tag:blogger.com,1999:blog-17232051.post530406076986707568..comments2024-03-18T07:04:18.975-04:00Comments on Noahpinion: In defense of private equity: Japan.Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger74125tag:blogger.com,1999:blog-17232051.post-87161103509644589882012-06-06T02:22:07.305-04:002012-06-06T02:22:07.305-04:00Krugman was not asserting what you say he was asse...Krugman was not asserting what you say he was asserting: he does not say that the rise of private equity caused increased inequality. He says that if private equity was supposed to have produced improved productivity or made trade more competitive, it doesn't show up in the data; now maybe there were other effects that completely offset what would otherwise have been productivity gains or trade competitiveness, and it would've been even worse without private equity, but that's not the story that gets told, and not the story Krugman was responding to.Eolirinhttps://www.blogger.com/profile/14016117115592571416noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-6681651589557231052012-05-29T11:09:50.486-04:002012-05-29T11:09:50.486-04:00Private Equity Funds = PEF = $2.4Tn
total us stock...Private Equity Funds = PEF = $2.4Tn<br />total us stock market val =SMV= $17Tn<br />corporate bond market = CBM = $35Tn<br /><br />You say PEF/(SMV+CBM)*100 = 4% is PE share. This assumes that none of corporate bond market is for private equity firms or that what private equity firms borrow, their leverage, doesn't count in their impact on the economy., indeed, the more they borrow the less their impact.Larry Headlundnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30948596657093823972012-05-28T10:38:11.008-04:002012-05-28T10:38:11.008-04:00RT @MattYglesias: Why we need a safety net RT @TPM...RT @MattYglesias: Why we need a safety net RT @TPM: McCain defends Romney's Bain record: 'The free enterprise system can be cruel'Blixkreeghttps://www.blogger.com/profile/15608414360851482066noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-42899103048965898672012-05-25T17:38:06.135-04:002012-05-25T17:38:06.135-04:00Larry: The same is true of employment levels:
http...Larry: The same is true of employment levels:<br />http://3.bp.blogspot.com/_otfwl2zc6Qc/TCANv-2RWjI/AAAAAAAANxY/lux19E4YhME/s1600/jobs.jpg<br /><br />You can see how the gap was closing slowly in the 50s, 60s, and 70s, but really closed a lot in the 80s and 90s. There wasn't as much net hiring going on, but women made up a greater percentage. Companies had been hiring both men and women; in the 80s and 90s they slowed their hiring of men and kept up their hiring of women.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-13042395780528214832012-05-25T14:41:05.048-04:002012-05-25T14:41:05.048-04:00The last sentence should be: They closed the gap d...The last sentence should be: They closed the gap during the 80s and 90s but men lost over the period over half as much as women gained.Larry Headlundnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-38256795333940468352012-05-25T14:28:15.616-04:002012-05-25T14:28:15.616-04:00But the women's movement in the U.S. was stron...<i>But the women's movement in the U.S. was strong in the 60s and 70s, and women didn't really make huge gains in the workplace until the 80s and (really) the 90s.</i><br /><br />There is an interesting pattern in male and female average pay by decade and the gender gap <a href="http://jobs.aol.com/articles/2011/10/10/the-gender-wage-gap-a-historical-perspective-infographic/" rel="nofollow">From here</a><br /><br /><br />year,male,female,female/male ,change,male change,female change<br />1960,38907,23606,60.67%,,,<br />1970,50875,29924,58.82%,1.85%,30.76%,26.76%<br />1981,47816,28324,59.24%,-0.42%,-6.01%,-5.35%<br />1992,46175,32685,70.79%,-11.55%,-3.43%,15.40%<br />2002,47020,36018,76.60%,-5.82%,1.83%,10.20%<br />2009,47127,36278,76.98%,-0.38%,0.23%,0.72%<br /> , , , ,-16.31%,-7.37%*,21.23%*<br /><br />* change from peak year 1970<br /><br />Women made by far the biggest absolute gains in the workplace during the 1960s but men did even better so the gap widened. They closed the gap during the 80s and 90s but over half of that was a result of men losing ground.Larry Headlundnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-68224289335675029312012-05-25T13:53:42.817-04:002012-05-25T13:53:42.817-04:00total us stock market val (wilshire) is about 17 T...total us stock market val (wilshire) is about 17 Tn. the corporate bond market is about 35 Tn. so sounds like PE is about 4% by market cap. <br /><br />most job losses are during the early years of a buyout, so the new flow matters more and the marginal impact on a labor force of 130 milion is small.dwbnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-51053310479087919752012-05-25T11:08:07.455-04:002012-05-25T11:08:07.455-04:00Citing from http://web.mit.edu/krugman/www/japtrap...Citing from http://web.mit.edu/krugman/www/japtrap.html<br /><br />Everyone agrees that Japan needs structural reform: it needs to clean up its banks, deregulate its service sector, reform its corporate accounting, and so on. But while such measures will increase the economy's microeconomic efficiency, will they help it recover? ... Measures that raise Japan's supply capacity but leave demand where it is will not help the situation; indeed, if unemployment rises as a result of increased efficiency the country might actually be worse off.