Amber Rudd, Jacob Rees Mogg, and David Davis, now ahead of him
One of the little commented upon factors since GE2017 is that the former Tory golden boy appears to have lost the midas touch. Certainly there has been a big move away from him on the betting markets and he’s now in fourth place.
For several years, even before he returned to the Commons at the 2014 Uxbridge by-election, there’s been a widespread assumption that if ex-mayor Johnson could make it as far as the members’ ballot in a CON leadership battle the old Etonian with the distinctive hair cut would take the crown. The big question was whether he could gain the support of enough MPs to make the final two which go forward to the membership.
Until last weekend this was based on the perception of punters ready to risk their cash. Then we had polling of CON party members overseen by QMUL’s Prof Tim Bale where the fieldwork was carried out by YouGov. This had 21% backing David Davis with Foreign Secretary down at 17%. The poll had 26% saying they didn’t know or opted not to choose any candidate.
This was the first real polling there’s that there’s been in a long time and Johnson’s position did not come as a surprise.
Maybe it’s an appreciation of the massive challenge of getting Brexit right that doesn’t fit with Johnson’s seemingly flippant approach. The ex-mayor has never appeared to be a details man.
Of course TMay continues in the job but the polling and Johnson’s deterioration might just give an added impetus to Davis backers who want to seize the moment now.
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Alternately, leave me a silliness prompt and I might write you a tiny!silly!crackficlet?
Three council by-elections this week, with two results in so far – and the Lib Dems the only part to increase its vote share in both:
More results as they come…
These by-election results round-ups cover principal authority by-elections. See my post The danger in celebrating parish and town council wins for your own party for the reasons to avoid straying too often into covering town, parish or community council by-elections.
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If you sign up for my daily email with the latest pieces from this site, you’ll also get included as a little bonus the full set of council by-election results each week:
Vince Cable has accused Theresa May of being obsessed by an “arbitrary” target to cut immigration, warning that her “posturing” has fuelled a dangerous and misleading impression that the issue is “out of control”.
The new leader of the Liberal Democrats attacked the Government’s goal of reducing net immigration below 100,000 a year as “amateurish,” “absurd” and having “malign consequences” including economic and social damage. [The Independent]
The origin of that 100,000 immigration target is pretty damning, caused as it was by a slip of the tongue.
No wonder that Vince Cable said,
The case of overseas students illustrates the absurdity of the target and the malign consequences of it. The vast majority of students return home – apart from a few who have special skills and are recruited for post-study work, and some others who illegally overstay. The problem is that we don’t know how many overstay because the Border Agency did not, until recently, count people out as it counts people in. It operates on guesswork and on the basis of an airport survey which is laughably inaccurate and wildly exaggerates the numbers of over-stayers. Liberal Democrats in government sought to institute exit checks but a combination of Treasury cuts, incompetence and lack of backing from the then Home Secretary led to endless delays.
Instead, the wrongly estimated numbers of net migrants in the form of overseas students inflated the overall numbers and fuelled the immigration panic. There was undoubtedly some abuse and some bogus colleges, but on the assumption that enormous numbers of students were here illegally and that universities and colleges were complicit in these scams, the Home Office cracked down on overseas students in general. My Department of Business stopped the more draconian controls but large numbers, especially from India, have been deterred from coming here and go to the USA, Canada and Australia instead, depriving British universities and colleges of income and British firms of access to expensively trained engineers and scientists who are forced to leave after graduation.
The courts have ruled that 48,000 overseas students have wrongly, and illegally, been sent home without completing their courses, in some cases sacrificing a lifetime of earnings and borrowings by a poor family. One of Britain’s most successful export industries – higher education – was, and is, being sacrificed by Theresa May’s Home Office in pursuit of the immigration target.
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Donald Trump promised to be America’s most gay-friendly president ever, and he’s proven that by saving the lives of more than 15,000 transgender people by prohibiting them from serving in the military. What a guy! He clearly just wants to protect them just like he protecting himself when he got out of going to Vietnam because his feetsies hurt.
Trump claims the reason for this is financial, because transgender people require additional medical costs. Those costs amount to an estimated $8.4 millions at the absolute maximum, which is an increase of .13% of the total military budget. To really put that into perspective, note that that is less money than the cost of three of Trump’s regular trips to his Florida vacation home.
