The Bear’s Lair: How steam engines entered the economy

Conventional wisdom has it that James Watt invented the steam engine, which became economically important in the 1780s, setting off the Industrial Revolution. All three of those beliefs are wrong. This column will lay out the true process, which was a 3-stage one over a century in duration, intensifying the Industrial Revolution but not directly setting it off. Understanding that process properly has important implications for how we adopt new technology today. Continue reading

The Bear’s Lair: High Net Worth Retail – Everybody’s Suckers

I am glad I am not rich! If I were, I would be subjected to bombardment by the financial services sector, attempting to sell me fancy products just when they are going out of style. The plumbing of financial services is very apparent: as far as possible you want to get to the source of deals and stay well away from the elegantly dressed salesmen who deal with the rich. Maximizing your return is simply a matter of maneuvering yourself further up the food chain. Continue reading

The Bear’s Lair: The Soaring Senility Market

Since the middle 1990s, investors and entrepreneurs have focused almost solely on the youth market, generating endless devices and amusements for youth. Many of these (smartphones, for example) older people can use only with difficulty, because of limited eyesight or coordination. This has been demographically foolish and has increasingly stymied economic growth. The real opportunity, demographic and technological, lies in the opposite direction: in providing services for the ever-increasing number of partially debilitated seniors. They are much richer than the young, their numbers are growing faster, and they have a major unmet demand for what technology can supply: goods and services that allow them to continue living independently in their own homes. Continue reading

The Bear’s Lair: Fool, Britannia!

Prime Minister Liz Truss’s £150 billion subsidy to energy consumers is yet another economically foolish policy, of a type that have been regrettably predominant since Lord Liverpool left office in 1827. For a country where previously sound policies had produced the Industrial Revolution, Britain has developed a remarkable propensity to shoot itself in the foot economically, providing a Shakespearean low comedy to disinterested observers but condemning its people to increasing impoverishment. Alas, there is little sign that this behavior is about to change. Continue reading

The Bear’s Lair: Time Preference in Reverse

Edward Chancellor’s admirable “The Price of Time” (Allen Lane, 2022) demonstrates clearly that interest rates are a matter of time preference; lenders charge interest because $1 today is worth more than $1 in say two years’ time. That is all very well, but at present, with markets heading downwards, interest rates heading upwards and interest rates still far below inflation rates, a real $1 in September 2024 is likely to be worth considerably more than $1 today. Time preference for rational investors has thus gone into reverse; it is worth discussing the strategies and economic implications of this bizarre phenomenon. Continue reading

The Bear’s Lair: The Country-Club Country

President Biden’s lax immigration policy has one inescapable economic effect: it lowers the earnings of low-skill Americans. Conversely, the policy of the 1620s and 1630s that shipped convicts and the indigent to the American colonies as indentured servants had a remarkable positive effect in reversing the hundred-year decline in real English wages. The recent failure and the 400-year-old success have a similar principle: governments should treat their poorer subjects as members of a country club, whose happiness and welfare is of the utmost importance.

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The Bear’s Lair: The Incredible Shrinking U.S. Economy

U.S. non-farm labor productivity declined at a 4.6% annual rate in the second quarter of 2022, following a 7.4% decline in the first quarter. Although predictable from the expansive employment numbers and the declining GDP, this is shocking news, which the media have largely ignored. There also seems little likelihood of a near-term reversal. Like the hero of the 1957 sci-fi movie classic “The Incredible Shrinking Man,” the U.S. economy has woken to find itself shorter than its wife and will shortly be battling the spiders. Continue reading

The Bear’s Lair: Creating an Innovation Economy

The Financial Times this week had a lengthy piece “When the tech boom met reality” detailing how truly galactic levels of venture capital funding have produced little innovation and are now leading to truly galactic levels of losses. It is now clear that the “all point in one direction and throw money at it” approach to innovation does not work. Since technological innovation is key to our future prosperity and indeed happiness, it is perhaps worth reviewing how better approaches in the past have produced better results. Structural changes are needed. Continue reading

The Bear’s Lair: Decade of Economic Denial

The 0.9% decline in U.S. second quarter GDP Thursday brought an immediate denial from the Biden administration that the United States was in a recession, following similar denials that inflation was persistent and that high oil prices were due to restrictions on U.S. pumping. As this column has frequently forecast, the 2020s will be a difficult decade. It is now clear that it will be a decade of economic denial, in which administrations of whichever party attempt to obfuscate the economically obvious. We have seen this pattern before; it is one of the reasons economics is a truly dismal science. Continue reading

The Bear’s Lair: The investment banking down cycle

Goldman Sachs’ (NYSE:GS) second quarter income falling 47% with threats of job cuts is just the beginning of a major downtrend in investment banking, reversing the surge of 1982-2021. This should not be a surprise: it has happened three times before. The most recent occasion was after the 1968 stock bubble; that crash was short. The two longer-term declines were after the 1929 stock market crash and the 1720 South Sea Bubble. The three downturns have interesting lessons for today’s investment bankers now seeking a new line of work. Continue reading