<br /><br />To be helpful in the current situation, structural reform must somehow induce people to spend more. It is possible to imagine several ways in which this might happen. A reformed financial sector might be able to lend to people and firms that are now credit-constrained. Deregulation might create new investment opportunities, raising investment demand. And conceivably reform might raise expectations of future income, encouraging higher spending now.<br /><br />The striking thing about discussion of structural reform, however, is that when one poses the question "How will this increase demand?" - as opposed to supply - the answers are actually quite vague. I at least am far from sure that the kinds of structural reform being urged on Japan will increase demand at all, and see no reason to believe that even radical reform would be enough to jolt the economy out of its current trap.himaginaryhttps://www.blogger.com/profile/03409531853330541896noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-67876174272913697882012-05-25T09:17:37.576-04:002012-05-25T09:17:37.576-04:00Private equity firms presently own companies emplo...Private equity firms presently own companies employing one of every 10 non-govermental U.S. workers, or 10 million people<br /><br />Private equity funds under management totalled $2.4 trillion at the end of 2010.Larry Headlundnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-35209187564399242242012-05-25T02:13:27.789-04:002012-05-25T02:13:27.789-04:00I have worked in Japan, at a Japanese Company for ...I have worked in Japan, at a Japanese Company for ten years. I am a female Manager, because I was not Japanese I was taken a little more seriously than OL's (office ladies) who are just there to snag a husband. I can confirm what is written in this article about productivity, or lack of it. It is very much a culture of being seen to be doing something rather than actually getting stuff done. It is a lot to do with the society and organisation and their culture, which I might add is very strictly adhered to. Seniority is showing respect for age and wisdom, whereas western culture value youth and gung-ho attitudes more. We could learn a lot from Japan, and yes, they could learn from us. Things will change over time, as the youth who have been trained in the west return to Japan and take over the reigns of those retiring. I would not write Japan off just yet. I left Japan due to the realisation that I could not make as much of an impact in my business as I would like as I had two handicaps, one being female and one being non-Japanese, despite speaking the language well I would never fit in. I still respect and admire my Japanese co-workers who give their all for the company. That is because they know they will be looked after and their loyalty rewarded. Unlike here in Australia, I have been made redundant twice in the ten years since leaving Japan, my loyalties are very much focused on myself these days, and I wont go the extra mile unless it serves to benefit me, unlike Japan days when I would do it for the Company or my Customer just because I could. Different values and attitudes are hard to compare. I realise though that in japan the concept of GIRI (obligation) cements many relationships in business and I feel here things are more real and genuine and I am working for a positive outcome for my Company and myself and my customer, not just because some unwritten rule says I should. It is an interesting dilemma and has no quick fix answers.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-86217196856458917762012-05-25T01:05:19.950-04:002012-05-25T01:05:19.950-04:00What is the evidence that Japan has such terrible ...<i>What is the evidence that Japan has such terrible productivity?</i><br /><br />Well, a good place to start would be the links I posted in the original post. Did you check those out? <br /><br /><i>Yes, if we look at GDP/capita the US comes out ahead --- $50,000 vs $40,000</i><br /><br />In PPP terms it's 48k to $34k. That means our per capita GDP is 40% higher than theirs.