Administrative assistants did not do management, but managers did do administration

Thursday, April 15th, 2021

Has the economic clock started to run backwards?, Tim Harford asks:

As Philip Coggan writes in his epic history, More: The 10,000 Year Rise of the World Economy, Smith’s 1776 book was not the first to note the productivity gains that resulted from specialisation. Xenophon was making similar remarks in 370 BCE.

But why does the division of labour improve productivity? Smith pointed to three advantages: workers perfected specific skills; they avoided the delay and distraction of switching from one task to another; and they would use or even invent specialised equipment.

The modern knowledge worker fits uneasily into this picture. Most of us don’t use specialised equipment: we use computers capable of doing anything from accountancy and instant messaging to filming and editing video. And while some office jobs have a clear production flow, many do not: they are a watercolour blur of one activity bleeding into another.

[...]

In 1992 the economist Peter Sassone published a study of workflow in large US corporate offices. He found that the more senior a person was, the more likely they were to do a bit of everything. Administrative assistants did not do management, but managers did do administration. Sassone called this “the law of diminishing specialisation”.

This law of diminishing specialisation is surely stronger today. Computers have made it easier to create and circulate written messages, to book travel, to design web pages. Instead of increasing productivity, these tools tempt highly skilled, highly paid people to noodle around making bad slides.

[...]

Cal Newport’s new book, A World Without Email, is searing on this point. Examining scientific management studies from the early 20th century, Newport makes the case that manufacturers analysed and fixed their aimless processes a century ago. The gains were dramatic. For example: at the Pullman factory complex near Chicago, people from various departments would wander into the brass works and pester the metalworkers until they got what they needed. After a systematic overhaul, many clerks were hired as gatekeepers and to plan and schedule work. Productivity soared.

Newport argues that knowledge work is long overdue a similar rethink. How often is office work assigned and prioritised by random pestering? Certain disciplines, including producing a daily newspaper, have developed a clear workflow that doesn’t depend on long email chains. A lot of knowledge work, however, is still in the “wander in and pester” stage.

You’ll feel a film

Wednesday, April 14th, 2021

In The Power of Habit Charles Duhigg shares some advertising history:

Hopkins was the man who had convinced Americans to buy Schlitz beer by boasting that the company cleaned their bottles “with live steam,” while neglecting to mention that every other company used the exact same method.

He had seduced millions of women into purchasing Palmolive soap by proclaiming that Cleopatra had washed with it, despite the sputtering protests of outraged historians.

He had made Puffed Wheat famous by saying that it was “shot from guns” until the grains puffed “to eight times normal size.”

He had turned dozens of previously unknown products — Quaker Oats, Goodyear tires, the Bissell carpet sweeper, Van Camp’s pork and beans — into household names.

And in the process, he had made himself so rich that his best-selling autobiography, My Life in Advertising, devoted long passages to the difficulties of spending so much money.

[...]

Throughout his career, one of Claude Hopkins’s signature tactics was to find simple triggers to convince consumers to use his products every day. He sold Quaker Oats, for instance, as a breakfast cereal that could provide energy for twenty-four hours — but only if you ate a bowl every morning. He hawked tonics that cured stomachaches, joint pain, bad skin, and “womanly problems” — but only if you drank the medicine at symptoms’ first appearance. Soon, people were devouring oatmeal at daybreak and chugging from little brown bottles whenever they felt a hint of fatigue, which, as luck would have it, often happened at least once a day.

[...]

“Just run your tongue across your teeth,” read one. “You’ll feel a film — that’s what makes your teeth look ‘off color’ and invites decay.”

“Note how many pretty teeth are seen everywhere,” read another ad, featuring smiling beauties. “Millions are using a new method of teeth cleansing. Why would any woman have dingy film on her teeth? Pepsodent removes the film!”

The brilliance of these appeals was that they relied upon a cue — tooth film — that was universal and impossible to ignore. Telling someone to run their tongue across their teeth, it turned out, was likely to cause them to run their tongue across their teeth. And when they did, they were likely to feel a film. Hopkins had found a cue that was simple, had existed for ages, and was so easy to trigger that an advertisement could cause people to comply automatically.

[...]

Before Pepsodent appeared, only 7 percent of Americans had a tube of toothpaste in their medicine chests. A decade after Hopkins’s ad campaign went nationwide, that number had jumped to 65 percent.

