Episode #107 - Free-rider Friday - August 2016

Ron’s Topics

“Ten ways to tell you might be sitting next to an economist,” May 9, 2016, The Economist

“Those incredible flying machines,” The Economist, June 25, 2016

“Maximin,” The Economist, June 25, 2016

“Stay with me,” The Economist, May 7, 2016

• May 3, Hyatt profits up 55% over same QTR 2015

• REVPAR (revenue divided by rooms available in a given period) has risen last 6 years in America

• Booking from online sites increased to 1/5 rooms, up from 1/10 in 2006

• AIRBNB valued at $25B

• One solution: get bigger. Marriott buy Starwood $13B, 1.1 million rooms, get lower fees from online sites

• AIRBNB has even more rooms than 1.1M

• Sued SF over $1K/day fine for each renter not registered (8-%). Airbnb not responsible for failure to comply?

Brexit

July 2, 2016 The Economist

• Breversal: 4m+ signed petition for a re-run of vote

• Support for EU is collapsing, esp in France (Germany feels reparative responsibility)

• EU buys ½ UK exports

• Norway option: continued access to Europe’s “single market” in return for the free movement of people, and cont to EU budget

• Article 50 is about Exit, not trade (has to be separate negotiations). Trade requires approval of members

• Canada-type trade deal, or WTO rules

• Will Brexit undermine NATO?

• English may no longer be language of European business

• Airlines divert investments to EU, Pharma R&D, too

• Morgan Stanley says 1.5% off Britain’s growth rate 2016-17, half as much for EU, .5% off global growth (UK 4% of world GDP?)

• Boston Beer Company (Samuel Adams) applied for the Brexit trademark—cider!

• European Parliament announced a proposal to tax robots as “electronic persons.”

• Ronald Reagan. Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

Artificial Intelligence: The return of the machinery question

The Economist, Special Report: June 25, 2016

David Ricardo first posed “The machinery question” in 1821, "The influence of machinery on the interests of different classes of society, and in particular the opinion entertained by the labouring class, that the employment of machinery is frequently detrimental to their interests."

Thomas Carlyle, 1839, railed against the “demon of mechanism, oversetting whole multitudes of workmen.”

During the Industrial Revolution, John Stuart Mill said, "There cannot be a more legitimate object of the legislator’s care than looking after those who livelihoods are disrupted by machines."

1930s: Keynes coined “Technological unemployment.”

JFK issued a domestic challenge: “to maintain full employment at a time when automation…is replacing men.”

1964 Nobel winners formed the Ad Hoc Committee, on the Triple Revolution, which sent president Johnson a memo warning of the "Danger of the combination of the computer and the automated self-regulating machine that would divide society into skilled elite and unskilled underclass."

2013 Oxford study, 47% of jobs in America were high risk (overblown?)

Merrill Lynch by 2025, $14T-33T impact?

McKinsey Global Institute, transformation is happening 10X faster and at 300 times the scale (3000x) impact of Industrial Revolution.

Stephen Hawking, Elon Musk, Bill Gates: AI poses an existential threat to humanity.

2015: $8.5B spent on AI companies.

Long-term goal: Artificial General Intelligence (AGI), capable of solving a wide range of tasks, rather than a new AI system for each problem. AI experts can still publish after joining industry.

Companies ok with this transparency, since they can give away AI systems because they have access to the data. Elon Musk co-founded OpenAI, $1B, with the goal of openness for AI research.

Daniel Susskind quoted: “We compare machines to perfection, not to humans doing the same tasks (driverless cars).”

Will AI get its own regulatory agency (FDA, FAA)?

Pessimists vs. optimists? The Economist is somewhere in the middle.

Governments need to make it easier for workers to retrain and switch jobs. MOOCs, Udacity, Coursera will help. In future, learning to relearn will become the skill needed.

What determines vulnerability to AI?: whether work is routine.

Jobs will be redefined rather than destroyed.

Impact won’t be as great as epochal shift from agricultural to industrial economy.

After AI’s dark winter, and the slow rate of progress, it’s ironic that many now think it’s moving too quickly.