$8.4 million is also a fraction of what the military spends on other very specific healthcare needs, like Viagra, which costs the military over $41 million. To be clear, I think that’s probably a good expense — military veterans deserve treatment for erectile dysfunction due to issues like PTSD. But if Trump really wanted to tighten the belt, he could easily save five times more money by just banning men.
In addition to the problem of how much medical care costs, Trump also cited the problem of “disruption” due to trans people serving alongside cis people. You will probably be shocked to learn that this, too, is complete bullshit.
There are a number of ways someone could claim trans people would be a disruption — one way is that their transition surgery would remove them from active duty. That doesn’t actually impact the military because there are so few of them (which is also the reason their medical costs are so low). Fewer than 200 people would likely request surgery each year, compared to 50,000 people each year who are ineligible for active duty in the Army alone for various medical or personal reasons.
The other way someone might consider trans people “disruptive” would be in terms of them getting along with their fellow servicepeople, due to bigotry or some other inter-relational trouble. Luckily, we have data on that, too, because there are 18 other countries that already allow trans people to serve in their military. And guess what? They all get along just fine. Isis isn’t winning any battles with Canada, Australia, or the UK due to the presence of trans people. I mean, if anything, making Isis fight against trans and gay servicepeople is a nice psychological “fuck you,” since hating on trans people is really more of an Isis thing than an American thing. Or, at least, it used to be.
So trans people don’t actually add any significant costs or disruption to the military. What, then, is the point of this new statement from Trump? Well, some think it could be a distraction from Republicans taking healthcare from millions of people, and some think it could be a distraction from Russia controlling our government. I think it’s just good old fashioned bigotry combined with appealing to the GOP’s base. They love war, but only if it’s fought by a race of ubermensch. Oh, and not their own sons, of course. And not the president of the United States who is making decisions about what our military does.
Over the last decade, Orbit US, an imprint of Hachette Book Group, has quickly established itself as one of the premiere publishers of science fiction and fantasy, and a reliable source for everything from innovative works of science fiction to blockbuster epic fantasies. To celebrate the milestone, a selection of landmark Orbit titles is currently available on Nook for just $2.99 each, but we wanted to do more than point you toward some great titles, so we asked Orbit’s publisher, Tim Holman, to share a bit of history. Below his comments, you’ll find a timeline of key dates in Orbit’s history.
President Broflake won't be happy about it
Updated Amazon founder and Washington Post owner Jeff Bezos rode a surge in his web giant's stock price to overtake Microsoft cofounder Bill Gates as the richest person in the world.…
Another delightful little example of how economic statistics don’t in fact give us easy and simple answers to what we should be doing. Because those statistics aren’t even giving us easy and simple answers to what is happening out there. And if we don’t know what’s happening then planning what we should be doing is a little tough. So take this as another example of why we have a market economy–as Hayek pointed out we just never will have enough information at the centre to be able to plan in any detail. The best we can do is leave everyone to get on with it and try to tot up the results as best we can.
It’s true that capital goods and durable goods aren’t exactly the same thing. One is stuff used to make other stuff, the other is stuff we expect to last longer than three years in use. But there’s a heck of a lot of overlap between the two and thus we do expect them to be moving in the same direction. Which they ain’t:
The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, slipped 0.1 percent last month. That was the first drop since December and followed an upwardly revised 0.7 percent jump in May.
Well, we know what to do about numbers like that. We simply assume that some of what would have happened in June actually happened the month before in May. You never know, maybe a few salesmen closed early and thus beat their bonus targets.
The Commerce Department says orders for durable goods — which are meant to last at least three years — climbed 6.5 percent in June, reversing two straight monthly drops. The June increase was the biggest since July 2014.
Well, that’s good and is rather different from our worries over capital goods:
Bookings for civilian aircraft and parts surged 131.2 percent
Well, that’s nice, but that’s a bit of a problem for us. Because we know that commercial aircraft sales are a notoriously lumpy process. Boeing might do near nothing for months then some airline closes on a complete fleet replacement–yes, it does happen. So we come back to our concept of core indices. We do this with inflation for example, we’ve the generally reported inflation rate. But we also know that food and fuel bounce around in price a lot. So, we calculate inflation rates as those core ones, without food and fuel. That gives us a much better idea of inflation across the economy. The same point is done here as well. That core number was up slightly for durable goods.
