Welcome to Econ Weekly (Trial Week of May 10, 2021)

  • Probs With Jobs: April Data Disappoints 
  • Many Jobs to Fill, But Unemployment Still: The Great Labor Market Mystery
  • From Bending Steel to Helping Heal: America’s Big Shift to the Care Economy
  • Frustrations Amid Prosperity: Car Profits Soar; But Production Slips on Missing Chips
  • Vaccine Green: Covid Shot Earning Big Bucks for Pfizer
  • Doom to Boom: Casinos and Theaters Not Yet Seeing Major Revival. But It’s Coming
  • A Paucity of People: Census Highlights America’s Population Stagnation
  • Big Tech’s Big Cash: If They Don’t Need to Borrow, Do Interest Rates Matter?
  • Charmed, Then Harmed: Americans Falling for Scams as They’re Falling In Love
  • Looking Back: The Early Beginnings of the South’s Economic Revival
  • And This Week’s Featured Place: Las Vegas, Aiming Beyond Gaming

Presentation on the State of the U.S. Economy

Quote of the Week

“We ought to remember, the challenges we have with semiconductors right now are a temporary situation. We will work through that and move beyond it, and it’s not impacting our transformation and growth strategies.”

-General Motors CEO Mary Barra

Inside this Issue:

Market QuickLook

The: Latest

Discouraging. Disappointing. Dispiriting. Nearly everyone assumed a surge in newly created jobs last month, perhaps as many as 1m. But the Labor Department’s April figures—published with great anticipation on Friday—showed an increase of just 266,000; this after 770,000 new jobs in March. It’s just one month of data. But it nonetheless undercuts confidence in the recovery’s strength, even in the face of unmistakable demand growth.

The data also reaffirms the Federal Reserve’s instinct: That given its mandate to maximize employment, now is not the time to tighten. As for its other mandate of keeping prices stable, well, they’re not really stable right now—they’re going up. Quite sharply. But this is just temporary, the Fed suspects. Between inflation and unhealthy levels of unemployment, the latter—at this moment—is a greater concern.

Why though, are prices rising even for labor itself, if employment levels remain so depressed? That’s a question generating lots of discussion. Are Americans not taking jobs because extra unemployment benefits are covering their immediate needs? That’s what the Chamber of Commerce says. Or are they more commonly staying at home for reasons related to health concerns and childcare obligations?

By the fall, the extra unemployment pay will end, health concerns should abate and schools should reopen normally. Will this be the time when labor markets fully recover, and when the Fed feels comfortable to begin disengaging from its crisis-era actions? Summer trends could influence the Fed’s thinking too. The leisure and tourism sector, remember, accounts for an outsized portion of total job losses across the economy. But this sector, still in the infancy of recovery, looks poised for an imminent gusher of pent-up demand. Casinos can see it coming. Movie theaters can see it. Restaurants can see it. Airlines and hotels can see it.

Did you see, by the way, that a cyberattack caused what could be a meaningful disruption to the U.S. fuel supply? It’s another manifestation of an increasingly grave threat. Did you see that Walmart is buying a telehealth company? Did you see Verizon is selling Yahoo and AOL? Did you see Treasury chief Janet Yellen say that “maybe, interest rates will have to rise somewhat to make sure our economy doesn’t overheat.”? The words of Treasury chiefs—this one a former Fed chief too—can move mountains.

Just like the words of Elon Musk. After joking about Dogecoin being a “hustle” on the comedy show SNL, the cryptocurrency he helped hype took a sudden tumble. Down if not quite tumbling, meanwhile, are technology and growth stocks. Still, the S&P 500 index—heavily weighted with tech stocks though it is—rose last week. So did oil prices. Treasury yields remained steady.

In other news, Apple is battling Epic Games in court—is the Apple App Store abusing its marketing might? President Biden’s spending proposals are stuck for now in Congress. Population growth, or rather lack thereof, is a central theme of the latest Census data. A Labor Department report on the crucial topic of worker productivity showed some encouraging trends. A separate report showed imports are increasing much more than exports, unsurprisingly given the advanced pace of America’s recovery relative to elsewhere in the world.