There’s a bit more to the story:

Unlike other pastes of the period, Pepsodent contained citric acid, as well as doses of mint oil and other chemicals. Pepsodent’s inventor used those ingredients to make the toothpaste taste fresh, but they had another, unanticipated effect as well. They’re irritants that create a cool, tingling sensation on the tongue and gums.

[...]

What they found was that customers said that if they forgot to use Pepsodent, they realized their mistake because they missed that cool, tingling sensation in their mouths. They expected — they craved — that slight irritation.

Eliminating systemic racism should be a lucrative undertaking

Monday, April 5th, 2021

It would be in the profit-maximizing interest of firms to snatch up underpaid performers, Steve Sailer reminds us:

If there really is much discrimination, then eliminating systemic racism should be a lucrative undertaking, not one that requires constant paid sermonizing by innumerates about how handing privileges to the politically preferred will turn out to be in our own financial interest.

Of course, if you go far enough back into America’s past, it is easy to find a clear example of an employer who did flourish due to his diverse hiring: Branch Rickey, president of the Brooklyn Dodgers baseball team. By bringing Jackie Robinson up in 1947 to be the first black big-leaguer since the 19th century, Rickey got a lucrative jump on other teams.

[...]

The Brooklyn Dodgers’ example of the payoff from not discriminating is so vivid because:

(1) There really was systemic racism against black ballplayers: the Color Line.

(2) Blacks were as good as whites at baseball. (By the way, it’s often assumed today that whites were surprised in 1947 by how strong blacks were at baseball. In reality, though, black and white stars had often played together in barnstorming exhibition tours and in Caribbean winter ball, so white ballplayers had long publicly praised the talents of their black counterparts.)

(3) Some teams stubbornly resisted integration for up to a dozen years after 1947, highlighting the contrast.

Strikingly, it’s oddly hard to find more recent examples than this of firms that long earned outsize profits by first hiring blacks or women.

[...]

This should remind us that the Women’s Lib battle was quickly and almost painlessly won during the first half of the 1970s. For example, by the time I entered UCLA’s MBA program in 1980, conscious discrimination against women in corporate white-collar hiring was a thing of the past. The only employers I can recall being told were still bigoted against women were Los Angeles’ department-store chains, which, a professor explained, wouldn’t promote shiksas beyond Buyer.

Presumably, some companies took the lead in the early 1970s and outearned their rivals by hiring more women, which allowed them to pay lower wages than the industry standard. But, a half century later, it’s hard to identify these trailblazing corporations because their rivals responded so quickly to this now socially acceptable profit-maximizing scheme.

Before 1969, discrimination in white-collar hiring was less against women per se than against married women. (In contrast, blue-collar jobs that are today 95 percent male were often 100 percent male back then, and good-paying union jobs were usually reserved for men.)

Yet, there had always been a certain number of spinster career women in upscale jobs. For instance, in the 1940 movie His Girl Friday, newspaper editor Cary Grant is desperate to keep his ace reporter (and ex-wife) Rosalind Russell from marrying Ralph Bellamy and immediately quitting the newspaper to be a housewife and mother.

Why the feeling that married women shouldn’t work? The polite assumption had been that respectable women didn’t use contraception, so a married woman was likely to be a mother by the year after her wedding, after which she’d be too busy with child-rearing for paid employment.

But by 1969, The Pill had become socially accepted, plus the burdens of housework had declined due to advances in appliances such as dishwashers and dryers. As Goldin noted, women increasingly went back to paid work after their children were old enough, so it made sense for them to get the education when young that would enable them to hold better-paying jobs.

Hence, most genteel industries rapidly switched over to hiring large numbers of young women in the 1970s.

People may have extra cash to burn on big trips, fancy cocktails and Broadway shows

Friday, February 12th, 2021

Executives in industries devastated by COVID-19 clearly want investors to believe that they’re on the verge of a roaring comeback:

And some evidence suggests they may be right. According to data from the U.S. Bureau of Economic Analysis, the national savings rate has jumped during the pandemic, so people may have extra cash to burn on big trips, fancy cocktails and Broadway shows. And, man, do people miss going out.

According to a recent survey by the Harris Poll, 71% of Americans say they miss socializing in restaurants and bars, 61% say they miss shopping in stores and 52% say they miss movie theaters. Growing percentages of people say they’re planning on splurging on vacations, clothes, cars and sporting events when things return to normal. Fifty-nine percent say they would take a COVID-19 vaccine in order to fly again. After news broke that COVID-19 vaccines work, stocks for airlines, cruise lines and other industries that rely on being face-to-face surged.

