Sunday, July 31, 2022

14 European Agritech Startups

From Sifted:

By 2050, our food system will need to provide for an estimated 9.7bn people. Add to that the threat that climate change poses to our food security, and it’s clear that agriculture needs to adapt, fast.

Despite this urgency, agritech has largely remained a niche focus, with VC investment into European agritech startups at $726m this year. That dwindles in comparison to a sector like healthtech, which brought in $15.5bn this year.

And yet, early successes are stoking investors’ attention. These include the sector’s first unicorn, vertical farming startup Infarm, as well as insect farming startup InnovaFeed, which raised a €140m Series C last year.

With the sector picking up steam, Sifted asked four agritech-focused VCs which startups are on their radar. The only catch: they couldn’t nominate companies from their portfolios. 

Laetitia de Panafieu, investment principal at Astanor Ventures

Belgium-based Astanor Ventures launched its $325m fund last year, Europe’s largest focused on agriculture and food. They support startups in Europe and North America. Portfolio companies include Ynsect, Infarm and Notpla.

Neofarm — France

Neofarm provides “turnkey farms” to partners, which are based on principles of regenerative agriculture to produce local, organic vegetables. The startup takes care of the farms’ installation and maintenance and provides software to manage and partially automate farming processes. CEO and cofounder Alexia is a role model for female entrepreneurship in the agritech sector and part of the Sista association, which promotes female entrepreneurship.

Neoplants — France

Although 90% of our time is spent indoors, indoor air pollution is 5x higher than outdoor air pollution due to volatile organic compounds (VOCs). Neoplants is developing plants that are bioengineered to eliminate air pollution at dramatically increased levels. The duo of founders has a strong technical and business background and an ambitious vision for growth in a category that they are building themselves. We love how the company is finding elegant ways to solve a significant problem via “plants with a purpose”.

FA Bio — UK

Currently, 2.5% of global greenhouse gas emissions can be directly attributed to synthetic fertilisers. FA Bio uses a unique targeted sampling strategy to collect microbial isolates from agricultural fields and investigate their potential to be developed into superior bioproducts. In this way, the startup helps discover microbial biofertilisers and biofungicides that could increase agricultural productivity whilst improving soil health. FA Bio founders Àngela and Kerry are extremely impact-driven, and creatively improve our understanding of the relationships between microbes and plants to contribute to the protection of our natural ecosystems.

EV Biotech — Netherlands

EV Biotech creates microbial cell factories (MCFs) for the industrial production of high-value chemicals and proteins. Using digital modelling, the startup determines ideal genetic changes with the highest compound yield for greater development efficiency. All of this is made possible by an exceptionally interdisciplinary and diverse team with different technical backgrounds working together towards a common goal.

Daniëlla Vellinga, associate director at Rabo Food & Agri Innovation Fund

The Rabo Food & Agri Innovation Fund was launched by Rabobank to invest in food and agriculture startups in Western Europe, Israel and the US from seed to Series B. The fund has invested in startups such as 30MHz, Saga Robotics and InnovoPro.

The companies listed with an * are not portfolio companies of the Rabo Food & Agri Innovation Fund, but have partnerships with the fund through other initiatives including its Carbon Farming initiative and Foodbytes! Pitch 2021 programme....


"Meet the Lobbyist Next Door"

From Wired's Backchannel, July 14:

What do a Real Housewife, an Olympic athlete, and a doula have in common? They’re all being paid by an ad-tech startup as influencers—peddling not products but ideologies.

At first glance, the posts appeared to have nothing in common. A Philadelphia-area attorney who proffers financial advice urged her 1,700 Twitter followers to sign up for a credit union. A 23-year-old climate activist in Texas rallied her 49,000 fans on TikTok and Instagram to join a mailing list promoting Democrats in statewide offices. A physical therapist for the elderly in Florida prodded her 3,900 Instagram followers to sign a petition demanding that Congress pass paid medical leave, sharing the story of her grandmother’s battle with dementia. Each of these posts was funded by a well-heeled advocacy organization: the Credit Union National Association, the Democratic Association of Secretaries of State, and UsAgainstAlzheimer’s Action.

Even though none of the people reading these posts knew it, however, they were all made possible by the same company: Urban Legend, a small ad-tech startup operating out of a loft in Alexandria, Virginia.

Launched in 2020 by a pair of former Trump administration staffers, Urban Legend pledges on its website to “help brands run accountable and impactful influencer campaigns.” Its more comprehensive mission, one rarely articulated in public, is slightly more ambitious.

Staffed by a plucky 14-person team, Urban Legend keeps its largest asset carefully hidden away inside its servers: an army of 700 social media influencers who command varying degrees of allegiance from audiences that collectively number in the tens of millions. The company has painstakingly cultivated this roster to reflect every conceivable niche of society reflected on the internet: makeup artists, Nascar drivers, home improvement gurus, teachers, doulas, Real Housewives stars, mommy bloggers, NFL quarterbacks, Olympians, and the occasional Fox News pundit.

These influencers are paired with clients on Urban Legend’s private platform, the Exchange, where buyers spell out the parameters of the message they want to push to the public and set a budget. Influencers snatch the best available offers from a menu and are then free to craft the campaign’s message, molding it to the rhythms and vernacular of their followers. Clients only pay for each “conversion” an influencer nets—$1.25, say, for every follower who joins a newsletter. In two years, Urban Legend’s influencers have run more than 400 campaigns, connecting people to its clients millions of times. Henri Makembe, a veteran Democratic campaign strategist in Washington who has worked with Urban Legend several times, compared the concept to “unboxing” videos—when an influencer unwraps and showcases a product sent to them by a brand. Such product influencers are a $15 billion marketing industry. “Now we’re realizing, ‘Oh: We can do that with an idea,’” Makembe says.