As I say, durable goods and capital goods aren’t exactly the same thing although there’s a lot of overlap. One is rising, one is falling, which one should we believe if we want to try to plan the economy? Quite, it’s all a bit difficult this planning, isn’t it?
One of the great bugbears of current politics is the argument over the size of the trade deficit. As economists keep trying to tell everyone the trade deficit itself doesn’t matter at all–it is always, and absolutely by definition, offset by a capital account surplus. Still, for those who do worry about it the US trade deficit fell last month:
The Commerce Department also reported the advanced trade in goods dropped 3.7% in June, to $63.9 billion. That’s the smallest deficit since December and comes as the U.S. dollar has weakened.
Something slightly missing there, the “advanced” is the first stab at trying to work out what the deficit is, so it’s the “advanced” trade in goods deficit being reported there. It came from both a rise in exports and a fall in imports:
In other reports on Thursday, the Commerce Department said the goods trade deficit fell 3.7 percent to $63.9 billion in June amid a rise in exports. Goods exports increased $1.8 billion to $128.6 billion last month.
Imports of goods fell $0.7 billion to $192.4 billion.
Do note something important here, especially for those who do worry about trade deficits. This is for goods only. The US runs a trade surplus in services and it is the two together which make up the trade balance. As a very rough figure that surplus on services is some $25 billion a month.
As I say, trade deficits just don’t matter. However, we can still predict some things from the information here. There are implications for the GDP figures we expect to get tomorrow for example, and they in turn will influence the Federal Reserve:
The pick-up in gross domestic product, together with a tightening labor market, would likely keep the Federal Reserve on track to announce a plan to start reducing its $4.2-trillion portfolio of Treasury bonds and mortgage-backed securities in September and raise interest rates in December for a third time this year.
The trade deficit, as a trade deficit, doesn’t matter, but that it’s falling is useful as an indicator of other matters, not least that we should still expect the Federal Reserve to start reversing QE in September.
I recently wrote about citizen scientists (people who are enthusiastic about science but who may not have professional scientific training) combing through NASA data and hitting pay dirt: They found a brown dwarf just a little over a hundred light-years away, one that had been missed by previous data searches.
It turns out there may be a lot more to find. And by a lot more, I mean A LOT MORE. Scientists have recently found that there could be as many as one hundred billion brown dwarfs in our galaxy, half as many as there are stars!
Brown dwarfs are funny objects. They’re more massive than planets, but lack the mass needed to squeeze hydrogen in their cores hard enough to get it to fuse into helium. That’s what makes a star a star: the ability to stably fuse one element into another. The definitions get complicated, because nature isn’t as fussy about having clear boundaries between one type of object from another as humans are, but in the end brown dwarfs occupy that space between planets and stars, similar to but distinct from both.
They’re their own thing. And we didn’t even know they existed until 1995, when the first, Teide 1, was discovered. They’re incredibly faint in visible light (the kind of light we see), and even in infrared, where they give off most of their energy, they’re not exactly beacons. But they started turning up in observations made by telescopes equipped to look in the infrared, and now we know of a few thousand.
The thing is, the ones we see are perforce nearby. More than a thousand light-years away or so, they fade to invisibility. That may seem like a lot, but the Milky Way galaxy is one hundred thousand light-years across! We’re only seeing brown dwarfs locally, so it’s hard to get good statistics on them galactically.
But there’s a way around that. The thing to do is look where you know there should be some ... like, say, a star cluster. These are groups of hundreds or thousands of stars, all bound together by their own gravity. Typically, the stars were all born around the same time from a cloud of gas, and that’s a huge advantage: As stars age they change color, and so by measuring their colors you can get the age of the cluster.
That’s important, because the same thing happens with young brown dwarfs, too. Their color depends on their mass — a more massive object is hotter, which makes it bluer— so if you know the color and age of a brown dwarf, you can determine its mass*. That helps you distinguish it from a planet or a star.
And a team of astronomers did just that. They looked at several star clusters that were close enough to Earth that brown dwarfs are visible. Then they basically counted up what they saw, measured the colors, and figured out how many of the objects were stars and how many were brown dwarfs.