Places that have gotten the virus under control have already seen some impressive rebounds in travel and leisure. For example, in China, domestic airline travel came roaring back after the country ended its shutdowns. When Shanghai Disneyland reopened, tickets sold out in minutes.

A Plan which doesn’t rely on there being a greater fool to buy at a higher price

Friday, January 29th, 2021

If you’ve been following mainstream media coverage of /r/WallStreetBets and the wildly swinging Gamestop stock, Eliezer Yudkowsky notes, you may not be aware that /r/WallStreetBets has a Plan at all beyond “Let’s all buy the stock to pump it up, making all of us rich”:

But /r/WallStreetBets has a Plan — a Plan which doesn’t rely on there being a greater fool to buy at a higher price. I was quite surprised, when I first looked into the affair yesterday — surprised enough that I ended up writing this article despite having no specialist expertise or credentials. No, I’m not buying or selling Gamestop, and I won’t be recommending that you do so. I’m writing this because a certain feature of the affair is one I find interesting. On my home planet it would be front-page news, but the media here has other priorities; it hasn’t reported at all the interesting part, anywhere that I’ve read.

So what’s this Plan about? Roughly, it’s to engineer a short squeeze on Gamestop, but with a historically unprecedented twist. No, I can’t just tell you the twist right this minute and stop wasting your time. It legitimately takes some background to explain, unless you’re starting out understanding more than I did. In principle, one could deduce it just from having heard “/r/WallStreetBets has a plan to engineer a short squeeze on Gamestop”; but I had to be walked through several steps myself before I realized.

Sometimes, when you think you’re holding a stock in your account — say, GlomCo stock, for the sake of concreteness — your broker isn’t really holding all the shares of that stock. What your broker did instead, was charge somebody else to borrow some of the GlomCo shares it’s theoretically holding on behalf of end-consumers like you; then the borrower sells the GlomCo stock with intent to buy it back later and repay the loan. Key detail: whoever buys this stock may then have their broker quietly loan it out again in turn, behind the scenes.

Or more concretely, Alice buys 100 shares of GlomCo and holds them at Charles Schwab. Charles Schwab quietly loans those 100 shares to Bob, who short-sells them to Carol, who holds her shares at Fidelity, which quietly loans out 100 shares to Dennis, who sells them to Eileen. If you imagine that GlomCo only had 100 shares in the first place, then at the end of this operation there is “200% short interest outstanding” in GlomCo: Bob and Dennis have collectively borrowed-and-sold (and now owe back) 200 shares of GlomCo, or 2X as much as actually exists. That’s without “naked shorting” or selling synthetic copies of a stock.

[...]

The last I heard, Gamestop had 130% short interest outstanding. That is, short-sellers have collectively borrowed, and now collectively owe, 130% as much Gamestop stock as exists anywhere.
This happens, from time to time, in stock markets. When it does, it creates an opportunity for hedge funds to make a daring play. If a hedge fund can buy up enough of the company stock themselves, they can hold enough that the short-sellers have to go to the hedge fund to buy back the stock.

[...]

Cases surprisingly close to that have actually happened. In one of the legendary cases, Volkswagen was very heavily shorted, and Porsche announced it had bought up over 74% of Volkswagen… while around 55% of Volkswagen shares were held by index funds, effectively unavailable for trading at any price. That these two numbers sum to over 100% is not an error. Prices of Volkswagen shares spiked to where Volkswagen was briefly the most expensive company in the world. Or for another example, Martin Shkreli once engineered a 10,000% price rise via short squeeze on a small company called KalaBios. It’s not just a weird hypothetical theory; it has actually worked and people have collected huge profits on it.

This is what /r/WallStreetBets is trying to do with Gamestop — buy up enough of Gamestop themselves that there’s not enough other Gamestop shares left, on the broader market, to pay back the 130% outstanding shorts. If it works, it forces the short sellers to buy back some shares at whatever price /r/WallStreetBets decides to charge. The stock price is swinging as I revise this; when I wrote the first draft, as of Wednesday’s close the stock price was at $347, for a market cap of $24 billion. Gamestop was under $5 one year ago.

But so far as I know, this scheme has never before been successfully carried out by a large group of retail investors instead of a hedge fund. And there’s a fundamental reason for that! A group of retail investors face a technically interesting coordination problem in trying to engineer a short squeeze, a problem that one monolithic hedge fund does not face. So I will be really interested if /r/WallStreetBets pulls it off successfully, or even mostly successfully.

[...]