This model is the brainchild of Urban Legend’s 35-year-old founder and CEO, Ory Rinat. Rinat spent the early part of his career working in Washington’s media circles before becoming director of digital strategy for the Trump White House. The idea for Urban Legend arose from many currents in American public life, including “the rise of influencer marketing, the increase in trust in those people, and also the rise of individuals to be their own media brand,” he says. In both retail and influencer politics, he says, small is big: “Our creators range from 3,000 to 14 million followers,” Rinat tells me, but the majority are “micro-influencers” (those with 100,000 or fewer followers) and “nano-influencers” (fewer than 10,000).

Like baseball, selling influence is a pastime that rarely gets reinvented. There are only so many ways to get a person to do the thing you want. In politics, the more solicitous methods include robocalls and email spam with increasingly audacious subject lines (“Hey, it’s Barack”). “The most impactful messaging strategies have always been the most personalized,” says Anat Shenker-Osorio, a progressive campaign consultant based in California. Peer-to-peer outreach has long proven the most effective at persuading or mobilizing—appeals that create “the feeling like this is a real person talking to me.” Urban Legend’s approach reflects this insight, embracing influencers less as celebrity spokespeople than as peers for hire. If an influencer’s financial advice helped you save for a vacation or their fashion tips earned you compliments, maybe their view on the minimum wage, or critical race theory, is worth considering too. “To then have that person give you information about politics? That’s potentially an incredibly potent and powerful messenger,” says Shenker-Osorio.

But the rise of this new messenger has disquieted some. For one, it’s unclear whether influencers are following federal disclosure rules. And as at similar firms, the names of Urban Legend’s influencers and clients are a closely held secret—or were, until recently—creating the prospect of an internet flush with untraceable money, in which Americans can no longer tell an earnest opinion from a paid one. Initially, Rinat told me that the firm’s clients included a Fortune 50 tech company, a “major labor union,” an “environmental advocacy group,” and one “LGBTQ+ advocacy group.”

In Washington, there’s been a swell of interest in the influencer business, across the political spectrum. It bears the signs of an incipient arms race, much like the advent of super PACs a decade ago. Hany Farid, a professor of computer science at UC Berkeley who has briefed the Biden administration on social media regulation, predicted that Urban Legend’s model will be recapitulated widely before the 2024 presidential election. “This is the future,” Farid told me.... 


When Self-Annointed Elites And Other Control Phreaks Care More About Image Than Substance

For the record, Potemkin, like Dracos, got a bad rap from history.

Excerpted from the Ecospohia essay "Potemkin Nation", August 18, 2021:

One of the repeated lessons of history is that when Potemkin politics become standard operating procedure in a nation, no matter how powerful and stable that nation might look, it can come apart with astonishing speed once somebody provides the good hard shove just discussed. The sudden implosion of the Kingdom of France in 1789 and the equally abrupt collapse of the Soviet Union in 1991 are two of the most famous examples, but there have been many others. In every case, what happened was that a government that had stopped solving its nation’s problems, and settled for trying to manage appearances instead, discovered the hard way that governments really do derive their power from the consent of the governed—and that this consent can be withdrawn very suddenly indeed.

 When things start to crumble they can crumble fast.

This is exactly the point made by Vaclav Havel in "The Power of the Powerless" and by Timur Kuran in his writings on preference cascades. If interested see: 

Lessons From Communist Eastern Europe On Virtue Signaling and Other Things
Politics: I Am Told I Should Read Professor Timur Kuran To Understand Current American Politics

Meanwhile in France: "‘Pyromaniac fireman’ accused of starting string of French wildfires ‘for excitement’"

Just execute him. Some pathologies can't be fixed and are too dangerous for the rest of society.

Although, on second thought, he may have a a future as a Victoria Nuland henchman at the U.S. State Department.

From The Independent, July 30:

Suspect, 30, alleged to have deliberately started blazes in quest for adrenaline 

An alleged “pyromanic fireman” has been accused by French authorities of starting a string of fires in the south of France.

The man, who was a volunteer firefighter from the Herault region, was arrested on Friday.

According to prosecutors, the man in his 30s said he started the fires in a quest for adrenaline.

The case of the “pompier pyromane”, as French media outlets have nicknamed the accused, has drawn keen interest across France, after a series of fierce wildfires ravaged the country last week, forcing the evacuation of thousands of people.

The man admitted to starting fires with a lighter on 26 May, 21 July and over the night of 26 to 27 July.

Montpellier prosecutor Fabrice Belargent said in a statement: “Asked about his motive, he declared that he had done this in order to provoke an intervention by the fire brigade to save him from an oppressive family environment and because of the excitement these interventions caused him.”....


Saturday, July 30, 2022

"Bank of America Memo, Revealed: “We Hope” Conditions for American Workers Will Get Worse"

The potential for a wage-price spiral is a real concern in the halls of managerial (as distinct from entrepreneurial) capital but the sentiment is usually not phrased in such a stupidly blatant fashion.

From The Intercept, July 29:

The financial behemoth privately fears that regular people have too much leverage.

A Bank of America executive stated that “we hope” working Americans will lose leverage in the labor market in a recent private memo obtained by The Intercept. Making predictions for clients about the U.S. economy over the next several years, the memo also noted that changes in the percentage of Americans seeking jobs “should help push up the unemployment rate.”

The memo, a “Mid-year review” from June 17, was written by Ethan Harris, the head of global economics research for the corporation’s investment banking arm, Bank of America Securities. Its specific aspiration: “By the end of next year, we hope the ratio of job openings to unemployed is down to the more normal highs of the last business cycle.”

The memo comes amid a push by the Federal Reserve to “cool down” the economy, informed by much of the same rationale — that high wages are driving inflation. This year, the Fed has increased interest rates for the first time since 2018. Historically, this has often caused recessions, and that is exactly what appears to be happening now: The Commerce Department reported Thursday that the gross domestic product has fallen for the second quarter in a row, indicating that a recession may have already begun.

Parts of the mid-year review, in particular its emphasis on a looming recession, received press coverage at the time of the memo’s release to clients. This is the first publication of the document in full.