Ed's Topics

Travis Kalanick on Uber's bet on self-driving cars: 'I can't be wrong'

Rio 2016: Simone Biles Takes Record-Shattering Gold in Women’s All-Around - Pay wall

US Income Inequality Fell Sharply since the Great Recession | Foundation for Economic Education

Macy's harnesses IBM's Watson supercomputer to help shoppers

Episode #106: Interview with Professor Steven Landsburg

This week Ron and Ed are thrilled to have had Professor Steven E. Landsburg, professor of Economics at the University of Rochester, where students recently elected him Professor of the Year. He is the author of The Armchair Economist, Fair Play, More Sex is Safer Sex, The Big Questions, two textbooks in economics, a forthcoming textbook on general relativity and cosmology, and over 30 journal articles in mathematics, economics and philosophy. His current research is in the area of quantum game theory. He writes the monthly “Everyday Economics” column in Slate magazine, and has written regularly for Forbes and occasionally for the New York Times, the Wall Street Journal and the Washington Post. He appeared as a commentator on the PBS/Turner Broadcasting series “Damn Right”, and has made over 200 appearances on radio and television broadcasts over the past few years.

Segment One

Ed and the Professor discuss quantum game theory. Well, Professor Landsburg talks about it, Ed is still confused.

Quickly, they move on to Presidential politics wherein the following blog posts from Landsburg's blog, The Big Questions, get elaborated upon:

• Clintonomics

• Trumponomics

• Pretty Good Ad

Ed then asks what advice the Professor would give the next future President. 

Segment Two

The Armchair Economist: Economics and Everyday Life

$10.77

By Steven E. Landsburg

Buy on Amazon

Inscribed on Karl Marx’s Tomb: "The philosophers have only interpreted the world in various ways. The point is to change it." In The Armchair Economist, Steven Landsburg writes, "The economist’s greatest passion is not to change the world but to understand it."

Ron asks why economists have not given up the assumption of rationality?

Also, in The Armchair Economist, Landsburg writes, "Most of economics can be summarized in four words: People respond to incentives. The rest is commentary."

Does behavioral economics shed light on the, perhaps, one-half of human behavior that is “irrational”?

The last chapter in The Armchair Economist is titled, “Why I’m not an environmentalist: the science of economics versus the religion of ecology.” 

You write about being lectured to by 4 and 5 year-olds about safe energy sources, mass transportation, and recycling (you also mention attempting to throw away your recycling bin), so why aren’t you an environmentalist?

Landsburg’s Rules of cost-benefit analysis:

• Only individuals matter, and

• All individuals matter equally

Are you optimistic about mankind’s ability to adapt to any climate change?

Segment Three

Ed asks about income inequality based on a speech the Professor gave three years ago in Dallas at an event for the National Center for Policy Analysis. There was no wealth inequality in the 16th century because everyone was starving and "it all sucked."

Since 1965, the average American has gained 6.5 hours of leisure per week, and low-income people have gained 14 hours per week, leading Landsburg to ask, “Why do we tax an hour of work but not an hour of leisure?” Should we “redistribute” leisure?

Healthcare today is a better bargain than it was in 1965. Ignoring AIDS, the quality of healthcare in America in 1975 was the same as what were seeing in the poorest parts of the third-world today. That’s how much better it has gotten in America, and the third world, in the last 40 years.

Segment Four

Fair Play

By Steven Landsburg

Buy on Amazon

In Fair Play Landsburg writes, "There’s nothing less interesting than a fact unilluminated by a theory. Theories make knowledge possible."

Ron asks what is the premise in your book, More Sex Is Safer Sex? For the record, Ed had to put his mic on mute because he was laughing uncontrollably. 

Is the death penalty a deterrent? My economics professor at San Francisco State made us read Isaac Ehrlich’s research, which shows that for every execution somewhere between 8 and 24 murders are deterred? (And professor Ehrlich is opposed to the death penalty on moral and religious grounds).

Landsburg does write that there is a difference between the enactment and the enforcement of the death penalty. Could we run an experiment where if you commit murder on Monday, Wednesday and Friday, you get life in prison with no parole, but if you commit murder on Tuesday, Thursday, or the weekend, you get the death penalty, and see if changes behavior?