<br /><br /><i>I can't find the comparable figure for Japan, but their Gini is .249</i><br /><br />CIA puts their Gini at 37.6. <br /><br />Source: http://en.wikipedia.org/wiki/List_of_countries_by_income_equality<br /><br />For more info on Japan's substantial income inequality, check out this:<br />http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=11983<br /><br />and read this article:<br />http://www.usatoday.com/money/world/2006-07-23-japan-usat_x.htm<br /><br /><br /><i>More generally, reading this article I see a huge amount of "Japan sucks because they choose to do things differently from us", very little "Japan sucks because of these objective reasons".</i><br /><br />Actually I don't think Japan sucks. It has its ups and downs. It has fewer problems than we do with violent crime, drug addiction, and massive incarceration. Despite the fact that its inequality has skyrocketed since 1990, it still has fewer poor people than we do. Japan is much more environmentally conscious than the U.S. And there are many aspects of its culture I find enviable, such as giving respect to people who perform low-skilled occupations and service jobs.<br /><br />However, corporate culture is, in my opinion, not one of Japan's strong suits.<br /><br />And Japan's productivity problems are difficult to deny. Japanese economists agree on this point.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-53605480133099034082012-05-25T00:14:56.305-04:002012-05-25T00:14:56.305-04:00@Tom "Then new, younger, hungrier workers wou...@Tom "Then new, younger, hungrier workers would be able to drive the economy hopefully without tragic suicides? "<br /><br />Claiming that suicide rates tell us ANYTHING about either the social or the economic conditions of a society reveals extreme ignorance. Look at a table of suicide rates:<br /> http://en.wikipedia.org/wiki/List_of_countries_by_suicide_rate<br />Japan and China basically the same --- yet vastly different in wealth. <br />Switzerland extremely high. Male rates much higher than female (so much for how bad women have it...) Haiti at the bottom of the list.<br /><br />They tell us something about culture, yes, but anyone reading economic lessons into them is a hack.name99https://www.blogger.com/profile/13655602051960088825noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-40108873500092257382012-05-25T00:06:01.101-04:002012-05-25T00:06:01.101-04:00What is the evidence that Japan has such terrible ...What is the evidence that Japan has such terrible productivity? <br />In spite of all these people who you claim are doing nothing, their society is magically still generating a whole lot of income for them. <br />Yes, if we look at GDP/capita the US comes out ahead --- $50,000 vs $40,000<br /><br />But we all know the US is immensely skewed, so let's look at medians. The US median income is $33,000. I can't find the comparable figure for Japan, but their Gini is .249 (second lowest in the world, top 20% get 36% of income, lowest 20% get 11%); the US has a Gini of .408 (94 lowest in the world, top 20% get 46% of income, lowest 20% get 5%). And those are income numbers, wealth numbers are even worse.<br /><br />So what I see is that Japan is plenty productive enough to build a decent society, whereas the US is using its excess productivity to enrich the plutocracy. I fail to see why this is a preferable state of affairs.<br /><br />More generally, reading this article I see a huge amount of "Japan sucks because they choose to do things differently from us", very little "Japan sucks because of these objective reasons".name99https://www.blogger.com/profile/13655602051960088825noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-58071590564605339342012-05-24T22:58:43.829-04:002012-05-24T22:58:43.829-04:00I actually read this article as my colleague behin...I actually read this article as my colleague behind me here in Marunouchi hand-copied Australian sovereign yield numbers from Bloomberg into his journal, a process he repeats without fail daily. He doesn't actually understand what duration is, and nor does he realize that this additional knowledge exists which would allow him to make better use of those numbers. He probably does believe he is working but he definitely isn't, if we define work to mean some productive activity rather than something that fills time and makes you feel good about yourself. I actually work for a foreign company and from my experience the situation is significantly worse amongst Japanese ones.