What the memo calls “the ratio of job openings to unemployed” is generally calculated the other way around — i.e., the ratio of unemployed people to job openings. The more widely used ratio offers one measurement of the balance of power between workers and employers. The lower this number, the more options unemployed people have when searching for work and the greater opportunities employed people have to switch to jobs with better pay and conditions. According to the Bureau of Labor Statistics, this ratio stood at 0.5 as of May, meaning that there were then two job openings per unemployed person.

Bank of America memo4 pages

In 2009 — at the worst moments of the economic calamity that followed the collapse of the housing bubble during the end of the George W. Bush administration — the ratio climbed as high as 6.5, so there were more than six unemployed workers for each open job. It then slowly declined over the next decade, reaching 0.8 in February 2020 before Covid-19 lockdowns began.

This recent, unusual moment of worker leverage made Bank of America quite anxious. The memo expresses distress about “a record tight labor market,” stating that “wage pressures are … going to be hard to reverse. While there may have been some one-off increases in some pockets of the labor market, the upward pressure extends to virtually every industry, income and skill level.”

The memo recalls a previous Bank of America memo in 2021, which it says warned of “very strong momentum in the labor market, suggesting the economy would not just hit but blow through full employment. Fast forward to today, and these trends have been worse than expected.”

The memo is an uncanny demonstration that the economist Adam Smith was right when he described the politics of inflation in his famed 1776 work, “The Wealth of Nations.”....


July 12
ICYMI: It Sure Looks Like A Wage/Price Spiral Has Begun

June 12
"Boris Johnson tells workers to accept pay cuts or UK faces 1970s–style ‘stagflation’"
That's a tough sell....

May 9
"By that measure there's plenty of room for the stock market to go even lower...."
The headline is from Bryce Elder at FT Alphaville. He goes on to mention this week's CPI as a possible trigger but I'm pretty sure he's just spitballin' here and does not believe we will see a hotter than expected print.

The thing to know about inflation at this point is that it is becoming entrenched, that rather than going higher we should watch for it going wider. So while the folks who last year were scoffing that it's only lumber and it's only used cars will rejoice and trumpet the news from the rooftops when the headline number gets back below 8%, the Bank for International Settlements is warning about potential wage-price spirals.

Back to Mr. Elder. 

He has seen just about everything the equity markets have to offer and is masterful at cutting through b.s. to get to what's what and who's who, and the introduction to this morning's Further Reading post does just that.

The fact that he's confirming my priors....

May 8
BIS: "Are major advanced economies on the verge of a wage-price spiral?"
You don't want these people even raising this question. It's like hearing your surgeon say "whoops" just as you're going under: "Whaaa? zzzz"

naked capitalism: "Izabella Kaminska and Yves Will Discuss the Economy and More with Gonzalo Lira at 8 AM Eastern Today"

 Oh my.

From naked capitalism, July 30:

Yves will be on Gonzalo Lira’s “Roundtable” show. You will be able to watch it here, starting at 8 AM Eastern Standard Time. You can also view it later....

....MORE, incl. livestream/replay/video 

The commenters seem quite enthusiastic.

"The Story Behind the Proposed Price Cap on Russian Oil"

Our readers will probably recognize the writer, David Wessel, from his days at the WSJ.
Here he is at one of the more interesting outlets for writers of a certain level of subject and craft mastery (and above).

From The Milken Institute Review, July 27:

The notion that oil-consuming nations should organize a buyers’ cartel to cap the price of oil — promoted by U.S. Treasury Secretary Janet Yellen and recently endorsed by the leaders of the Group of Seven — sounds fanciful. After all, if this were workable, why didn’t we do it years ago to bring down oil prices?

In fact, this is a creative and perhaps even practical response to two unusual imperatives. The first is well covered by the press: to reduce the flow of oil revenues that are financing Russia’s war machine. The second is not: to prevent an economically catastrophic increase in oil prices because of one element of European sanctions set to take effect at the end of this year.

Oil prices fell to $20 a barrel at the beginning of the pandemic in 2020, returned to pre- pandemic levels of around $60 a barrel in early 2021 as the economy recovered, and then ballooned above $100 a barrel after Russia invaded Ukraine. The European Union, the U.S., Canada and the U.K. have agreed to stop buying (most) Russian oil, but Russia is still selling huge volumes — albeit at a discount from the world price — to India, China and other energy-thirsty economies. Russia normally accounts for about 10 percent of global oil production, but its exports have been reduced since its invasion of Ukraine. Today, U.S. officials estimate that ocean-going tankers carry about 70 percent of Russia’s 5.6 million barrels a day of crude oil exports. (The rest goes through pipelines, roughly half to Europe and half to China.)

One textbook solution to keeping oil flowing from Russia but reducing its revenues would be for major importers to impose a tariff on Russian oil. Because oil is a global market, consumers would pay the going world price, but Russia would receive the world price minus the tariff — the tariff revenue could, for instance, be used to aid Ukraine.Secretary Yellen floated that idea, but it didn’t go anywhere. An international agreement to cap the price of Russian oil is an alternative. Russia could, of course, simply refuse to sell oil, but, in theory, if the cap is set above Russia’s marginal cost of production, it would have an incentive to keep pumping.

There’s more, though, to the story than oil buyers’ talk of a ceiling on the price they’re willing to pay for Russian oil. At the beginning of June, the European Union agreed to bar its companies from “insuring and financing the transport, in particular through maritime routes, of [Russian] oil to third parties” after the end of 2022 to make it “difficult for Russia to continue exporting its crude oil and petroleum products to the rest of the world.” The U.K. agreed to go along.

This is a big deal because European and British companies account for about 85-90 percent of the business of insuring, reinsuring and financing seaborne Russian oil. Owners of oil tankers of any nationality will refuse to carry Russian oil if they can’t get high-grade insurance. The operators of the Suez Canal, for instance, don’t permit uninsured ships to sail through the vital channel....


Some previous visits to The Milken Institute Review:

Media: "Petition to Teach Kids about the Mad Adventures of Nellie Bly in History Class"

We haven't visited Vanessa at Messy Nessy Chic in a while and that is an egregious failing on our part.

