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Musings Report 2018-15 4-13-18 Understanding the Economy, Trade and Facebook: Big Data Drives Profits and Narratives
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Book Discounts for Patrons / Subscribers Only, Through Sunday
In honor of the two podcasts listed below on my latest book, Money and Work Unchained, I'm offering discounts between 22% and 30% for print and Kindle versions of my latest three books:
Money and Work Unchained (print discount price $14, list $20; Kindle discount price $6.95, list $9.95)
Inequality and the Collapse of Privilege (Kindle discount price $2.99, list $3.95)
Why our Status Quo Failed and Is Beyond Reform (Kindle discount price $2.99, list $3.95)
Amazon is currently reviewing these price changes (this is standard procedure) and they should all be in place in a few hours. I also requested a $2 discount in the print versions of the shorter books.
These discounts end Sunday evening. I will offer the general public smaller discounts on the books next week.
Understanding the Economy, Trade and Facebook: Big Data Drives Profits and Narratives
Let's connect the dots between these two comments from longtime correspondents:
GFB:
If I had a lot of money, would I want to do:
A) invest in exploring forbidding areas of the globe for oil reserves with a 50/50 chance of no results
negotiate leases for the areas of the planet I want to extract oil in and have to negotiate with corrupt and unstable governments
Pay for the oil extracting and transportation infrastructure
deal with the fluctuating market values - which may make my whole investment worthless
OR
B) set up a low cost trap that has millions of people handing me for free, and with their acknowledged permission, their preferences, tastes, beliefs, and aspirations, which I can re-sell at almost no cost to a long list of buyers, with a price that I can set as I have the data.
Why I keep thinking we’ve moved past 'the sky is falling' to 'the sky fell' with this is that we haven’t yet seen what happens when next generation AI gets a hold of this data and starts using it.
That’s no concern of anyone in the data mining, acquisition, or aggregation business now - as their goal is very simple: get as much data as possible from any kind of source that you can beg borrow or steal from - as the AI and algorithms of the future will find more and more uses for this data.
Data will only become more valuable. I don’t think there is an equivalent 'substance' in our universe, that no matter what happens, the data holder will be wealthier and wealthier.
Data doesn’t expire, rust, need maintenance, go in or out of fashion, need to fed, require medical care . .
I thought it was very telling that there were numerous reports recently that the Senators grilling Supreme Leader Zuckerberg clearly, by the nature of their questions 1) did not understand what Facebook does and why this is and issue, and 2) didn’t want to piss Zuck off as they are going to need to use Facebook's data in their next campaign, as their opponents surely will.
Mark G.:
Perhaps one way to underline this (i.e. that corporations have benefited from "free trade" far more than consumers and workers) is to see what wasn't outsourced and offshored. This is control of the product marketing and distribution channels. This is the sector the "Free Traders" have maintained a death grip on.
Even with Alibaba in place the Chinese have still made almost no progress in market penetration in North America, Europe or Pacific Oceania.
If we totaled up the proverbial '80%' of retail value in any class of products I'm certain we'd be staring at a series of oligopolies that generally have fewer than ten members in any category, and often fewer than five.
Here's how I'm connecting the dots of Big Data /data mining and the new model for maximizing profitability:
the entire model of "capitalism" (maximizing return on capital and labor) has shifted from getting rich making products or providing services to distributing/marketing goods and services in a cartel structure.
In this economy, the essential role is played by big data/data mining. Wal-Mart, Amazon, Facebook, Google et al have no interest in where the goods and services are made/generated; the big profits are in the distribution/marketing (i.e. exploiting large data sets) and gathering and selling these large data sets.
Let's stipulate that those corporations whose entire value proposition is manufacturing expertise will continue to extract profits from manufacturing. But this doesn't mean that this manufacturing remains exclusively in the domestic economy, or that Big Data isn't increasingly a core value-generator for manufacturers.
Boeing is a good example. In terms of trade, it's noteworthy that Boeing is careful to have major airliner components manufactured in major markets for its aircraft: Japan and China come to mind.
Since Boeing's value is increasingly based on how well it meets the needs of its airline customers (setting aside its government defense contracts for the moment), then the value proposition shifts to data mining and analysis of passengers, routes, etc. by the airlines. Thus Big Data informs what they want from Boeing, and Boeing is thus as reliant on data mining as any politico seeking to exploit large data sets mined by Facebook.
GFB made an important point in one of our many email exchanges on these topics: small data sets are a dime a dozen. What's truly valuable is data sets covering tens of millions or hundreds of millions of individuals.