What they found was that about half the objects in the clusters were brown dwarfs. Extrapolating that to the galaxy at large, there could be 25 – 100 billion such objects in the Milky Way galaxy alone.
This conclusion was already hinted at by previous stellar cluster surveys, but this one found that the result stayed the same across a variety of different cluster types. Some had more stars packed more tightly in them (which can affect how stars are born), and some had a lot of very massive stars, which can also affect the environment around them.
None of this appears to matter. Clusters make about two stars for every brown dwarf. And that means that our galaxy is littered with them.
This makes me very happy. I really like brown dwarfs; they’re fascinating objects and, once upon a time, I worked on Hubble observations of one of the two first brown dwarfs ever discovered, Gliese 229B. It was fascinating to see the spectra, revealing the presence of things like cesium and water vapor in its atmosphere. Water vapor: steam! I was used to observing stars and other very hot objects, so to find something as mundane as good old water in Gliese 229B was truly weird to me at the time.
Also, much like planets orbiting other stars, we had suspected the existence of brown dwarfs for decades, but they were maddeningly elusive. Then, once one was found, more started showing up. Once we knew they were out there, and the best way to look for them, we started finding hundreds of them. Thousands.
This is such a wonderful allegory. We look up at the night sky and try to imagine what’s out there, and what we find out is that there are wonders beyond what we would have thought even a few years ago! And not just a few, but billions, hundreds of billions of new things to discover.
The more we look, the more we let our curiosity drive us, the more there is to find. That’s one of my favorite things about our Universe.
*As with everything in science, it’s actually more complicated than this. You actually have to measure the brown dwarf’s spectrum, basically dividing its light into hundreds or thousands of very narrow color ranges. Even then it’s a bit tricky. But that’s the idea.4
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I met G. Scott Huggins almost twenty years ago. We were both published in Writers of the Future XV, and we ended up in a writing group together for several years. He was one of the folks who helped me grow and improve as an author. I published one of his stories in Heroes in Training a while back.
I love the premise and setup. Dr. James DeGrande is a veterinarian in a land that’s been taken over by a Dark Lord, and the whole thing is written with a kind of tongue-in-cheek humor. The book is made up of several distinct but related stories, showing the growth of James and his partnership with his assistant Harriet (a physically disabled almost-witch).
Here’s part of the publisher’s official description:
Everyone says it was better in the Good Old Days. Before the Dark Lord covered the land in His Second Darkness.
As far as I can tell, it wasn’t that much better. Even then, everyone cheered the heroes who rode unicorns into combat against dragons, but no one ever remembered who treated the unicorns’ phosphine burns afterward. Of course, that was when dragons were something to be killed. Today I have to save one. Know what fewmets are? No? Then make a sacrifice of thanks right now to whatever gods you worship, because today I have to figure a way to get them flowing back out of the Dark Lord’s favorite dragon. Yeah, from the other end. And that’s just my most illustrious client. I’ve got orcs and trolls who might eat me and dark elf barons who might sue me if their bloodhawks and chimeras don’t pull through. And that doesn’t even consider the possibility that the old bag with the basilisk might show up.
The only thing that’s gone right this evening is finding Harriet to be my veterinary assistant. She’s almost a witch, which just might save us both. If we don’t get each other killed first.
I appreciate writers who take traditional fantasy and flip things around to present a different perspective. Just as I enjoy clever protagonists, like James and Harriet. (And while this may come as a shock, I also like fantasy that tries to have fun.)
There’s one bit I need to talk about. About 80% of the way into the book, we meet Countess Elspeth Bathetique, an incredibly neglectful pet owner and generally unpleasant person, and we get this exchange:
“Dammit, my lady, you’re not even a vampire!”
“How… how dare you? I identify as a vampire, you filth! You cannot dream of the tragic destiny which is ours!”
“What? Suffering from vitamin deficiency, malnutrition, keeping out of the sun for no damn reason, and torturing your poor pet basilisk? If I dreamed of that, I’d seek clerical help!”
I don’t believe it was intentional, but seeing language generally used by transgender people played for laughs by a wannabe vampire threw me right out of the story. I emailed and chatted with Scott, who confirmed that wasn’t the intention. The Countess was meant to be a darker take on Terry Pratchett’s Doreen Winkings. But he said he understood how I or others might read it the way I did.