She truly has put together an internet version of the old-timey cabinet of curiosities that is unrivaled. Here's the homepage.

And here's the headliner, May 24:

When Nellie Bly got bored of writing about fashion and gardening, she went undercover as a patient in a mental asylum and faked insanity to expose the institutional abuse. When she read Jules Verne’s book Around the world in 80 Days, she attempted the fictional journey herself, and did it in 72 days, 6 hours, and 11 minutes, setting a world record as the first person to do so. When she married and was expected to become a housewife, she patented two designs for steel cans and became the boss of a million-dollar iron manufacturing business instead. This was all before the age of 40, and before women had the right to vote.

Nelly Bly was a daredevil writer and pioneering investigative ‘stunt’ journalist on a mission. Ahead of her time as she was hell-bent on promoting social change, she felt compelled to champion the cause of neglected and exploited women in the rising industrial world of the late 19th century.

She was born Elizabeth Jane Cochran in 1864 at Burrell Township, Pennsylvania USA, and one of 15 children from an impoverished and extended family. Her father died when she was six, and although having been a successful local businessman owning the local mill, this seems to have had little benefit to Nellie. In 1880, Cochran enrolled at Indiana Normal School (now Indiana University of Pennsylvania) but after a year, had had to drop out due to lack of funds.

Her first skirmish within the world of journalism occurred in her early teens when she wrote a strong and feminist letter to an editor objecting to an article that had appeared in the “What Girls are Good For” column of her local Pittsburg paper, The Dispatch. The article claimed that women were ‘only good for giving birth and doing housework’.


The paper’s editor, George Madden, was so bowled over by Nellie’s response that he asked her to write an official reaction article under the pen name ‘Lonely Orphan Girl’. In her first Dispatch article, ‘The Girl Puzzle’, she passionately penned how divorce adversely affected women and appealed for change to the divorce laws of the day. Madden offered her a full-time position using the pen-name Nellie Bly, based on a popular Afro-American song character from 1850. The name stuck....

....MUCH MORE, including illustrations that were new to yours truly.

We've looked at Nellie Bly a couple times. In Media: "On the 'Girl Stunt Reporters' Who Pioneered a New Genre of Investigative Journalism" the headline at Literary Hub was a disservice to both the writer and her subject. The article itself was very good.

And although Nellie Bly has not been accorded the place in journo history that Ida Tarbell and the McClure's crowd received, Nellie Bly was every bit the muck-raker that they were.

If interested see "Media: Where Are The Muckrakers? The Rise and Fall of McClure's Magazine" or some of our other muckraker posts:

In 2011 we visited Ida Tarbell in "Ida M. Tarbell: 'John D. Rockefeller: A Character Study'" in part because I wanted a searchable link to the Tarbell collection at Allegheny college and partly because she described John D.'s grandfather, Godfrey as "a shiftless tippler, stunted in stature and mean in spirit".

In February 2016's "Oil Tankers and Interest Rates and Scallywags and Time" one of the Rockefeller minions, Thomas Lawson, got a mention, not for his exposé of his copper dealings with Standard Oil honcho Henry Huttleston Rogers, Frenzied Finance, but because of the ship for which Lawson was namesake.

Staying in 2016, it was Ida's buddy Lincoln Steffens in "Goldman Sachs: Death Of Capitalism Averted, Time For Working Schlubs to Partaay!", again not for the work he was most famous for, in Steffens' case his Shame of the Cities (St. Louis, Minneapolis, Pittsburgh et al) but because of his famously wrong statement about Soviet Russia in a letter dated April 3, 1919: “I have seen the future and it works.”.
It didn't.

In 2015 there was Jacob Riis because I was reminded of one of the photographs from "How the Other Half Lives: Studies among the Tenements of New York":
Jacob Riis Lives! "San Francisco Housing Bubble Goes Subterranean: $500/Month To Live In A Crawlspace"
And along the way Theodore Dreiser got a major link (possibly one of the best business novels ever) in "Switzerland Begins Two-Year Trial of Driverless Buses (plus money, art, glory and sex)"

So yes, more than wary reader might have anticipated and I've probably forgotten a couple.
Circling back to Ida, here's an online version of History of the Standard Oil Company.

Although there are quite a few critiques you can raise about her book it was pretty important and was one of the factors that led to the breakup of Standard Oil in the Supreme Court decision "Standard Oil Co. of New Jersey v. United States" seven years later. So Mr Rockefeller probably considered the book important.

It ranks #5 on NYU's Journalism school's list of the 100 best works of 20th-century American journalism. (via the NYT)

"Noli Me Tangere: Fixing the Intangible Economy"

The review may be smarter than the book.

From American Affairs Journal,  Summer 2022 / Volume VI, Number 2:

Restarting the Future: How to Fix the Intangible Economy
 by Jonathan Haskel and Stian Westlake 
Princeton University Press, 2022, 330 pages

What’s wrong with the new economy, variously called the knowledge economy or the information economy? Jonathan Haskel and Stian Westlake’s Restarting the Future, published this spring by Princeton University Press, diagnoses post-2008 Western economic stagnation as the consequence of a massive but incomplete shift away from an economy characterized by investment in “tangibles” to one characterized by investment in “intangibles.” Intangibles, pedantically, are things you can’t touch, but here encompass intellectual property (patents, copyrights, brands, and trademarks), corporate cultures, con­sumers’ emotional attachments to firms or products, and tacit production knowledge. Tacit knowledge is uncodified—often uncodifiable—information about how things get done on the factory or office floor that is stored in workers’ heads.