But is the U.S. recovery too hot? There’s definitely some concern, not only regarding the threat of sustained inflation but also the prospects for an asset bubble bursting. “To veterans of financial bubbles, there is plenty familiar about the present,” writes The Wall Street Journal’s Greg Ip. “Stock valuations are their richest since the dot-com bubble in 2000. Home prices are back to their pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual investors are pouring money into green energy and cryptocurrency.” Is it primarily the Fed’s easy money that’s keeping the bubble inflated? When the Fed finally does raise rates, will that prove the pin that pricks the bubble? Or maybe current asset prices aren’t so bubbly after all. Keep in mind, for a majority of companies in the S&P 500—from tech giants to home builders to carmakers—the pandemic actually made them more profitable not less.

The questions never end in economics. But the clues keep coming. More this week as the Labor Department publishes new data on consumer prices. Disney, Marriott and Coinbase are among the many companies scheduled to report earnings. And Fed leaders Richard Clarida and Lael Brainard will speak on the U.S. economic outlook. Never a dull moment.


      • General Motors was once a symbol of American might. Then came the costly union demands, the overseas competition, the oil shocks, the quality problems, the environmental concerns, the runaway health care costs… By 2009, the company was bankrupt, kept alive only thanks to a taxpayer bailout. But bankruptcy can be a powerful tonic, especially when it comes to restructuring costs and shedding assets. Sure enough, GM today is a healthy company, earning a robust 14% operating margin last quarter, following an 8% margin for all last year, despite disruptions from the pandemic. The fact is, demand for autos is booming, at a time when the supply of autos is greatly constrained by a global semiconductor shortage. The shortage did affect GM somewhat less than its peers. And while frustrating, especially to dealers with a shortage of product to sell, overall conditions proved lucrative, as reflected in the strong earnings. North America is where GM earns the bulk of its profits. More specifically, its highest margins come from “highly profitable” full-size pickups and full-size SUVs. Last quarter, it saw a surge in profits at its financing unit as well—this is where it provides loans to customers and dealers. Recall that during its bankruptcy, GM had to shed its lending unit (which is today the independent, publicly traded Ally Financial). The carmaker is now rebuilding its in-house lending. The challenges never end, of course. GM is now on the front lines of global efforts to arrest climate change, investing more than $27b—that’s billion with a “b”—in electric and autonomous vehicle development. This year alone, the investment will exceed $7b. To be clear, this transition from ICE vehicles to e-vehicles won’t come easy. It will depend on further driving down battery costs, never mind producing cars and trucks that consumers find attractive. Tesla, armed with arguably superior technology and an extremely popular product, last quarter earned a profit margin less than half GM’s level (see graphic). Another risk is future battery supply, perhaps even more threatening than the current semicon shortage. The implications for GM’s dealer network and labor unions raise more uncertainty. But there’s no turning back. The industry is all in on e-vehicles. Among GM’s investments are new manufacturing plants in Ohio and Tennessee. It’s also introducing new vehicles. It won a deal to supply Dubai with self-driving taxis and ride-hailing services, both nearing the point of real-world use. Microsoft, Walmart and Honda are co-investors in its Cruise autonomous driving unit. Like other carmakers, it hopes to supplement car sales revenue with subscription revenue—customers, in other words, paying monthly or annual fees for specific services like autonomous capability. GM separately thinks it can produce new e-vehicles that win it more business in areas of the U.S. where its market share currently lags, notably on the east and west coasts.