An FDA commissioner can make two types of errors: Type I error: approve a harmful drug that kills people, thereby losing his job; or a Type II error: don’t approve a drug that could save many lives, but the dead patients won’t ever know. To reduce the likelihood of a Type II error, you suggest paying the FDA commissioner in pharmaceutical stocks for every drug he approves. Would this work?

Thank you Professor Landsburg for appearing on The Soul of Enterprise. It was an honor to speak with you.

Steven E. Landsburg’s Books and Blog

• The Armchair Economist: Economics and Everyday Life, 1993

• Fair Play: What Your Child Can Teach You About Economics, Values, and the Meaning of Life, 1997

• Price Theory and Applications, 5E, 2002

• More Sex Is Safer Sex: The Unconventional Wisdom of Economics, 2007

• The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics, 2009

Blog: www.thebigquestions.com

Episode #105: The Eight Myths of Capitalism

Ed and Ron recapped their experience at Sage Summit, discussing speakers such as Richard Branson, Ashton Kutcher, and Daniel Susskind.

Click Image to Register and view these sessions on Sage Summit Live

Ron and Ed are presenting a workshop in Niagara Falls on “The Post-Professional Society,” October 16-18.

Then, based on the book by Jay Richards, Money, Greed, and God: Why Capitalism Is the Solution and Not the Problem, published in 2009, they discussed the eight myths of capitalism.

Richards' book was also the inspiration for the January 22, 2016 show, Episode #73: Lessons from the Trading Game.

Episode #104: Interview with Gregory LaFollette

Ed and I were honored to interview Gregory L. LaFollette, CPA, CITP, CGMA

Biography

Greg is one of the most recognized and respected voices on technology within the accounting profession. He has a broad background in the field, having spent time in private practice, as an executive with a top-tier technology vendor and as an editor of a leading publication keyed to accounting technology. He is also a sought-after speaker at trade shows and conferences.

Prior to joining CPA.com, Greg was a consultant to public accounting firms and to technology vendors with a focus on the accounting profession. Additionally, he was the Executive Editor of TheTechGap — the country’s first blog specifically created for the tax and accounting profession and for vendors who seek to serve that community, and Senior Manager of Tax and Technology Consulting with the Top 25 firm of Eide Bailly, LLP.

Earlier in his career, Greg served as the Executive Editor of The CPA Practice Advisor (formerly The CPA Technology Advisor), VP of Product Strategy at ThomsonReuters Creative Solutions, and founding partner at LaFollette, Jansa, Brandt & Co., LLP in Sioux Falls, SD. He served on the AICPA’s CITP Credential Committee (Chair), the National Accreditation Commission (ad hoc via the Credential CITP Committee), the Top Technologies Task Force, the TECH+ Planning Committee, and the Journal of Accountancy Technology Advisory Board.

Greg completed his professional training at Augustana College (SD) and is a CPA, a CITP, and a member of the AICPA Information Technology Division. He is a graduate and former staff lecturer at the AICPA’s National Tax Institute.

He and his wife Kaye have one grown daughter and choose to live in their hometown of Sioux Falls, SD.

Discussion

We had a wide-ranging discussion, including:

Why Greg changed his mind on no timesheets (it wasn’t Ron’s screaming at people to trash them).

The #1 Issue facing the profession?

Some of the major trends happening in the accounting profession?

The implications of the Richard and Daniel Susskind book, The Future of the Professions.

The impact of Blockchain, Bitcoin, AI, Deep Learning, and PriceWaterhouseCooper’s HALO audit software—that runs algorithms through entire data sets—no more audit sampling.

On driverless cars, Greg thinks his grandchildren will be alive when the Supreme Court has to decide whether humans should be allowed to drive, since we are so unsafe.

He also proposed a ratio to determine if an industry (or firm) is being disrupted by a new business model driven by technology:

            Legal Expenses / Technology Exp

If you were to run the music industry’s ratio during the Napster imbroglio, Greg’s point is an excellent one!

Thanks, Greg, for appearing on The Soul of Enterprise.