Haskel and Westlake accurately identify five forms of contemporary dysfunctionality: (1) Stagnant per capita income growth relative to pre-2010 growth rates. (2) Rising inequality, not just of wealth and income but also of esteem as cultural and social change accelerates and magnifies the divide between high-status elites and everyone else. (3) Dysfunctional, winner-take-all competition that inhibits start-ups and promotes excessive interpersonal competition over positional goods and employment outcomes. (4) The fragility of very complex, interconnected inter­national supply chains, which are vulnerable to shocks like Covid or war, or, given very low interest rates, increasingly ineffective monetary policy in the face of a significant recession. (5) And finally, echoing Fight Club, where everything is a copy of a copy of a copy, inauthenticity: the sense that too many jobs and activities are simply fake and detached from any underlying reality.

Haskel and Westlake channel Italian Marxist Antonio Gramsci, declaring that “[t]he problems we see are the morbid symptoms of an economy caught between an irrecoverable past and the future that we cannot attain.” The institutions we have don’t match the institutions that an economy built on intangibles needs. Economies, they say, require institutional structures that are specifically compatible with what we can call, following Joseph Schumpeter, the “current leading sectors.” Those “sound institutions have to solve four problems in exchange: ensuring sufficient commitment, solving collective action problems, providing information, and restricting wasteful influence activities.” In particular, Haskel and Westlake foreground—without much credit to Schumpeter—Schumpeter’s argument that established interests and practices hinder efforts by new leading sectors to mobilize massive volumes of capital for investment.

But the authors fail to account for how major interests within the intangibles sector currently impede investment and growth under exist­ing legal and economic arrangements. Indeed, this is perhaps the most significant dynamic affecting the performance of the sector and the economy more generally. Intangibles and Institutions

Haskel and Westlake begin by dismissing four competing explanations for current institutional dysfunction. We are not in an era of technological stagnation, as Robert Gordon has argued. We are not mismeasuring GDP growth on account of the rise of freemium software or internet-based services, even though GDP accounting was built for an era largely characterized by physical output. We might well be in a transitional era as firms seek to understand and implement the production of intangibles, and with higher proportions of intangible inputs—just as an earlier generation struggled to implement electrification of production—but if we are, we are more than halfway through that transition. And finally, though much less convincingly, rising monopoly power has not led to rising markups once intangibles are “properly” accounted for—a point I will return to in detail later. Haskel and Westlake’s argument about institutional incompatibility with an intangibles economy builds on their 2016 book Capitalism without Capital.2 

Capitalism without Capital argued that intangible capital generates four novel “S”s: (1) spillovers: the fact that intangibles or knowledge tend to spread to other firms; (2) scalability: the ability to expand production without a corresponding increase in physical capital; (3) sunken-ness: the inability to extract capital invested in an intangible because of the difficulties involved in selling “information”; and (4) synergies: the ability to combine knowledge to attain greater output.

Restarting the Future argues that institutional failure to deal with spillover effects and sunk costs inhibits growth-generating investment in intangibles. On the demand side for investment capital, if firms cannot capture the majority of the social value their products create for the rest of the economy, why would they invest in those products? On the supply side for investment capital, the world of debt finance is largely closed to firms which deal in intangibles, as those firms typically have no collateral to back a loan or bond. Failed start-ups have only vaporware ex ante, while the already sunk investments of more established intangi­bles firms, claim Haskel and Westlake, cannot be liquidated in case of default. By contrast, normal banking and securities market channels could finance investment in the older, factory-based tangible economy of the post-1945 era. Tangibility provided collateral—buildings and machines—and loan covenants largely prevented asset stripping in anticipation of default.

Restarting the Future also argues, correctly, that incumbent homeowners, risk-averse local government, and—especially in the United States—racially motivated zoning laws have led to extremely expensive housing costs in the cities which typically host dynamic intangibles firms. Relative to household formation, and sometimes in an absolute sense, most rich countries have built fewer new housing units in the past twenty years than they did in the 1950s through 1970s. This institutional bias toward the housing status quo has slowed expansion, again inhibit­ing growth.

Finally, Haskel and Westlake note that some institutional supports for an intangibles economy already exist, which is why the weight of intangibles has been rising. Venture capital funds some intangibles pro­duction precisely because of scalability. Scalability enables a successful intangibles firm to rapidly expand its output with little extra investment—the “production” cost of the nth copy of software is essentially zero, while app firms can accommodate extra customers with incremental increases in rented server space. 

Likewise, the proliferation of smartphones makes those apps synergistic: mapping apps locate a restaurant, ratings apps tell you if it is any good, delivery or rideshare apps connect you and the food. In many cases, winner-take-all dynamics enable a successful firm to have a global-scale addressable market. But, Haskel and Westlake argue, the volume of intangibles production in the economy has exhausted the available institutional capacity, hobbling further expansion.

Monopoly Matters 
The authors are surely correct that the current institutional structure inhibits rapid growth, slows the diffusion of productivity gains, and creates unhealthy winner-take-all dynamics. Legacy institutional structures, however, do not cause these problems. On the contrary, firms built on intangibles massively contribute to the four problems the authors identify.

The intangibles firms which capture most of U.S. and global profit volume are rich in intellectual property rights (IPRs).3 IPRs convey monopoly rights, albeit theoretically temporary ones. These monopoly rights generate the dysfunctional and predatory behavior that Haskel and Westlake decry in Restarting the Future precisely because of the characteristics which they elaborated in Capitalism without Capital. But the authors largely deny that monopoly matters, despite advocating for marginal reforms to IPRs. Haskel and Westlake thus miss the degree to which “The calls are coming from inside the house.”

Easy scalability combined with IPR protections implies strong tendencies towards monopoly, especially for first movers. These mono­polies have proven hard to dislodge. Haskel and Westlake deny that monopoly is harmful and denigrate what they call “hipster” antitrust policy. From a Schumpeterian perspective, the former argument has some theoretical merit. Schumpeter thought nascent leading sectors needed the promise of monopoly profit both to attract funding and to overcome the barriers that existing businesses posed—Haskel and Westlake’s third institutional problem, excessive influence activity by incumbents.

As the decidedly Schumpeterian Peter Thiel, who helped found PayPal and Meta (née Facebook), wrote, every firm desiring prosperity should seek monopoly.5 But incumbents from the old econ­omy and the robust antitrust regime associated with it are not the problem. Rather, Haskel and Westlake’s intangibles firms are.