      • Ford, incidentally, also reported its best quarterly operating margin ever (adjusted for special items) last quarter. It too saw higher car prices and strong earnings from its financing arm. But it sounded more troubled than GM about the semicon shortage—“It will get worse before it gets better.” Ford’s Q1 production was down 17% from plan, and 10% of its planned second half production now appears impossible to meet. Like GM, Ford insists on developing and building its batteries for the EV revolution in house. On May 26, it plans a major presentation to investors, promising more details on its plan to navigate the Great Transition. Ford, by the way, incurred a mammoth $5.8b worth of operating losses outside the U.S. during the past four years. But the unique supply and demand conditions last quarter turned even these international markets firmly profitable. As for rising input costs, yes, Ford is seeing plenty of this: “It feels like we’re seeing inflation in various parts of our industry in ways we haven’t seen for many years.” But it adds: “On the other hand, it feels like it’s all due to a lot of one-timers as the economy comes out of lockdown.” Sounds Powellesque.
      • Pfizer: It’s become one of the most recognizable names in Corporate America thanks to the miraculous civilization-saving Covid vaccine it co-developed with Germany’s BioNTech. For Pfizer, based in New York City, the Covid vaccine now accounts for 36% of total company revenues, even more than the 25% it forecasted earlier in the year. Before the pandemic, little could CEO Albert Bourla know that he’d soon be negotiating life-or-death deals with presidents and prime ministers. Today, countries around the world are buying the Pfizer vaccine for their populations, with the U.K., Canada and Israel the most recent to secure deals. Countries generally pay one of three pricing tiers, depending on their wealth. No wonder why the company is seeing a “dramatic positive impact” on results, having last quarter increased y/y revenues 42%. The Covid vaccine generated nearly $3.5b in revenues during Q1, 59% of that from the U.S. The company’s second most important product, a drug to treat blood clots, generated $1.6b. For all of 2021, Pfizer expects the Covid vaccine to produce $26b in revenue, with more thereafter as it anticipates people needing booster shots to ensure protection against mutations. It’s now studying the risks of using the vaccine for children. And it’s separately developing other new uses for the underlying mRNA technology it’s pioneering. It’s close, for example, to offering an mRNA-based flu shot. It has its eyes set on cancer and genetic diseases too. More broadly, Pfizer hopes to improve the effectiveness of its work by using artificial intelligence, electronic diaries, advanced analytics and electronic health records. Pharmaceutical pricing, alas, is always a hot political topic, and the stakes are high now as Washington discusses policy changes to improve patient access and affordability. One potential policy change Pfizer doesn’t like: A U.S. statement last week in support of waiving the patent protections for Covid vaccines. PhRMA, the pharma sector’s lobby group, responded indignantly: “This decision will sow confusion between public and private partners, further weaken already strained supply chains and foster the proliferation of counterfeit vaccines.”
      • Caesars Entertainment, which calls itself the largest casino and entertainment company in the U.S. after a merger last summer, sounded firmly optimistic about the rest of 2021. “We feel good about what’s coming,” said CEO Thomas Reeg, citing the pent-up demand for vacations post-vaccinations. The company owns and operates eight casino hotel properties on the Las Vegas Strip alone, where weekend rooms are already sold out for the foreseeable future. But the real money is made on the casino floor, which should get a lot busier as group and convention business starts to return—group and convention room bookings for the second half of this year are running far ahead of 2019’s pace. On the other hand, international customers aren’t expected back anytime soon. Caesars does see labor costs increasing. But Reeg thinks pressure will ease when supplemental unemployment insurance ends in September. Even if it doesn’t, he says, any labor cost inflation will be more than offset by the expected surge in demand. Separately, the company is investing in sports betting and online gaming.
      • AMC Entertainment: The Kansas City-based movie theater chain is lucky to still be alive. Between April, 2020 and January, 2021, the company’s CEO said, “we were within months or weeks of running out of cash five different times.” Things are finally starting to look positive again, with nearly all its U.S. theaters now reopened. That includes those in New York and Los Angeles, its two largest markets. “A recovery in the movie theater industry has not yet started,” it cautions. But “it’s just about to start. You can feel it. You can taste it. You can see it just over the horizon.”

Tweet of the Week

“Easy monetary policy fueled past financial booms, and it is exceptionally easy now. High valuations are more justifiable now than in 2000, 2006 b/c interest rates are so much lower. But what if rates & inflation don’t stay low?”