What most mainstream coverage I’ve seen, tries to insinuate is going on, is that /r/WallStreetBets is just a horde of suckers on the Internet, trying to buy up enough of some random company that the stock price skyrockets, hoping they’ll all get rich. From reading mainstream coverage, I didn’t realize there was a Plan beyond this; until I mentioned the issue on Twitter, and some more knowledgeable people graciously corrected me. But indeed, if that were all that was happening, it would be a classic “pump” scheme; which can’t generate net profits for all of the buyers, because the buyers are playing a zero-sum game among themselves.

[...]

If too many of them try to sell all their shares back, when the price goes astronomical— then the very very earliest sellers may make a vast profit. But the share price will start dropping fast, and only the earliest sellers will get Lambos.

[...]

If too many people defect and sell 100% right away, the scheme collapses. The stock price may drop precipitously if it looks like that might be starting to happen; and then the scheme is only repairable if that causes enough of /r/WallStreetBets to lock up, hunker down, and wait for the price to go back up again. If instead it panics a large-enough fraction of squeezers into selling 100%, the whole scheme is over.
This is why short squeezes are usually engineered by a monolithic hedge fund — it doesn’t face the same coordination problems internally.

For a hundred thousand people to do the same would be unprecedented! I don’t just mean that the particular scheme of short-squeezing is unprecedented; I mean that I’ve never heard of human beings successfully solving a coordination problem built out of thousands of strangers, with big financial payouts for early defection and zero ability to enforce against defection.

The news now chased the reader

Saturday, January 23rd, 2021

Traditional newspapers never sold news, Martin Gurri reminds us. They sold an audience to advertisers:

To a considerable degree, this commercial imperative determined the journalistic style, with its impersonal voice and pretense of objectivity. The aim was to herd the audience into a passive consumerist mass. Opinion, which divided readers, was treated like a volatile substance and fenced off from “factual” reporting.

The digital age exploded this business model. Advertisers fled to online platforms, never to return.

[...]

Led by the New York Times, a few prominent brand names moved to a model that sought to squeeze revenue from digital subscribers lured behind a paywall. This approach carried its own risks. The amount of information in the world was, for practical purposes, infinite. As supply vastly outstripped demand, the news now chased the reader, rather than the other way around.

[...]

During the 2016 presidential campaign, the Times stumbled onto a possible answer. It entailed a wrenching pivot from a journalism of fact to a “post-journalism” of opinion — a term coined, in his book of that title, by media scholar Andrey Mir. Rather than news, the paper began to sell what was, in effect, a creed, an agenda, to a congregation of like-minded souls. Post-journalism “mixes open ideological intentions with a hidden business necessity required for the media to survive,” Mir observes. The new business model required a new style of reporting. Its language aimed to commodify polarization and threat: journalists had to “scare the audience to make it donate.” At stake was survival in the digital storm.

[...]

In August 2016, as the presidential race ground grimly onward, the New York Times laid down a marker regarding the manner in which it would be covered. The paper declared the prevalence of media opinion to be an irresistible fact, like the weather. Or, as Jim Rutenberg phrased it in a prominent front-page story: “If you view a Trump presidency as something that is potentially dangerous, then your reporting is going to reflect that.” Objectivity was discarded in favor of an “oppositional” stance. This was not an anti-Trump opinion piece. It was an obituary for the values of a lost era. Rutenberg, who covered the media beat, had authored a factual report about the death of factual reporting — the sort of paradox often encountered among the murky categories of post-journalism.

Luxury sneaker markets are a preview of Capitalist Dystopia

Thursday, December 31st, 2020

Luxury sneaker markets are a preview of Capitalist Dystopia:

Buyers now use bots to automate sneaker purchasing to ensure they’ll get as many pairs as possible to resell on online sneaker marketplaces like StockX and GOAT. Retailers, meanwhile, have sought to guard against such bots through raffles, leading to a proliferation of raffle bots. Raffle bots will automate hundreds, if not thousands of entries. Bots themselves are sold and resold for thousands and created in limited supply to ensure they remain effective in an ever-more competitive purchasing arms race.

Consignment and resale stores are the result of side hustles becoming a primary business — one that’s now profitable enough to exist in retail space. Successful buyers market their own guides on sneaker investing. News articles hold forth on the value of kicks in investment portfolios. Enthusiastic YouTubers giddily sound off on whether or not you should “sit or sell,” claiming to possess insight on the potential long-term value of sneakers.

If you can master the tricks of the trade, it’s highly lucrative. Effective resellers can pocket hundreds of thousands of dollars. The terminology of sneaker resale markets offers a more urban version of the language used by Wall Street banks and investment firms.