<br /><br />Work ethic means making a considered and thorough attempt to add value to your company, not just doing stuff.the idler of marchnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-60669852608411029672012-05-24T22:17:32.985-04:002012-05-24T22:17:32.985-04:00The real reasons I am concerned about PE: 1)creati...The real reasons I am concerned about PE: 1)creation of oligopolies with pricing power; 2) tax avoidance (take labor income at lower dividends and cap gains rates); 3) unfunded pension liabilities being shifted to taxpayers. <br /><br />based on experience though, I just don't buy the rest especially the notion that where you are in the business cycle matters. In a recession restructuring happens. PE is cyclical to begin with. Not every part of the economy moves at the same speed (oil and gas is booming, and you see a lot of PE deals in that sector along with healthcare and IT; not a lot of activity in housing and construction). The size of private equity is what - a couple hundred billion in 2011? peanuts. <br /><br />Buffet is planning his next acquisition. If I see Summers criticizing the buyout due to displacing workers during a recession, i'll start taking these arguments more seriously.dwbnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-6593938563836519292012-05-24T21:19:31.536-04:002012-05-24T21:19:31.536-04:00I like the Danish idea of flexicurity. With univer...I like the Danish idea of flexicurity. With universal healthcare, a strong safety net, extremely affordable higher education and vocational training (I'd like to see universal free bachelors degree or vocational degree, as well as universal free pre-school), etc., then we don't need to create a lot of inefficiency to try to prevent layoffs. Of course, Romney and his party are vehemently against anything like this.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-72787808908611998212012-05-24T21:09:07.710-04:002012-05-24T21:09:07.710-04:00dwb,
Again, PE firms can and do perform a useful ...dwb,<br /><br />Again, PE firms can and do perform a useful purpose, just as investment banking performs a useful purpose. Just as speculation and arbitrage serve useful purposes. And just as hedge funds and derivatives can add economic value. But those are all things that you worry about when the central economic problem of the day is pushing out the AS curve. PE guided restructuring is a great thing if the world looks like 1979, but not so great in 2012.<br /><br />Pension funds are vulnerable if the PE firm goes the chapter 11 bankruptcy route...ask former TWA employees about that one.<br /><br />Seriously, you should read the rather famous Larry Summers paper on this. It's about 20 years old, but still gets the basic economics right.2slugbaitsnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-70347117278537933812012-05-24T20:38:09.475-04:002012-05-24T20:38:09.475-04:00i am flattered. This is not a Romney thing, he a z...i am flattered. This is not a Romney thing, he a zombie as far I am concerned. tie the london whale around his neck and throw him overboard.<br /><br />Most of this paper sounds to me like transparent anti-Romney electioneering rhetoric, just wrapped it up in some clever math. One cannot be "anti-PE" and "anti-wall street sharks" pro Warren Buffet, Buffet does the same thing (but with equity, not debt). I bet Buffets companies collectively have displaced 10x as many workers as Bain. <br /><br />If you said lets give tax credits for job retraining or education for displaced workers, i'd agree. Yep to tighter pension laws (you cant raid them they are protected by law i think you mean freeze benefits). But PE, i mean Berkshire Hathaway, performs a useful function.<br /><br />also: my experience, the low to the ground employees who know how the spreadsheets work and how the systems work are not the ones fired. It's the 50% target bonus middle managers. boo-hoo for them, but they land on their feet.dwbnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-26033139382749480392012-05-24T17:41:35.840-04:002012-05-24T17:41:35.840-04:00Employees sit idly in front of their computers wai...Employees sit idly in front of their computers waiting for the boss to leave so they can go home, or make busy-work for themselves, copying electronic records onto paper (yes, this is real!). <br /><br />That statement shows you know absolutely nothing about the work ethic in Japan.Eric Balshanhttps://www.blogger.com/profile/05252036910101582314noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-35116613589015341222012-05-24T16:54:06.808-04:002012-05-24T16:54:06.808-04:00dwb,