-Greg Ip, Wall Street Journal’s chief economics commentator


      • The Care Economy: There’s the intangible economy. There’s the sharing economy. There’s the creator economy. Lots of new terms help describe the evolving characteristics of the American economy. But none perhaps captures its essence better than the “care economy.” This refers to the large and growing category of jobs caring for the sick, the young, the elderly and those otherwise in need of assistance. The University of Chicago’s Gabriel Winant, author of “The Next Shift: The Fall of Industry and the Rise of Health Care in Rust Belt America,” notes that health care and social assistance form the single largest category of American workers today. Appearing on the NPR program Innovation Hub, as well as the program Majority Report, Winant says a full 25% of all workers in the Bronx borough of New York are employed in the health, child or social care fields. That’s the highest percentage in the country. But nationwide, the figure is still large at 14%. In Pittsburgh, a focus of much of Winant’s research, roughly half of all jobs were once in manufacturing. The peak was during the 1950s. They were typically male-dominated jobs, supported by powerful unions; so powerful that they managed to force companies to provide lavish health care insurance (they backed President Truman’s push for government insurance, but it didn’t pass). Throughout the manufacturing belt of America, community hospitals benefitted greatly as these new employer-funded, private sector health care plans led to a great increase in health care demand. Demand grew even more during the 1960s, after Congress passed universal health insurance for the two big groups not covered by union-brokered health benefits: the elderly (Medicare) and the lower-income (Medicaid). But by this time, the arrangement was starting to fall apart. Why? Because America’s heavy manufacturers—think industries like cars and steel—were starting to crumble from the weight of these benefit costs. As late as 2008, when the auto industry had to be rescued by Washington, people joked that General Motors was really a health care company that happened to make cars on the side. That’s how much it was paying to insure legions of workers and retired workers. Long before that, however, came an obscure government policy change that Winant identifies as extremely important. In 1983, Congress—alarmed by runaway costs—changed the way Medicare reimbursed care providers. Out was “retrospective” billing, in which hospitals simply sent a bill and Medicare would pay it. In came a new system in which Medicare said in advance what it would pay for a specific procedure. And this was sometimes less than what hospitals were previously charging. Under pressure, the hospital sector went through a period of closures, mergers and buyouts, with non-profit community hospitals hardest hit. At the same time, many private sector specialist companies jumped into the space, focusing on areas like nursing care or specific procedures like kidney dialysis. Drive through any U.S. suburb and you’ll see such care facilities everywhere. Giant hospitals, meanwhile, often linked to university research departments, are the single largest employers for many metro areas. In a symbol of this economic shift, Pittsburgh’s tallest building is still called the U.S. Steel Tower. But its largest tenant is the University of Pittsburgh’s medical center. The good news: The growth of the care economy has produced legions of new jobs. According to Winant, it’s responsible for a full 70% of all the new lower-wage jobs created in the 2000s. The majority are held by women, many of them women of color. The bad news: The jobs tend to be very low paid, often without benefits and mostly without union representation. Also bad: It’s much harder to generate productivity gains in the care sector than it is in the manufacturing sector. As a result, keeping wages low is often the only path to sustainable profits. It’s even more of a problem in the old manufacturing belt, where seniors tend to be sicker and populations are shrinking. Winant cites the welfare state trilemma in which countries can’t have high wages, low unemployment and low public spending at the same time—just two of those three. The U.S., he argues, chooses the latter two, adopting a care economy characterized by public money (often not enough for care workers) and private administration. As it happens, President Biden’s current spending proposals are heavily targeted to the care economy, in the theory that doing so would help a very large and growing number of low-wage American workers.
      • The Intangible Economy: This term refers to the shift in economic heft toward companies earning large profits without lots of hard assets. Think of a software company, or a company with a famous brand. Well, Warren Buffett, at Berkshire Hathaway’s annual meeting, made a comparison that illustrates the distinction. Berkshire itself, with heavy-metal industries like railroads and energy, has $172b worth of property and equipment on its balance sheet, which helped produce $246b in 2020 revenues. That’s a ratio of 70%. Facebook, by contrast, only needed just $46b in property and equipment to produce $86b in revenue, a ratio of just 53%. What are the macroeconomic implications of this shift to more intangible companies? See Econ Weekly’s January 4th issue for a comprehensive discussion).
      • Big Tech: Speaking of the intangible economy, Bloomberg’s Tom Orlick says 21 of the 50 largest companies in the world today are in the tech sector. The number in 1990? Just three. In the aggregate he said, speaking on the Bloomberg Stephanomics podcast, these top 50 firms earn $800b a year in profits, accounting for roughly 1% of GDP. The tech giants, in particular, employ fewer workers and pay less in taxes than many of the world’s leading firms of the past. Perhaps more worryingly, Orlick suggests, is that the giants of today hold massive sums of cash, so much that they don’t really need to borrow money. So they ostensibly don’t care much about interest rates, a primary tool used by central banks to stimulate the economy. Is the central bank toolbox, in other words, becoming obsolete? The big firms are also investing less. Tech firms, Orlick says, allocate just 4% of their revenues to capital expenditures. The figure for yesteryear’s giants, include those producing physical goods like GE and GM, was more like 7%.
      • Advertising: Nextstar, which owns local television stations across America, said in its latest earnings call that advertising revenues are rising in many customer segments, including autos (including auto repair), insurance, lotteries, sports betting, home service and repair, healthcare, packaged goods and grocery stores. Here again: evidence of how a large and diverse array of U.S. industries and companies are seeing strong demand—strong enough to increase advertising budgets.