One of my favorite parts of these stories are the veterinary details. Huggins’ wife is a veterinarian, and there’s a sense of real truth to the protagonist’s frustration with neglectful pet owners and the various challenges of keeping all these magical animals healthy. It helps to ground the book and acts as a nice counter to the humor.
I couldn’t find an excerpt online, but there’s a promo video on YouTube.
Mirrored from Jim C. Hines.
One of the things that we know from previous elections is that parties that are seen to be divided can get punished by the voters. That was John Major’s fate at GE1997 after five difficult years of one split after another.
The current situation, as seen in the recent YouGov polling illustrated in the chart and touched on in this week’s podcast, looks challenging and could be hugely problematical if there is the need for an early election. This, of course, is something that’s made more likely with the current Commons arithmetic. That just 8% of the sample and only 15% of CON voters felt able to describe the the party as “united” is extraordinary.
What’s really striking about the poll is that when this was asked two weeks before GE17 43% said the thought to Tories were united with just 29% against. That’s a whopping turnaround.
Public splits are going to be magnified simply because of the threat to the government’s position.
Labour, as we’ve seen in the reaction within the movement to Corbyn’s weekend comments on BREXIT on the Marr show, is nearly as bad but interestingly there’s been a huge effort in the past few days to create a semblance of a unified position. I put that down to the Corbyn’s comment being poorly prepared for the Marr interview.
There’s a great article by Marie Le Conte on Vice news about the current state of thinking within the blue team and how a before the recess senior Tory figures were briefing against TMay only a few yards away from where the PM was standing at some events. It is here under the provocative heading “An Insider’s Guide to Tory In-Fighting”.
My view is that the Tory splits will continue as long as the leadership position remains uncertain.
Congratulations! Your book was a success! Now do that trick a second time! In discussing Killing is My Business, author Adam Christopher talks about doing the thing that you did so well all over again — but different this time.
You know how it goes, the difficult second album: a band spends years meticulously crafting a collection of songs, polishing them through endless live sets until they shine, and these songs form their incandescent debut album.
Then they need to produce the follow-up and essentially come up with an entirely new repertoire on demand. That second album can be a difficult one indeed.
Now, I didn’t spend years crafting the Ray Electromatic Mysteries – Made to Kill, the first full-length novel after the Tor.com novelette Brisk Money, came out in 2015 and was something like my seventh published novel – but somehow the series has a certain kind of weight, just like that debut album of your favourite band. I think it’s because that original big idea was very big indeed – I was writing Raymond Chandler’s lost science fiction epics, a series about a robot assassin working in Chandler’s near-future Hollywood of 1965. That idea sprang from Chandler’s own letter to his agent in 1953, in which he complained about sci-fi, saying “people pay brisk money for this crap?” Clearly, this was a front, the famed hardboiled author conducting a fishing expedition, seeing if his agent would bite.
Sixty years later, I wrote a story named for Chandler’s letter – Brisk Money. The idea was everything – a whole world was open to me, enough not just for a novelette but for a trilogy of hardboiled novels and another in-between novella, Standard Hollywood Depravity – the title, again, taken from Chandler’s letters.
So far, so good. Made to Kill was a blast to write.
And then came book two.
I wouldn’t call it a sophomore slump. Far from it. The three novels were pitched together, right from the start, so I knew what I was doing and where the books were going. But there was one thing in back of my mind while I was working on what became the second novel, Killing Is My Business.
What would Raymond Chandler do?
That mantra, in essence, became the big idea of the book.
The concept of the Ray Electromatic Mysteries is simple: the robot revolution came and went in the 1950s, and Ray is the last robot left in the world, designed to be a private eye working in Hollywood. The only snag to this is that his supercomputer boss, Ada, was programmed to make a profit – and she quickly figured out you could make more money by killing people than finding them. A little tinkering with Ray’s CPU and Ada turns him into an accomplished hit-robot.
Simple enough, and, importantly, an open-ended concept. You could write a hundred stories about a hitman.