Haskel and Westlake dismiss the significance of monopoly by pointing to James Traina’s work suggesting that the rising markups found in other academic studies, particularly by Jan De Loecker and Jan Eeckhout, are illusory.6 Traina argues that the apparent rise in markups disappears once sales and general administrative (SGA) expenses are incorporated as part of the cost of production. Haskel and Westlake see these costs as part of firms’ intangibles. But SGA can also be understood as managerial diversion of potential profit away from owners and toward insiders. Private equity similarly siphons off profit through dividend and interest payments, diminishing the apparent scale of monopoly profit and hobbling investment because these firms are not included in the data both Traina and DeLoecker and Eeckhout use.7 In other words, the scale of monopoly profit is occluded and hidden by this process....


Nitrogen Emissions: "Eating Too Much Protein Makes Pee a Problem Pollutant in the U.S."

From Scientific American, July 27:

Protein-packed diets add excess nitrogen to the environment through urine, rivaling pollution from agricultural fertilizers

In the U.S., people eat more protein than they need to. And though it might not be bad for human health, this excess does pose a problem for the country’s waterways. The nation’s wastewater is laden with the leftovers from protein digestion: nitrogen compounds that can feed toxic algal blooms and pollute the air and drinking water. This source of nitrogen pollution even rivals that from fertilizers washed off of fields growing food crops, new research suggests.

When we overconsume protein—whether it comes from lentils, supplements or steak—our body breaks the excess down into urea, a nitrogen-containing compound that exits the body via urine and ultimately ends up in sewage. Maya Almaraz, a biogeochemist at the University of California, Davis, and her colleagues wanted to see how much of this nitrogen is being flushed into the U.S. sewage system because of a protein-heavy diet. The researchers combined population data and previous work on how much excess protein the average American eats and found that the majority of nitrogen pollution present in wastewater—some 67 to 100 percent—is a by-product of what people consume. “We think a lot about sewage nitrogen. We know that’s an issue,” Almaraz says. “But I didn’t know how much of that is actually affected by the choices we’re making way upstream—when we go the grocery store, when we cook a meal and what we end up putting in our bodies.”

Once it enters the environment, the nitrogen in urea can trigger a spectrum of ecological impacts known as the “nitrogen cascade.” Under certain chemical conditions, and in the presence of particular microbes, urea can break down to form gases of oxidized nitrogen. These gases reach the atmosphere, where nitrous oxide (N2O) can contribute to warming via the greenhouse effect and nitrogen oxides (NOx) can cause acid rain. Other times, algae and cyanobacteria, photosynthetic bacteria also called blue-green algae, feed on urea directly. The nitrogen helps them grow much faster than they would normally, clogging vital water supplies with blooms that can produce toxins that are harmful to humans, other animals and plants. And when the algae eventually die, the problem is not over. Microorganisms that feast on dead algae use up oxygen in the water, leading to “dead zones,” where many aquatic species simply cannot survive, in rivers, lakes and oceans. Blooms from Puget Sound to Tampa, Fla., have caused large fish die-offs....


"Private Flying is Booming. But Parking Space for All Those Jets Is at Premium."

And fortunately for American's flying east, the EU's new decarbonizing fuel taxes exempt private and business jets.

From Barron's, July 26:

For all the luxuries and conveniences private jets offer to travelers in the air, these aircraft spend most of their lives on the ground. Currently, there’s a shortage of places to park them. Hangar deficits have been a recognized pain point in the industry and are growing increasingly acute. Compounding the problem is the fact that private jet travel is up due to the pandemic, with orders for private jets increasing.

According to JetNet data, the U.S. business jet fleet increased by 34%, with a physical footprint increase of 27.5 million square feet, between 2010 and 2020. That growth has accelerated dramatically over the past couple of years as pandemic-related factors have driven corporate, individual, and government fliers from commercial to private aviation.
Naples, Fla.-based Elite Jets is one of the many private jet charter companies around the U.S. that have seen a surge in demand driven by changing preferences when it comes to air travel.

“Private aviation may be experiencing too much consumer demand. Aircraft manufacturers cannot just flip a switch to speed up production timelines; it takes a year or two from the time charter companies order an aircraft until the new jet is produced and delivered,” says Stephen Myers, executive vice president of Elite Jets.

Given the investment, with private jets ranging in price from US$2 million to upwards of US$100 million according to Myers, many first-time buyers fail to realize the importance of hangar space.

“You would not purchase a Ferrari or Corvette and leave it exposed to the elements or parked in the street overnight,” Myers says. “A hangar offers protection from the weather, but most importantly, a sense of security knowing the jet is safe and sound—and securely stored out of sight—while you are away.”

Proximity is also a key factor regarding hangar space, as jet owners and renters inherently want their aircraft nearby in case they have an urgent business meeting, doctor appointment, or family gathering they don’t want to miss.

David Gitman, president of Monarch Air Group, a Fort Lauderdale, Florida-based private jet provider, is acutely aware of the growing challenges the industry is facing.

“The pandemic created a wave of demand that the industry is struggling to accommodate,” Gitman says. “Everything suddenly became scarce and went up in price: aircraft available for charter, aircraft available for sale, spare parts, flight crews, maintenance teams, and, of course, hangar space.”

Gitman points out the issue is especially severe in South Florida, when there are 10 airports over a 75-mile stretch of I-95.

“Hangar space is a scarce commodity, from basic overnight hangars at popular FBOs [Fixed Base Operator, or a private jet terminal at an airport] to long-term rentals. This caused some owners to consider either sharing a hangar or parking their aircraft at a less desirable airport,” Gitman says. “Not all of these airports are located near the owner’s residence or business—some have shorter runways”—which affects the maximum range an aircraft can fly nonstop—“[and] some have fewer amenities than others.”....


"fewer amenities", oh the humanity.

Completely unrelated: "EU to increase spending on private jets for top officials". 