      • Labor: Here’s more on the surprisingly weak jobs report for April: The unemployment rate was largely unchanged at 6.1%. The labor force participation rate was also largely unchanged at 61.7%, down from 63.4% from just before the pandemic (it was more like 67% 20 years ago, before a steady longterm march downward). Nearly 10m Americans remain classified as unemployed, meaning they’re actively looking for a job but can’t find one. Herein lies the central reason for the Federal Reserve’s unwillingness to pull back from its aggressively loose policies, never mind a storm of rising prices. The Fed seems convinced these price spikes are temporary, and therefore much less of a concern than the weak job market—the new April numbers indeed show its failure to fully recover. To be sure, any one single month of numbers can be quirky. We’ll see in another month how the job market looked in May.
      • Labor: It’s the biggest mystery of the labor market right now: Why, if theApril jobs data showed so much lingering unemployment, are employers reporting so much difficulty finding workers? You hear it in almost every Q1 earnings call: The hospital can’t find enough nurses. The trucking firm can’t find enough drivers. Even restaurants, among the biggest job cutters during the pandemic, can’t find enough waiters, cooks and dishwashers as they reopen. One theory is that supplemental unemployment insurance, part of the recent federal stimulus plans, gives people less incentive to work. Others argue that ongoing health concerns and school closures are a more important reason. People dropping out of the workforce to retire early is another possible factor.
      • Treasuries: When the U.S. federal government borrows money, it does so by selling Treasury securities, called bills, notes or bonds depending on when repayment is due (A few weeks from now? A few years from now? Thirty years from now?). According to Fedchief Jay Powell (and many others), the market for Treasuries is the most important financial market in the world, serving what a recent Congressional report described as three critical functions. Firstly, and most obviously, they help fund the government. Secondly, they supply the world with safe (essentially risk-free) assets. And third, they’re the main form of collateral in the overnight borrowing and lending system by which banks and other financial institutions ensure they have enough cash for their day-to-day operations. Also keep in mind that there’s a primary Treasury market—buying newly-minted debt directly from the Treasury. And there’s a giant secondary market—buying and selling not-yet-fully-repaid Treasuries issued in the past. Alright, apologies to those already familiar with the ins and outs of the Treasury market. What’s interesting to even the experts is this counterintuitive trend: Interest rates on Treasuries staying so low despite record borrowing and inflation fears sparked by rapid economic growth. Addressing this puzzle, the Bank of Montreal’s Ian Lyngen says three decades ago, domestic GDP growth and the domestic inflation outlook would indeed have influenced rates a lot. Today, because of the globalization of financial markets and the Fed’s outsized role in the global economy, the U.S. risk-free rate is more heavily influenced by the global outlook for growth and inflation. The huge supply of new Treasuries being issued to fund trillions in new spending almost doesn’t matter with so much demand globally. So there you have it: U.S. real GDP can be growing at 6.5%, with U.S. inflation above 2% but 10-year Treasury yields still below 2%. Of course, this could change, and change quickly.
      • Treasuries: Here’s a quick analogy to help visualize the importance of the giant overnight Treasury “repurchase” or “repo” market, obscure as it sounds. Scott Skyrm of Curvature Securities, a recent guest on David Beckworth’s Macro Musings podcast, called financial markets the engine that runs the economy, and repo markets the oil that lubricates the engine. Alarmingly, these repo markets malfunctioned last spring, as they did a year earlier. Ensuring this doesn’t happen again is a top Federal Reserve priority. And just to put some numbers to the topic: Skyrm estimates the size of the U.S. Treasury market at about $20 trillion (and growing fast with all the new federal borrowing). The U.S. Treasury repurchase market, meanwhile, is worth about $5 trillion by itself. Hedge funds, for the record, play a big role.
      • U.S. Dollar: Are foreign central banks shifting away from using the U.S. dollar as a reserve currency? And newly published IMF survey showed that dollar reserves held by central banks fell to 59% of total reserves in Q4 of 2020, its lowest level in 25 years. Some say this reflects a declining role of the US dollar in the global economy. Central banks, in other words, are holding other currencies instead.