Which was actually the problem – because while I could easily write endless hardboiled, noir-ish stories set in Chandler’s seedy LA underbelly, a world full of wiseguys and dames and crooked cops and the mob, that’s nothing that hasn’t been seen before a thousand times. Hell, that’s basically Chandler’s oeuvre and people have been calling him a genius or a hack for the last seventy-plus years.
No, what I had to do was to write science fiction. There was no point in Ray being a robot if that wasn’t vital to the story. Ray had to be the central player in the trilogy – he’s unique, literally, and that has to drive the story arc that stretches across all three books.
So: what would Raymond Chandler do?
More specifically, what would Raymond Chandler do… with a robot?
In Killing Is My Business, Ray’s unique character is used to rather unsubtle effect when he uses his virtually indestructible chassis to protect a mob boss from a drive-by shooting, literally placing himself between the crime lord and his would-be executioners. This is something that only Ray could do. It’s a key scene, the first piece of the story that I had thought of.
And it was also a scene that I knew had to happen – if Ray is a robot then being a robot is the story. With that thought foremost in mind, I could write book two and I could make sure the series as a whole is more than just a set of pastiche crime novels, it was something original.
Now, if he only Ray Electromatic knew what I torment I had in store for him in book three…
One of the most elementary distinctions in economics (and in life) is that between instruments and objectives. Interest rates, for example, are only an instrument whereas the objectives are price and output stability. I fear, though, that this distinction is being overlooked by those Brexiters aroused by what Trump calls a “big and exciting” trade deal between the UK and US. Trade deals are only a means of achieving what really matters – prosperity. And they might be a weak one at that.
Liam Fox claims that bilateral US-UK trade could rise from £167bn a year to about £207bn by 2030 “if we’re able to remove the barriers to trade that we have”. This isn’t as impressive as it seems.
The UK currently exports £100.3bn of goods and services to the US. Let’s assume this rises as much as Fox claims. Over the 11 years from 2019 to 2030 that’s a rise of £24bn. Which is 1.2% of GDP. Or 0.1% per year. And in fact, the rise would be much less than this simply because exports have a high import content*.
Granted, this might understate the benefit. Perhaps a trade deal would boost GDP not so much by raising exports but by giving us access to cheaper imports, thus raising real incomes. However, cheaper US imports would threaten to drive some UK producers out of the market – a fact they would of course resist. One reason why trade deals take such an infernally long time is simply that every goddamn lobbyist in the country sticks their neck in.
All this, though, assumes something that mightn’t be the case – that Fox is right that a trade deal would raise exports a lot: that word “if” in his statement is doing a lot of work.
Research by Monique Ebell and Silvia Nenci shows that this mightn’t be the case. Nenci, for example, shows that cutting tariffs has been of only “small significance” in boosting trade. A big reason for this is that trade deals often leave in place non-tariff barriers to trade such as differences in regulations. These are the sort of things removed not by trade deals but by a single market across nations. If only somebody had ever thought of such a thing.
What’s more, there are countless non-governmental obstacles (pdf) to trade such as exchange rate volatility, consumers’ preferences (pdf) for home-produced goods and services, uncertainty, credit constraints, a lack of entrepreneurial nous and of course distance. Two big facts tell us that these are important. One is that world trade has slowed in recent years without significant increases in legal obstacles. The other is that Germany exports much more than the UK does to non-EU countries – a fact which tells us that the barriers to UK exports are not primarily regulatory.
Herein lies my gripe with Brexit. It steals cognitive bandwidth. Instead of considering the countless possible ways** in which we might improve our economic performance without the omniuncertainty of Brexit, we’re discussing how to clean a fucking chicken.
Why, then, are Brexiters making such a big thing of a UK-US trade deal? One reason lies in the old cliché that if your only tool is a hammer, everything looks like a nail. They’re making the mistake the right has made for years – of assuming that dynamism and flexibility will be unleashed if only the state gets out of the way.
Also, there’s the confusion of instruments and objectives. Those who regard Brexit as a good thing in itself are making a fetish of trade deals: they're saying “look at what we can achieve outside the EU” without asking what the payoff to that will be.
In this sense, Brexiters are like the worst sort of amateur DIYers who refuse to hire proper tradesmen. Their unwarranted belief in their competence and self-reliance is causing them to wreck the house.