And should you prefer a slower pace, the EC has also kindly exempted all but the very, very largest yachts from the decarbonizing program:

Reducing emissions from the shipping sector - Climate Action
To ensure that the maritime transport sector contributes to the EU's increased climate ambition, the Commission is proposing to extend the scope of the EU's Emissions Trading System to cover CO 2 emissions from large ships (above 5000 gross tonnage), regardless of the flag they fly...

ICYMI: Amazon Has Shrunk Its Payroll By 100,000 (AMZN; GOOG)

From Advisor Perspectives, July 29:

Amazon Shrinks Staff by 100,000, Joining Netflix and Google in Hiring Slowdown

With recession fears mounting—and inflation, the war in Ukraine and the lingering pandemic taking a toll—many tech companies are rethinking their staffing needs, with some of them instituting hiring freezes, rescinding offers and making rounds of layoffs. Inc. was the latest company to discuss its belt-tightening efforts this week. During its quarterly earnings call Thursday, the e-commerce giant said it’s been adding jobs at the slowest rate since 2019. After relying on attrition to winnow its staff, Amazon now has about 100,000 fewer employees than in the previous quarter.

Here’s a look at the companies tapping the brakes.

Alphabet Inc., Google’s parent company, has been decelerating its recruiting efforts. Chief Executive Officer Sundar Pichai told employees this month that—although the business added 10,000 Googlers in the second quarter—it will be slowing the pace of hiring for the rest of the year and prioritizing engineering and technical talent. “Like all companies, we’re not immune to economic headwinds,” he said. The hiring pause is part of that slowdown, Google said, “to enable teams to prioritize their roles and hiring plans for the rest of the year.” It had nearly 164,000 employees at the end of March.

Amazon said in April that it was overstaffed after ramping up during the pandemic and needed to cut back. “As the variant subsided in the second half of the quarter and employees returned from leave, we quickly transitioned from being understaffed to being overstaffed, resulting in lower productivity,” Chief Financial Officer Brian Olsavsky said at the time. Amazon has been subleasing some warehouse space and paused development of facilities meant for office workers, saying it needed more time to figure out how much space employees will require for hybrid work. The company now has 1.52 million full- and part-time workers and is still the largest employer in the tech world, despite the reduction in headcount....

....MUCH MORE, nice round-up. 

Can you truly own anything in the metaverse? (or in Canada?)

From Asia Times, April 25:

Metaverse ownership is complicated by fact blockchain-derived assets are governed by contract rather than property law 

In 2021, an investment firm bought 2,000 acres of real estate for about US$4 million. Normally this would not make headlines, but in this case the land was virtual. It existed only in a metaverse platform called The Sandbox. By buying 792 non-fungible tokens on the Ethereum blockchain, the firm then owned the equivalent of 1,200 city blocks.

But did it? It turns out that legal ownership in the metaverse is not that simple.

The prevailing but legally problematic narrative among crypto enthusiasts is that NFTs allow true ownership of digital items in the metaverse for two reasons: decentralization and interoperability. 

These two technological features have led some to claim that tokens provide indisputable proof of ownership, which can be used across various metaverse apps, environments and games. Because of this decentralization, some also claim that buying and selling virtual items can be done on the blockchain itself for whatever price you want, without any person or any company’s permission.

Despite these claims, the legal status of virtual “owners” is significantly more complicated. In fact, the current ownership of metaverse assets is not governed by property law at all, but rather by contract law.

As a legal scholar who studies property law, tech policy and legal ownership, I believe that what many companies are calling “ownership” in the metaverse is not the same as ownership in the physical world, and consumers are at risk of being swindled.

Purchasing in the metaverse
When you buy an item in the metaverse, your purchase is recorded in a transaction on a blockchain, which is a digital ledger under nobody’s control and in which transaction records cannot be deleted or altered.

Your purchase assigns you ownership of an NFT, which is simply a unique string of bits. You store the NFT in a crypto wallet that only you can open, and which you “carry” with you wherever you go in the metaverse. Each NFT is linked to a particular virtual item.

It is easy to think that because your NFT is in your crypto wallet, no one can take your NFT-backed virtual apartment, outfit or magic wand away from you without access to your wallet’s private key. Because of this, many people think that the NFT and the digital item are one and the same.

Even experts conflate NFTs with their respective digital goods....


The mention of Canada in the headline refers not just to the freezing of citizen's bank accounts by the the State during the trucker protests but encompasses how casually, even flippantly Trudeau and Freeland went about their totalitarian business. OED via Lexico

Totalitarian: Relating to a system of government that is centralized 
and dictatorial and requires complete subservience to the state.

Can there be anything more frightening than someone with a Chilliwack accent saying:

"If we see you oot and aboot in your truck, it's our money then, eh?"

well, maybe a few things

Still though, it was a bit of an eye-opener to see how quickly the government used the Emergencies Act, which is supposed to be used for, well, emergencies, how quickly they considered it just another Enabling Act. Speaking of which—and the Reichstag Fire Decree—I see that ##BlackfaceHitler is trending again in the Great White North, this time regarding the government's decision to emulate the Dutch nitrogen rules.

Anyway, where was I?
Metaverse, owning stuff in the metaverse.

Friday, July 29, 2022

Virginia Postrel: "Shrinkflation, Disqualiflation, and Depression and more"

After our visit with Virginia Postrel and Cardiff Garcia yesterday, here she is doing a solo at her substack, Virginia's Newsletter, July 28:

My latest Bloomberg Opinion column is explained well in an excellent subhead (contrary to popular assumptions, writers don’t craft the headlines or subheads that appear on their work): “Packaging less stuff for the same price doesn’t fool consumers or economists. But diminishing quality imposes equally maddening extra costs that are almost impossible to measure.” Excerpt:

If a 16-ounce box contracts to 14 ounces and the price stays the same, I asked Bureau of Labor Statistics economist Jonathan Church, how is that recorded? “Price increase,” he said quickly. You just divide the price by 14 instead of 16 and get the price per ounce. Correcting for shrinkflation is straightforward.