      • 2020 Census: Every ten years, the U.S. Constitution says, it’s time to count the people. Well, the 2020 Census results are starting to come in, and bottom line: The U.S. population is growing at its slowest rate in nearly a century. As of mid-2021, there were 331m American residents, up just 7% from ten years earlier. Growth was closer to 10% in the first decade of the 2000s. Why the slow growth? The New York Times Daily podcast tackles the question, examining various theories. One is less immigration during the 2010s, with fewer people migrating from Mexico most significantly (the country accounts for about a quarter of all U.S. immigrants). More importantly, the U.S. birth rate among women, which began to decline with the 2008 recession, never recovered. Is that because people feel they increasingly can’t afford kids with education, housing and health care costs so high? Are erratic service-sector work schedules a factor? How about the lack of parental or sick leave benefits that most rich countries offer? Is the large increase in student debt a deterrent? Or conversely, is a better educated female population simply delaying having children to pursue better career opportunities? The declining birth rate is evident among immigrant women as well, notably Latinas. It’s down significantly for teenagers, perhaps reflecting the success of public messaging, perhaps wider access to contraceptives, perhaps sexual behavior changes as people spend more time online alone in their homes. As you can see, there are more questions than answers. And adding to the mystery: The fact that most rich countries are experiencing the same phenomenon. To be clear, this is not good from an economic growth perspective. Without a growing population, the only way to increase median incomes longterm is through productivity gains, which are hardly guaranteed, especially in the service sector. A future with fewer children heralds fewer taxpayers to support retirees (who are living longer thanks to medical advances). It also heralds shrinking communities forced to close schools.
      • 2020 Census: What are some other key takeaways from the initial 2020 Census data: Utah was the fastest growing state in the 2010s, with population up 18%—high birth rates among the state’s many Mormon adherents was a factor. West Virginia by contrast, saw its population decline 3%. Puerto Rico, meanwhile, a U.S. territory, saw a 12% drop. In general, the U.S. population continued its shift south and west. Census figures, remember, determine how many Congressional representatives each state will have. And the 2020 numbers apportioned six states an extra seat or two, while taking a seat away from seven states. Texas, for example, will get two more seats in 2022. California, the most populous state, will lose a seat.
      • Consumer Protection: The Federal Trade Commission, charged with stopping unfair business practices, warns about “broken hearts and empty wallets.” In 2020, Americans reported a record $304m in losses from romance scams—no other type of fraud tracked by the FTC is more costly. The median loss per individual last year was $2,500. And the problem is getting worse. What exactly are we talking about? A typical scam starts on a dating app or social media. It usually involves an unexpected friend request or message. Before long, these new “friends” ask for money, perhaps to pay for a phone card to stay in touch. Sometimes the scammer claims a medical emergency, perhaps Covid-19 related. Gift cards, along with wire transfers, are the most frequently reported payment methods for romance scams. What age group is most commonly scammed? Ages 40 to 69, the FTC says. But those age 70 and older reported the highest median loss at $9,476.