[...]

Consumers of rare sneakers range from collectors who will display their trophies and keep them as “deadstock” — industry lingo for shoes that are never worn — all the way to simple enthusiasts and those disparagingly referred to as “hypebeasts” — people who covet, wear, and obsess over every new release as a display of wealth.

The global sneaker resale market is valued at $2 billion and expected to triple in the next few years, reaching $30 billion by the end of the decade. This fall, StockX opened its first Canadian warehouse, another expansionary step for a global corporation already valued at $1 billion.

It’s possible to travel all around the world and never leave AirSpace

Saturday, December 12th, 2020

Digital platforms like Foursquare are producing a harmonization of tastes across the world:

Every time Schwarzmann alights in a foreign city he checks the app, which lists food, nightlife, and entertainment recommendations with the help of a social network-augmented algorithm. Then he heads toward the nearest suggested cafe. But over the past few years, something strange has happened. “Every coffee place looks the same,” Schwarzmann says. The new cafe resembles all the other coffee shops Foursquare suggests, whether in Odessa, Beijing, Los Angeles, or Seoul: the same raw wood tables, exposed brick, and hanging Edison bulbs.

It’s not that these generic cafes are part of global chains like Starbucks or Costa Coffee, with designs that spring from the same corporate cookie cutter. Rather, they have all independently decided to adopt the same faux-artisanal aesthetic.

[...]

We could call this strange geography created by technology “AirSpace.” It’s the realm of coffee shops, bars, startup offices, and co-live / work spaces that share the same hallmarks everywhere you go: a profusion of symbols of comfort and quality, at least to a certain connoisseurial mindset. Minimalist furniture. Craft beer and avocado toast. Reclaimed wood. Industrial lighting. Cortados. Fast internet. The homogeneity of these spaces means that traveling between them is frictionless, a value that Silicon Valley prizes and cultural influencers like Schwarzmann take advantage of. Changing places can be as painless as reloading a website. You might not even realize you’re not where you started.

It’s possible to travel all around the world and never leave AirSpace, and some people don’t.

The only thing tougher than moving illegal drugs across borders is getting the profits back to Mexico’s cartels

Thursday, December 10th, 2020

Small cells of Chinese criminals have upended the way narcotics cash is laundered:

The only thing tougher than moving illegal drugs across borders is getting the profits back to Mexico’s cartels, U.S. officials said. Cash is heavy, and transporting it exposes traffickers to lots of risk. Putting it into the banking system is perilous, too. The U.S. and Mexican financial systems have been geared to detect dirty money.

Prosecutors told the court that Gan and his accomplices sidestepped these obstacles by first moving the U.S. cash offshore to China, then on to Mexico. Lim was a linchpin connecting both sides of the Pacific. In her November 2019 plea agreement, Lim admitted to laundering, with Gan and Pan Haiping, about $48 million in drug cash between 2016 and September 2017. She took a 0.5% commission, the agreement said.

Lim testified at Gan’s trial that she had two jobs. The first was collecting drug money in U.S. cities such as Chicago and New York from cartel contacts, typically anywhere from $150,000 to $1 million at a time. She would wait in a public place, armed with a burner phone, a code name and the serial number of an authentic $1 bill. Mexican cartels would pass on her details to their dealer contacts, who would call Lim’s burner phone and use the code name to identify themselves. At the rendezvous point, Lim would give them the $1 bill with the corresponding serial number as a “receipt” to verify the handoff had taken place, Lim said at trial.

Lim’s other job was recruiting businesses in the Chinese diaspora to help them make that cash disappear, Lim and prosecutors said.

Some U.S.-based Chinese merchants have long engaged in off-the-books currency “swaps” to avoid hefty bank fees. Such transactions are illegal in the United States, American authorities said, if they are used by companies routinely to skirt the formal banking system or to operate an unauthorized money transfer business. In some cases these informal, hawala-style transactions are used to help wealthy Chinese move money clandestinely out of China, in violation of that nation’s currency controls.

The operation run by Gan and Pan Haiping grew to include at least three Chinese merchants in New York, who were paid commissions to participate, Lim told the court. The names of the Chinese merchants were not revealed at Gan’s trial, and it’s unclear if they knew of Lim’s links to drug trafficking.