First, if you're an accountant, then fir...dwb,<br /><br />First, if you're an accountant, then firms pay unemployment insurance. If you're an economist, then the insurance premia come from the wage bill and come out of wages.<br /><br />Second, private equity (PE) firms target precisely those companies with juicy and well funded pension plans because that's where the money is.<br /><br />Third, when a PE firm takes over, the business plan is really a matter of breaking trust with either the workers or existing management (or both). They do so by breaking unwritten and informal understandings. When those understandings are breached, this creates transaction costs on other firms. PE takeovers have the effect of increasing costs for other firms.<br /><br />Fourth, when looking at total welfare you have to compare the welfare gain to shareholders from greater efficiency to the welfare losses of displaced workers. Unless the economy is operating near full employment the efficiency gains are, as Larry Summers points out, "second order" effects.<br /><br />Fifth, PE firms do not ordinarily target companies that are candidates for liquidation; they target relatively healthy companies that are merely underperforming. For example, even thought the US govt practically begged Bain Capital to take over GM and Chrysler, Bain refused because both were considered liquidation candidates absent a govt guaranteed loan.<br /><br />Sixth, one way to tell if a PE takeover increases efficiency or simply steals assets and screws shareholders as well as labor & management is to check he magnitude of the profits. In the real world no company operates with gross inefficiencies, so the opportunity for increased profits through greater efficiencies is limited. If you see outsized returns to a PE firm, then chances are that the firm is extracting rents rather than increasing profits. <br /><br />Seventh, the macro case for not doing PE takeovers during a ZIRP recession is that if the AD curve is locally upward sloping because of the Fisher effect, then as Tobin & Krugman have both argued, any increased efficiencies actually reduce total output.<br /><br />Finally and FWIW, one of the reasons Romney had to distance himself from Bain Capital is that even by the standards of Wall St sharks, Romney was considered an audacious liar and double-crosser. Bain was having a hard time finding any investment banking partners if Romney was part of the team, so he had to be eased out.2slugbaitsnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-69775021471442133482012-05-24T15:23:15.520-04:002012-05-24T15:23:15.520-04:00Whoa, Anonymous is arguing with himself!Whoa, Anonymous is arguing with himself!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-26037693764686122412012-05-24T14:07:20.296-04:002012-05-24T14:07:20.296-04:00So the tens of thousands of people working for Sta...So the tens of thousands of people working for Staples aren't doing any "meaningful work"?<br /><br />It seems like you're resorting to hyperbole.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-21851025367405354162012-05-24T12:56:40.941-04:002012-05-24T12:56:40.941-04:00here are plenty of studies showing that companies&...here are plenty of studies showing that companies' productivity increases when they are bought out by PE. That demonstrates causation at the firm level. True, firm-level productivity increases might not aggregate up to economy-wide productivity increases. BUT, simply showing a chart of productivity over time does not prove or disprove the causal effect of PE on economy-wide productivity.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-19330052706556952942012-05-24T12:49:50.006-04:002012-05-24T12:49:50.006-04:00If this hasn't been said before, it seems to m...If this hasn't been said before, it seems to me that you are trying to describe a very complex system with an insufficient number of variables and the unintended consequences of these changes would likely prove disastrous. What would happen to demand with a large number of unemployed dropped onto the market? How many companies would then die off as a result (to then be picked apart by the vultures). <br /><br />I see this as a roughly equivalent to a natural system (although I do not believe that it is self balancing), there may be a small unfilled niche for a predator or a scavenger but if you introduce a large number of non-native predators into an island environment you are likely to have mass extinctions. It would be better to design your incentives to have the predators only pick off the sickest and least healthy of the heard while the rest learn how to run again.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-20578529022435327362012-05-24T12:46:48.037-04:002012-05-24T12:46:48.037-04:00Well, you know how skeptical I am when people star...Well, you know how skeptical I am when people start to talk about "culture"...<br /><br />http://noahpinionblog.blogspot.com/2012/04/in-which-i-shoot-down-culture-fairy.html<br /><br />I mean, in Japan's case, yes, it's culture. <i>Corporate</i> culture. But is it Japan's <i>national</i> or <i>ethnic</i> culture (and hence, unchangeable and permanent)? I don't think so. This office culture didn't exist before WW2. I think economics interacts with culture and I think institutions interact with culture, and I believe this particular culture can be changed. And I think that changes in corporate governance are one thing with the potential to change it.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.com