      • Las Vegas:The strange thing about the economic crisis of 2020? Most of America’s leading industries had a great year. (Housing, finance, autos, manufacturing, technology, media…). This, however, won’t make Las Vegas feel any better. Because its economy is all about leisure and tourism, and it’s the leisure and tourism sector where much of last year’s economic pain was concentrated. The city’s airport welcomed just 22m people in 2020, versus 52m the year before. That meant lots of empty hotel rooms, casinos, restaurants and theaters. When the pandemic first hit last spring, the Las Vegas-area unemployment rate reached an incredible 33%. It’s now down to more like 9%, but that’s still a full three points above the national average. It’s also, incidentally, a lot higher than in Reno, another Nevada city once overly dependent on tourism. It’s since diversified, so much so that it’s actually one of the nation’s hotter economies right now. Reno-area household incomes have risen 45% in the past seven years, according to Mike Kazmierski of the Economic Development Authority of Western Nevada, speaking at a recent online event. Tesla has a big battery factory there. Amazon has a fulfillment center. And gaming revenue in Reno is now growing again—being within driving distance of the ultra-wealthy San Francisco Bay area certainty helps. Back in Vegas, leisure and hospitality jobs accounted for 29% of all non-farm employment on the eve of the pandemic, according to Labor Department data. In Phoenix, by contrast, the figure was just 11%. Las Vegas, remember, was harder hit than most economies by the 2008 housing meltdown—it had one of the country’s biggest housing bubbles. This time, the Vegas housing market is strong despite the weak job market. Mercifully, visitors are starting to come again (see the item on Caesars above). And the inbound rush could be substantial with so much pent-up demand—it might just be an exceptionally strong second half of 2021 for Las Vegas. Still, Bob Potts, deputy director for Nevada’s economic development department, emphasizes the need for more Reno-like diversification. The fact is, gaming is becoming a more competitive sector, with competition from other locations and no less threateningly from the online world. Being so close to California and its giant economy is an immense advantage for Vegas as it looks to lure new industries, says Potts. The city also stands to benefit from Nevada’s growth in clean energy production thanks to solar power. The state, which was dependent on mining before it was dependent on tourism, also happens to have lithium deposits now extremely valuable as battery material. Nevada is also a low tax state, especially relative to California. It’s now home to many computer data centers. Nellis Air Force base is in the Vegas metro. So is the University of Las Vegas, Nevada (UNLV). And in Clark County, where Las Vegas is located, the biggest employer is actually the local school system, which saw rapid expansion as the Vegas metro area population grew a brisk 16% in the 2010s. It’s now big enough to have an NFL football team (the Raiders). Interestingly, unlike in most metros, health care plays a relatively small role in the Vegas job market—Potts suggests health facilities simply haven’t been able to expand fast enough to keep pace with population growth. But health care jobs are for sure a priority in the diversification efforts. As for the big casino resorts, companies like Sands, MGM and Wynn are indeed the area’s largest private sector employers. Casino jobs tend to be union jobs too, if not quite replicating the impact unions had on the national labor market during the industrial era.
      • Warren, Ohio: Last month, The Pittsburgh Post-Gazette published an investigative report on a scheme in which stolen Ukrainian money—hundreds of millions of dollars—was laundered through a variety of midwestern U.S. assets including real estate and steel mills. One of these mills, according to a Justice Department indictment, is in Warren, Ohio, located between Cleveland and Pittsburgh. The report, entitled “Dirty Dollars,” describes a series of horrifying accidents and injuries at the Warren Steel plant, which serve to “underscore the dangerous impact that financial crimes like money laundering can have on everyday people—cost-cutting, neglect and a lack of investment—when buildings and workplaces are used to clean cash.” According to the investigation, some of the stolen money was transferred from Ukraine to a company set up in the British Virgin Islands, then moved to a Delaware company and finally used to purchase the factories.


      • Mexico: For most developing counties, remittances matter. A lot. Fortunately for Mexico, its people working abroad are sending home record sums of money. The U.S. is unsurprisingly the country’s largest source of remittances, and the U.S. economic boom is leading to more money that people can send home to their families. An estimated 12m Mexican workers live outside their home country, according to Bloomberg, generating more than 3% of the nation’sGDP. Also like many emerging markets, Mexico depends heavily on tourism (which is starting to recover) and commodity exports (especially oil).
      • Vaccines: In what could be a major advancement in public health for the developing world—African most importantly—early trials of a new malaria vaccine show strong results. Most malaria deaths are indeed in sub-Saharan Africa.