Prosecutors at trial presented testimony, evidence and graphics showing how the transactions worked. At their simplest, authorities said, that process worked as follows: Lim would arrive at one of the merchants with, say, $150,000 in cartel cash. With the businessperson observing, she would open a currency converter app on her smartphone to obtain the exchange rate between the U.S. dollar and the Chinese yuan. She would also hand over the details of a bank account in China given to her by Gan. In what’s known as a “mirror transaction,” the Chinese businessperson would take possession of the $150,000 in U.S. currency while simultaneously transferring the equivalent in Chinese yuan from their own account in China to the bank account number provided by Gan.

The result was that a foreign transfer of funds had been made without involving a U.S financial institution – or the accompanying digital fingerprints. The Chinese business had effectively used yuan from its China-based bank account to purchase cash dollars now on hand in the United States; it earned a commission for its trouble while avoiding bank fees and U.S. government scrutiny.

Meanwhile, Gan had converted U.S. drug dollars into Chinese currency now sitting in a Chinese bank. The only contact with the financial system – a domestic transfer between two accounts in China – would be unlikely to raise red flags with Chinese banking authorities unaware of the money’s provenance.

The crime ring used various Chinese banks for the operations, including the Bank of China, according to WhatsApp messages exchanged between Gan and Pan Haiping. The messages were extracted from Gan’s iPhone by Homeland Security Investigations agents after his arrest, and key excerpts were read out aloud by prosecutors at trial, according to court transcripts.

[...]

“When there is need by the cartels for cash to be laundered, and there is demand for cash from the Chinese, you have a perfect marriage made in heaven,” Im told Reuters. “The Chinese brokers are very important to the Mexican and Colombian cartels.”

[...]

Chinese money launderers are squeezing out Mexican and Colombian rivals by undercutting them on price by as much as half, U.S. officials said. The Chinese operators have been able to do that because they levy fees on both sides of each transaction. They impose fat commissions as high as 10% on Chinese citizens eager to get money out of China. That allows the Chinese money brokers, in turn, to charge traffickers nominal fees of just a few percentage points. The money launderers still turn a handsome profit while locking in a steady supply of coveted dollars and euros from cartel customers.

Prepare for the worst, enjoy the present

Sunday, October 18th, 2020

Fortitude Ranch — “prepare for the worst, enjoy the present” — describes itself as “a survival community equipped to survive any type of disaster and long-term loss of law and order, managed by full time staff,” and plans to activate for the first time over fears of violence following the presidential election on Nov. 3:

“This will be the first time we have opened for a collapse disaster, though it may end up not being so,” said Miller in an emailed statement. “We consider the risk of violence that could escalate in irrational, unpredictable ways into widespread loss of law and order is real.”

Fortitude Ranch set up its first camp in West Virginia in 2015 and has two more in Colorado. For an annual fee of around $1,000, members can vacation at camps in good times, and use them as a refuge in the event of a societal collapse. Members are required to own either a rifle or shotgun to defend the communities. The company does not disclose membership numbers.

People like to earn miles on business trips and spend them on vacation

Thursday, October 8th, 2020

Frequent flyer miles are worth big money — to the airlines:

The Financial Times pegs the value of Delta’s loyalty program at a whopping $26 billion, American Airlines at $24 billion, and United at $20 billion. All of these valuations are comfortably above the market capitalization of the airlines themselves — Delta is worth $19 billion, American $6 billion, and United $10 billion. In other words, if you take away the loyalty program, Delta’s real-world airline operation — with hundreds of planes, a world-beating maintenance operation, landing rights, brand recognition, and experienced executives — is worth roughly negative $7 billion. But economics of the loyalty program don’t work without a robust airline operation.

[...]

Spending money on a Delta-branded American Express card to earn points feels like getting free money, and redeeming it feels like getting a free flight. Since consumers mentally double count their points, they’re willing to accumulate them, which means banks and other counterparties have found it valuable to offer those points to consumers.

Typically, the airline will sell points to banks, who then offer those points to cardholders in exchange for spending. Once someone has picked out a loyalty program, they’re incentivized to be loyal and rack up points, so the bank knows they’ve acquired a credit card customer for the long haul. Exclusive partnerships between airlines and credit card issuers can be quite lucrative: Delta’s deal for American Express to be the sole issuer of its SkyMiles credit card was worth $3.4 billion in 2018, and the contract has since been extended to 2029. It’s a classic fintech play: provide a novel way to help exchange money now for money later at favorable rates. Since the loyalty rewards business is asset-light, grows fast, and is not as sensitive to economic cycles as the core airline business — United revealed that loyalty revenues dropped just 2% in 2009 — it raises the question: Why not just spin them off? That’s harder than it looks, and it gets to the crux of the airline industry’s problems.