* This is a specific example of the general policy made by Dietz Vollrath – that “you can’t reform your way to rapid growth.”
** There is of course a tension between this claim and Vollrath’s scepticism about supply-side reform. My point is that economic stagnation requires a broad-spectrum response; we should throw as many sensible policies at it as possible, in the hope that one or two will work.
Foxconn has announced that it is indeed to be investing up to $10 billion in a plant in the US to build display products. TV screens and the like that is and the plant is to be in Wisconsin and will, in the first stage, lead to up to 3,000 jobs. What we all want to know of course is why are they doing so? Labour is more expensive in the US, we know that, Foxconn has had tremendous success in building things in China, why change things? The answer being that it’s the combination of interest rates and transport costs driving this.
Yes, I know, we’d all hope for something a little more exciting than this but that is the reason, the confluence of those two.
Foxconn Technology Group, which helped turn China into the center of electronics manufacturing, said it would build a $10 billion plant in Wisconsin to make display panels used in televisions and other products.
Of course there was a certain amount of grandstanding about this:
White House officials noted President Trump’s direct negotiations with Foxconn for the project, which they said would create at least 3,000 jobs and represent a $10 billion investment.
Mr. Trump joined Foxconn’s chairman, Terry Gou, at the White House for an announcement on Wednesday, with two Wisconsin Republicans, Gov. Scott Walker and Paul D. Ryan, the House speaker, in attendance.
Well, super, but why are they doing this? My colleague, Dale Buss, has more on what is being done here:
But in any event, Trump also had met a few times with Gou. “Each time, [Trump] emphasized the importance of manufacturing in America and providing high-skilled jobs for American workers,” Gou said at the press conference. “Because of [Trump], we are committed to [providing] great, great jobs for the American people.”
Foxconn has access to some of the world’s best screen technology through its recent tie up with Sharp. So, they know what they want to make and how they’re going to make it. It’s also a hugely capital intensive undertaking. That $10 billion for 3,000 jobs is well over $3 million a job, that’s a very capital intensive business proposition there. Given that, the difference between US and Chinese (or Vietnamese, Indonesian) wages simply isn’t a hugely important point. This is not like those sheds in Shenzen where hundreds of thousands of people hand assemble iPhones. So, they’ve got the technology, labour costs are trivial in the scheme of things, why place it in the US?
At which point a little thing about those iPhones. Yep, they’re assembled in sheds in Shenzen. And then they’re flown to the market where they will be sold. All sounds a bit odd really, because if they’re prepared to go all the way to China to save a few bucks wouldn’t they save more by using ships, not planes?
Ah, no, they wouldn’t because there are two different things here and one wants to optimise the balance between them. One is interest rates. Yes, they’re pretty low at present, that’s entirely true. But to a company they are still positive. Sea shipping from the Far East can take up to 30 days. That’s a month of interest that has to be paid on that transit time. No, don’t start saying Apple has lots of cash so it doesn’t pay interest, we’re talking opportunity costs here. Cash tied up in goods being shipped is cash that cannot be used elsewhere, that’s a cost. But there’s more than this. There is also depreciation. A rough rule of thumb is that an electronic component depreciates at 1% per week. Yes, per week. We don’t mean, of course, that a computer chip is worth 1% less just because something has happened to it in only a week. Rather, the pace of advance is such that all components become worth a little less all the time as the arrival of the next generation chip or component gets ever closer.
That month in a ship starts looking very expensive at that point. Thus Apple ships iPhones by air. It is actually cheaper to do so once we take account of both shipping costs and also interest rates–here we’re calling depreciation an interest rate which it is in certain theoretical ways.
Now start doing the same calculations with a 60 inch display. The cost of the air transport is prohibitive, but you’re still seeing the same losses from the time taken for surface transport. At which point, why not just build the factory near where the customers are? Which is, of course, exactly what Foxconn has just announced it is going to do. And we would, from this analysis, then insist that the higher wage costs in such a capital intensive plant are outweighed by the absence of those depreciation losses from a month’s shipping time.
It would be nice to say that Foxconn setting up in Wisconsin is all about how marvelous American manufacturing is, perhaps about the persuasiveness of Donald Trump, but it’s really about the speed of cargo ships. Or perhaps the absence of speed of ships.