mobile website domains to take users to phishing sites. In practice, that meant the hackers could steal login credentials at sites hosted at the bank’s legitimate web addresses. Kaspersky researchers believe the hackers may have even simultaneously redirected all transactions at ATMs or point-of-sale systems to their own servers, collecting the credit card details of anyone who used their card that Saturday afternoon.

“Absolutely all of the bank’s online operations were under the attackers’ control for five to six hours,” says Dmitry Bestuzhev, one of the Kaspersky researchers who analyzed the attack in real time after seeing malware infecting customers from what appeared to be the bank’s fully valid domain. From the hackers’ point of view, as Bestuzhev puts it, the DNS attack meant that “you become the bank. Everything belongs to you now.”

It conquered the office

Friday, April 21st, 2017

Adam Smith famously used a pin factory to illustrate the advantages of specialization, Virginia Postrel reminds us — just before the Industrial Revolution really kicked off:

By improving workers’ skills and encouraging purpose-built machinery, the division of labor leads to miraculous productivity gains. Even a small and ill-equipped manufacturer, Smith wrote in The Wealth of Nations, could boost each worker’s output from a handful of pins a day to nearly 5,000.

In the early 19th century, that number jumped an order of magnitude with the introduction of American inventor John Howe’s pin-making machine. It was “one of the marvels of the age, reported on in every major journal and encyclopedia of the time,” writes historian of technology Steven Lubar. In 1839, the Howe factory had three machines making 24,000 pins a day — and the inventor was clamoring for pin tariffs to offset the nearly 25 percent tax that pin makers had to pay on imported brass wire, a reminder that punitive tariffs hurt domestic manufacturers as well as consumers.

[...]

Nowadays, we think of straight pins as sewing supplies. But they weren’t always a specialty product. In Smith’s time and for a century after, pins were a multipurpose fastening technology. Straight pins functioned as buttons, snaps, hooks and eyes, safety pins, zippers, and Velcro. They closed ladies’ bodices, secured men’s neckerchiefs, and held on babies’ diapers. A prudent 19th century woman always kept a supply at hand, leading a Chicago Tribune writer to opine that the practice encouraged poor workmanship in women’s clothes: “The greatest scorner of woman is the maker of the readymade, who would not dare to sew on masculine buttons with but a single thread, yet will be content to give the feminine hook and eye but a promise of fixedness, trusting to the pin to do the rest.”

Most significantly, pins fastened paper. Before Scotch tape or command-v, authors including Jane Austen used them to cut and paste manuscript revisions. The Bodleian Library in Oxford maintains an inventory of “dated and datable pins” removed from manuscripts going as far back as 1617.

[...]

But a better solution was on its way. In 1899, an inventor in the pin-making capital of Waterbury, Connecticut, patented a “machine for making paper clips.” William Middlebrook’s patent application, observed Henry Petroski in The Evolution of Useful Things, “showed a perfectly proportioned Gem.”

It was that paper clip design that conquered the office and consigned pins to their current home in the sewing basket.

One-handed zipping

Wednesday, April 5th, 2017

Under Armour introduced an ingenious new zipper design created by engineer Scott Peters a couple years ago:

Although the fastening still relies on the interlocking of two bands of metal teeth, the clasps at the bottom have received a thoughtful re-design. The motivation for Peters, he says, was watching his uncle, who suffers from myotonic dystrophy, struggle to engage the conventional clasps. The solution is the inclusion of magnets and a unique catch, so that the two halves automatically align with one another and the zipper can even be done up one handed.

MagZip

More on the MagZip‘s development:

The eureka moment of a magnetic zipper was crucial. But the exact millimeter grooves making the process practical would require painstaking nuance.

“Magnets in and of themselves won’t work. They’ll drive components together, but you have issues of alignment, issues of holding things together without popping out – and pulling them apart can be a nightmare,” Peters explains. “We had to figure out the combination of mechanical design so it self-aligns and easily locks itself in place, enabling you to zip with one hand.”

“We started rapid prototyping, getting parts machined, and testing. We’d make a part, assemble it, and glue it on a zipper to find out what worked and didn’t work. I had one part that actually broke, and when this had broken, it kind of showed me the way. . .we were able to evolve the design to where it is today, a more open hook-and-catch.”

Why Japan’s Rail Workers Can’t Stop Pointing at Things

Monday, April 3rd, 2017

It is hard to miss when taking the train in Japan:

White-gloved employees in crisp uniforms pointing smartly down the platform and calling out — seemingly to no one — as trains glide in and out of the station. Onboard is much the same, with drivers and conductors performing almost ritual-like movements as they tend to an array of dials, buttons and screens.

Shisa kanko on Skinhansen in Kyoto Station

While these might strike visitors as silly, the movements and shouts are a Japanese-innovated industrial safety method known as pointing-and-calling; a system that reduces workplace errors by up to 85 percent.

Known in Japanese as shisa kanko, pointing-and-calling works on the principle of associating one’s tasks with physical movements and vocalizations to prevent errors by “raising the consciousness levels of workers”—according to the National Institute of Occupational Safety and Health, Japan. Rather than rely on a worker’s eyes or habit alone, each step in a given task is reinforced physically and audibly to ensure the step is both complete and accurate.

Cutting Air Freight Costs In Half

Friday, March 31st, 2017

Natilus [sic] hopes to cut air-freight costs in half with drones — thanks to a more efficient use of fuel and the lack of an expensive crew:

Natilus, which has raised $750,000 from venture capitalist Tim Draper and was incubated at the aviation-oriented Starburst Accelerator in Los Angeles, will power its drones with turboprop and turbofan engines and standard jet fuel, sending them on missions at an altitude of approximately 20,000 feet. That’s well below commercial planes, but high enough to be fuel-efficient. Matyushev says trips across oceans would cost about half of what current commercial air freight transport runs, traveling a bit slower than manned cargo aircraft.

Natilus vs. Cargo Ship and 747

“Air cargo is all about speed at high price,” he says. “Ocean freight is longer transit times at lower pricing. And with certain goods — be it perishables, or goods that are looking for that middle ground — that idea of middle price for middle transit times is that sweet spot.”