Loyalty programs acquire customers because those customers want to earn and spend points with a particular airline that has flight routes optimized for their needs. That means they’re ultimately dependent on an airline’s route network. For example, if you do a lot of business in Atlanta, Delta’s your go-to airline; if work takes you up and down the West Coast, you’ll probably choose Alaska. When airlines decide which routes to expand and which to cut, they’re not just thinking about ticket prices — they’re also thinking about their loyalty members. Abandoning a major city, or even reducing routes to it, is a good way to permanently lose those lucrative customers.

That problem is especially hard because people like to earn miles on business trips and spend them on vacation. So an airline that cuts a route to the Bahamas or Vail might lose business in New York and Chicago.

In 2019, fans pledged more than $176 million toward tabletop games

Monday, July 20th, 2020

Tabletop gaming has evolved dramatically over the years, but lately board game funding has changed even more:

Then, on March 30, the board game Frosthaven — the dungeon crawling, highly-anticipated sequel to the hit game Gloomhaven — surpassed its funding goal of $500,000 on Kickstarter in mere hours. Today, it is the most-funded board game on the site ever, with nearly $13 million pledged toward funding the game’s development. Only two projects have ever crowdsourced more funding on the site.

[...]

Games like Dark Souls, Ankh: Gods of Egypt, Cthulhu: Death May Die and Tainted Grail: The Fall of Avalon are among those that earned multiple millions through crowdfunding.

Creators use Kickstarter like a social media site, an advertisement and a fundraising tool all in one, and they use it more successfully than nearly any other game creators on the site. In 2019, fans pledged more than $176 million toward tabletop games — up 6.8% over the previous year, according to Kickstarter data gathered by the entertainment site Polygon. In all, more than 1 million people pledged to games on the site last year.

[...]

It takes a lot of startup value to create your own video game, for instance, but for board games, you only need a good enough idea and a well-placed Kickstarter page to gauge public interest.

[...]

Creators are responsible for everything if their goals are reached. They have to print the games and send them to their customers on their own — a process that can be grueling, time-consuming and even detrimental. One board game creator miscalculated the amount of money it would cost to ship games and lost his house due to the unexpected financial burden.

(Hat tip to Nyrath.)

Amazon is discontinuing the Kindle Cloud Reader

Monday, July 13th, 2020

If it’s true that Amazon is discontinuing the Kindle Cloud Reader, I will be sorely disappointed:

Over the course of the past week, Amazon has been pulling features away from it and it looks like it is on the verge of being discontinued.

We conducted a review a couple of weeks ago on the Kindle Cloud Reader, and since then, the navigation tabs to download ebooks from the Cloud have been removed. The only books you can read, are ones that have been previously downloaded, no new titles can be accessed. Ebooks from certain publishers with DRM cannot be opened anymore, even if you had previously downloaded them. There is a popup window that appears, notifying readers to download the Kindle app for iOS or Android. Amazon also pulled the ability to read books offline, you need a dedicated internet connection to read.

They became adept at losing company property

Thursday, July 9th, 2020

In 1946, T. R. Fehrenbach explains (in This Kind of War), the newly split Korea was struggling:

At his desk one day, Fletcher heard that there was trouble in Samch’ok, on the east coast. He left his office in Seoul to investigate. At a company iron-ore mine, he found agitators were encouraging idle workers to carry away company property. He had the Korean Special Police arrest the agitators, and beat hell out of them.

Back at Seoul, there was some criticism — but nobody had a better idea.

The policy now became one of giving Korean nationals control of the company. The new executives learned some things quickly. They became adept at losing company property, mostly into their own pockets.

Meanwhile, a crisis developed with the Russians just across the border from Seoul Province. The waters that irrigated company rice paddies flowed down from the north, and suddenly the Russians dammed them off. The company agricultural adviser, PFC Peavey, was sent up north to investigate.

The Russians were not offended by negotiating with a PFC. They had political officers masquerading in low ranks in their own forces; they understood perfectly Gospodin Peavey’s desire not to appear conspicuous. They sat down with Peavey and informed him they wanted a portion of the company’s rice harvest in return for the water. Peavey argued awhile. Finally, getting nowhere, he figured, what the hell? He was due to rotate out any day and become a civilian. He agreed to everything. He returned to Seoul, and soon the water flowed south. When asked how he had outwitted the Ivans, Peavey would only smile gently. A few weeks later, he sailed for the States.