Looking back

      • The American South: In 2021, it’s hard to visualize just how shattered the southern U.S. economy was in 1865. It was arguably not too different from Afghanistan today. As Professor Edward O’Donnell explains in a lecture for The Great Courses, one in four southern men of military age was killed in the Civil War. Major cities like Atlanta, Charleston and Richmond lay in ashes. An estimated 40% of the region’s livestock: dead. 40% of tools and equipment: destroyed. Half of all railroad infrastructure: also destroyed. And of course, the entire backbone of the southern economy—free labor through slavery—was gone. As 4m slaves won their freedom, their owners, according to O’Donnell, lost some $2b in invested capital. The result was widespread homelessness, sickness and starvation. Fast forward to the start of the 20th century, and conditions remained depressed. Things started to change, however, with the outbreak of World War I. And this forms the starting point of a different lecture by Alan Kraut of American University, aired by C-Span. In 1916, he explains, with the war already underway in Europe, Woodrow Wilson became the first southerner since the Civil War to get elected president. As he prepared America for the possibility of entering the war, the South was chosen to host new military facilities, including a naval station in Biloxi, Mississippi. Muscle Shoals, Alabama, got a new chemical facility. And so on. Wilson also mandated that northern and southern soldiers train side by side for the first time since before the Civil War—but not whites and blacks, the latter migrating out of the South in large numbers. When the U.S. finally did enter the war, demand for southern cotton exports rose sharply, providing another economic lift. And then came the roaring 1920s. Southerners began building their own cotton mills, rather than just sending the stuff up to New England. This entailed building hydroelectric power stations. It also entailed hiring impoverished white laborers from rural areas, bringing them to towns and providing them with basic health care. Wages, naturally, were much lower than those in New England. (China’s rise from poverty in the last three decades, incidentally, looked strikingly similar—building factories staffed by impoverished rural dwellers lured to cities with low wages and basic health care). Professor Kraut separately highlights the importance of tobacco companies like RJ Reynolds—they too were instrumental to the development of the South in the 1920s. Don’t forget about Coca-Cola, an Atlanta-based company helping to put the South on a road to modernization. Finally, the South by this time was strongly represented in Congress, particularly in the Senate where seniority of many members meant control of key committees (this would incidentally prove a central barrier to passing civil rights legislation, a saga told by Robert Caro in his book “Master of the Senate.” Just how much power did the southern Congressional delegation wield? Enough to pass (in 1921) protective tariffs for cotton and other southern exports. Keep in mind, close to 70% of southerners were at this time still earning their living through agriculture.

Looking ahead

      • Voice Tech: Scott Galloway, in his “Prof G podcast,” sounds unmistakably bullish on voice technology. “I think voice, quite frankly, is where this whole thing is going.” In this, he’s referring in part to the advent of 5G communications in which data moves much faster, leading to the internet of things. “It feels like almost every component that’
        s connected to electricity will be connected to the internet.” He thinks people will often interact with these newly connected devices via voice commands rather than screens or keyboards.
      • 5G: Cristiano Amon, soon to be CEO of Qualcomm, told Barron’s that it’s still just the first inning when it comes to 5G. But by the end of this year, he’s optimistic that most developed markets will have pervasive coverage. As it turns out, infrastructure projects necessary to building out 5G are ahead of schedule in many places, because it proved easier to do construction with so few people in the streets during the pandemic. The uses will be many, Amon says. Video will be much faster and more reliable on phones and PCs. The technology is designed so that there won’t be any limits on data usage. Video gaming, he adds, will change a lot. 5G will lead to cars being connected to the cloud, allowing automakers to earn subscription revenues from downloadable software services. Even a simple laptop will be able to run sophisticated software from the cloud, creating a world of on-demand computing. 5G, no less importantly, will help foster better artificial intelligence. Then there’s of course the internet of things, or IOT, as mentioned above.
      • Cryptoeconomy: The Defiant, a newsletter about the cryptoeconomy, highlights some of the area’s top trends in an issue last week. For one, the price of an Ether token, tied to the Ethereum blockchain, just topped $3,000 for the first time. Note that many of the non-fungible tokens (NFTs) and decentralized finance applications coming into vogue are built on the Ethereum chain. Speaking of NFTs, sales of such digital assets topped $2b last quarter, the Defiant reports, up from a mere $93m in the prior quarter. Another trend is the growing institutional interest in cyrpto, with JP Morgan, MasterCard and UBS investing $65m into the Ethereum software development firm ConsenSys, for example. Another example: the European Investment Bank selling a 100m euro bond registered on Ethereum.
















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