There are of course beneficial uses for large data sets: pharmaceutical and healthcare R&D is informed by large data sets about patients and their responses to lifestyle changes, medications, etc.
To Mark's first point: to identify what is most profitable, look at what isn't offshored, and what is most zealously guarded by political/regulatory moats: distribution channels.
Alternatively, to identify what's low-value and not very profitable, look at what's been offshored: manufacturing and assembly.
To GFB's point: given a choice between an intrinsically risky enterprise such as discovering and extracting oil in harsh landscapes and unstable nations (pretty much all that's left to explore/extract), and extracting the value from large data sets, which is more profitable and lower risk?
To Mark's second point: Mark invokes the 80/20 rule (Pareto Distribution) as a basic guideline: 20% of the firms in any sector reap 80% of the profit. (If we go one step further, and take 20% of the 20% and 80% of the 80%, we get the 64/4 Rule: 4% of enterprises/individuals reap 64% of the profits/income.) This is the reality: a handful of corporations reap the vast majority of revenues and profits within each sector of the economy.
This extraordinary concentration of income and profits is reflected in the data on corporate profits and individual tax returns.
This provides insight into trade, the value of Facebook's "business model," and the tremendous demand by corporations and political campaigns for large data sets that can be analyzed and exploited to market products, services and political narratives/candidates.
It now seems self-evident to me that we cannot possibly understand trade, the issues surrounding Facebook or the economy without understanding the core role played by Big Data in reaping profits and guiding narratives (in Noam Chomsky's phrase, manufacturing consent).
This is the New Economy, and it's not the one being taught or the one most people conceptualize.
Highlights of the Blog This Past Week
I recorded two lengthy podcasts with KMO exploring a wide range of topics relating to Universal Basic Income (UBI). KMO kindly allowed me to share the second podcast, which is behind a paywall, with my own patrons and subscribers.
I think these are the best introduction to my writing on work, money, UBI and the outlines of an alternative economy/way of living that avoids the perverse incentives and destructive nature of the status quo economy/social order.
The Poverty of Leisure (1:06 hours)
A discussion of Universal Basic Income (1:18 hours)
Best Thing That Happened To Me This Week
I grated fresh coconut and made this recipe for Fresh Coconut Cake, which was the best coconut cake I've ever tasted.
There are two differences between this recipe and most others: this one has two cups of grated fresh coconut in the batter, and it calls for a glaze made from the coconut water in place of conventional frosting.
Since I'm lazy I made a single-layer cake and skipped the whipped cream topping. The glaze was perfect, so whipped cream would be gilding the lily in my view.
Market Musings: The CPC put/call ratio
The put/call ratio, which reflects the purchase of options, is a useful reflection of sentiment.
When the CPC is low, sentiment is bullish and participants don't feel the need to buy puts (options that increase in value as the markets drops) as hedges. Very low CPC readings reflect euphoria associated with market tops.
High CPC readings reflect rising fear/panic, and are associated with tradable market lows.
We can discern three different eras in this chart: a low volatility period in Oct-Nov. 2017, a wide range in which the CPC spent most of the time below the 50-day moving average (MA), reflecting the euphoric rally that began the year, and a third era marked by CPC readings above the 50-day MA, reflecting uncertainty, fear and the desire for hedges against sudden declines.
If history is any guide, the market won't put in a tradable bottom until the CPC starts spending more time below the 50-day MA.
Nothing is guaranteed in technical analysis, of course. Markets can crash despite various indicators suggesting otherwise. But the CPC is an indicator that hasn't yet become the plaything of central banks and major players, so it is still worth monitoring.
From Left Field
PayPal Rolls Out Debit Cards, Check Deposits And Other Services For The "Unbanked" -- the future of banking?
Turn On, Tune In, Drop Out Of Social Media
The Infuriating Innocence of Mark Zuckerberg
Don’t Fix Facebook. Replace It.
Orban's Economic Model (Hungary) Is Trump's Dream
America's Overlooked Addiction Crisis: Alcohol abuse is a fast-growing problem.
What Sleeping With Married Men Taught Me About Infidelity (NY Times) (via Maoxian)
What It’s Like Living Without Health Insurance in America-- we have the worst of all possible sickcare systems....
Health Care Under the Knife: Moving Beyond Capitalism for Our Health (via LaserLefty)
Richest 1% on target to own two-thirds of all wealth by 2030
Singapore in the Mid-1960s Through an Englishman's Lens--old snapshots have a particular washed-out color and haziness....
Rural India is eating less than it did 40 years ago--sobering...
"The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts." Bertrand Russell
Thanks for reading--
charles |
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