When fall came, the Russians asked for their rice. Military Government, of course, with some confusion, explained why they couldn’t have it. Next summer, the New Korea Company had a hell of a time getting water.

A little bit of pandemic risk was just the thing

Friday, June 19th, 2020

Analysts at Munich Re realized that a pandemic could overwhelm life insurance companies — and reinsurance companies, too:

To tackle Munich Re’s exposure, Kraut’s team began attempting to quantify and price this incredibly remote, unpredictable risk. If they managed to do that, they would then need to sell part of that risk—to find someone willing to insure the reinsurer. “No one really had tried to do a transaction at a one-in-500-year return period,” Kraut said. His boss gave it a 50–50 chance of success.

But over the course of two years, the group gradually built up a list of potential buyers. It turned out that there were a few large institutional investors looking to diversify their own portfolios, and a little bit of pandemic risk was just the thing. Munich Re would provide them with annual payments, year after year. In the rare event of a pandemic, they would have to cover Munich Re’s losses. One interested class of investor—if a macabre one—was pension funds, which typically grapple with something called longevity risk: the chance that people will live longer than expected.

“It’s not really good terminology to call it a ‘risk,’ ” Kraut said. “It’s a good thing, technically! But if people live a lot longer than expected, then a pension fund needs to pay out a lot more pensions than they originally calculated.” A deadly pandemic that takes the lives of pensioners, to put it in the most clinical terms, means fewer years of pension payouts, canceling some of the longevity risk. Should no pandemic arise, they would pocket payments from Munich Re.

By 2013, Kraut and his team had put together enough investors—starting with a large Australian pension fund—to take some of the pandemic problem off of Munich Re’s books. But he soon encountered an unexpected hitch: The mechanisms written to trigger the deal relied on a series of “pandemic phases” monitored by the World Health Organization. (Phase 1: Virus is circulating in animals. Phase 2: Reports of human infection. Phase 3: Human-to-human transmission. And so on up to Phase 6: Sustained outbreaks in multiple regions.) Sometime in 2013, however, the WHO abandoned this system for a less specific four phases. Kraut suddenly needed some other organization to delineate the stages of epidemics reliably enough to write into an insurance policy. And he needed someone to monitor epidemics closely, to know when they hit agreed upon triggers—illnesses, deaths, spread. “But you can’t just hire the WHO,” he said.

In studying up on the world of epidemiology, Kraut happened to have picked up a book called The Viral Storm. It was written by Nathan Wolfe. Part memoir, part prescription, the book laid out a vision for how to counter the threat that novel viruses represent to humans. Kraut looked up Wolfe and saw that he’d formed a company.

[...]

Kraut, however, had an even more ambitious idea in mind. What if, instead of simply hedging its own life insurance business in the case of a pandemic, Munich Re could use the same concept to insure other businesses against them? Business interruption insurance, the policies that protect companies against income losses from disasters like fires or hurricanes, often explicitly excluded disease. (And when it didn’t, insurers could still use the ambiguity to deny claims.) The risk was thought to be too large, too unpredictable to quantify. But Munich Re had already proven it could cover its own life insurance risk in pandemics, and now it had a partner in Metabiota that specialized in seemingly unpredictable outbreaks. What if they could create and sell a business interruption insurance policy that covered epidemics, starting with acutely vulnerable industries like travel and hospitality? They could then pass on the payout risk from those policies to the same types of investors who had bought their life risk.

[...]

Where Munich Re’s epidemic solutions division had been struggling to get traction with potential customers, now, in early January, buyers were banging at the door. “That’s just the nature of human psychology,” he said. “Whenever a catastrophe arrives, people immediately want insurance for that catastrophe.” The virus was still confined to China and Kraut faced a grim calculation: Should the company write business interruption policies that would cover SARS-CoV-2, outside of Asia? “You clearly have the human tragedy,” he said. “On the other hand you are in charge of the business unit.” But there were too many warning signs—too much risk for Munich Re. It would have been like selling fire insurance for a house already in flames. Kraut made the decision not to sell.

In a sense, Munich Re had dodged a bullet: Had the company succeeded at selling pandemic protection to corporate giants starting 19 months before, it would have collected almost no premiums and now be paying out on every single one. Kraut acknowledged as much, but offered that if insurers never pay out, “then you lose the reason of existence.”

By March, Metabiota had closed its offices in downtown San Francisco, and its employees joined the legions of new remote workers. “It is painful to see loss of livelihoods, insecurity, fear,” Oppenheim said, “when potentially we would have had tools to prevent that.”