New service charges for things that used to be included in the price, from rice at a Thai restaurant to delivery of topsoil, also rarely sneak past the inflation tallies any more than they fool consumers.

But a stealthier shrinkflation is plaguing today’s economy: declines in quality rather than quantity. Often intangible, the lost value is difficult to capture in price indexes.

Faced with labor shortages, for example, many hotels have eliminated daily housekeeping. For the same room price, guests get less service. It’s not conceptually different from shrinking a bag of potato chips. But would the consumer price index pick up the change?

Probably not, Church said.

This phenomenon, which Doug Johnson aptly dubbed “disqualiflation” in a Facebook comment, is widespread. One example is the four-hour airport security line I chronicled in an earlier Substack post. Another is the barely trained newbie who screws up your sandwich order—a far more common experience today than four years ago. It’s the flip side of a phenomenon I wrote about in The Substance of Style and in economics columns in the early 2000s (see here and here)....


NYU School Of Law: "The World Bank and co. may be paving a ‘Digital Road to Hell’ with support for dangerous digital ID"

From the press release, June 17:

Global actors, led by the World Bank, are energetically promoting biometric and other digital ID systems that are increasingly linked to large-scale human rights violations, especially in the Global South. A report by researchers at New York University warns that these systems, promoted in the name of development and inclusion, might be achieving neither. Rather than the equitable digital future envisioned by the World Bank and its Identification for Development (ID4D) Initiative, the report argues that “despite undoubted good intentions on the part of some, [these systems] may well be paving a digital road to hell.”

The report, at over 100 pages, is intended to be a “carefully researched primer as well as a call to action to all of those with an interest in safeguarding human rights to set their gaze more firmly on the multidimensional dangers associated with digital ID systems.” Governments around the world have been investing heavily in digital identification systems, often with biometric components (digital ID). The rapid proliferation of such systems is driven by a new development consensus, packaged and promoted by key global actors like the World Bank, but also by governments, foundations, vendors and consulting firms. This new ‘manufactured consensus’ holds that digital ID can contribute to inclusive and sustainable development—and is even a prerequisite for the realization of human rights.

Drawing inspiration from the Aadhaar system in India, the dangerous digital ID model that is being promoted prioritizes what the primer refers to as an ‘economic identity’.  The goal of such systems is primarily to establish ‘uniqueness’ of individuals, commonly with the help of biometric technologies. The ultimate objective of such digital ID systems is to facilitate economic transactions and private sector service delivery while also bringing new, poorer, individuals into formal economies and ‘unlocking’ their behavioral data. As the Executive Chairman of the influential ID4Africa, a platform where African governments and major companies in the digital ID market meet, put it at the start of its 2022 Annual Meeting earlier this week, digital ID is no longer about identity alone but “enables and interacts with authentication platforms, payments systems, digital signatures, data sharing, KYC systems, consent management and sectoral delivery platforms.”

Unlike ‘traditional systems’ of civil registration, such as birth registration, this new model of economic identity commonly sidesteps difficult questions about the legal status of those it registers and the rights associated with that status. The promises of inclusion and flourishing digital economies might appear attractive on paper, but digital ID systems have consistently failed to deliver on these promises in real world situations, especially for the most marginalized. In fact, evidence is emerging from many countries, most notably the mega digital ID project Aadhaar in India, of the severe and large-scale human rights violations linked to this model. These systems may in fact exacerbate pre-existing forms of exclusion and discrimination in public and private services. The use of new technologies may furthermore lead to novel forms of harm, including biometric exclusion, discrimination, and the many harms associated with “surveillance capitalism.”

Meanwhile, the benefits of digital ID remain ill-defined and poorly documented. From what evidence does exist, it seems that those who stand to benefit most may not be those “left behind”, but instead a small group of companies and governments. After all, where digital ID systems have tended to excel is in generating lucrative contracts for biometrics companies and enhancing the surveillance and migration-control capabilities of governments....


Report: "Paving a Digital Road to Hell?" (103 page PDF)

February 2019
"Kenya Government mandates DNA-linked national ID, without data protection law"
April 2022
"Seventy-Three Million People Lose Mobile Phone Access in Nigeria For Not Having Digital ID"
What were once conspiracy theories are now headlines....

April 2019
UPDATED—Facebook is Making In-Person Visits To Verify ID's (FB)
April 2019
Update: "Facebook denies it conducted physical verification of users in India for posting political content" (FB)
Most of the commenters glommed onto the privacy issues raised when the wire service reported this event but a couple of the more astute observers went deeper, into the question of proving you are you.

May 2020

Bill Gates Would Like To Export India's Aadhaar Biometric Identity System To the Rest of The World
This is a couple years old (May 3, 2018) but I wanted it on the blog for future reference....

September 2020
Tony Blair: "It is common sense to move toward digital IDs"
It's just common sense.
I feel a Mandy Rice-Davies moment coming on*

September 2021

WHO: "Digital documentation of COVID-19 certificates: vaccination status"
Well it's about time.
Now, if we can put them all into a database. Maybe a chain.
Dare I hope: An immutable chain.
And maybe gamify them: "Hey kids, collect all 7 billion"

June 2021
"European Union Advances Plans For Post-Pandemic Digital Wallet"
What a honeypot for the cybercriminals.

December 2021
Meanwhile In Sweden: "Facing COVID passport mandate, more Swedes get microchip implants"

July 2022
Okay, Here's The Plan (literally): The World Economic Forum's "Future Focus, 2025"

And many, many more. If interested use the 'search blog' box upper left

BEA Personal Consumption Expenditure Inflation UP 1% For June, Up 6.8% Year-over-Year, Real Disposable Personal Income Down 0.3 Percent In June

Keeping in mind that shelter has only half the weighting in the PCE price index as it does in the CPI.

Additionally, since the current PCE inflation began in February 2021 the year-over-year figures are lowered by the base effects of starting from an already higher level. See graph after the jump.

From the Bureau of Economic Analysis, July 29:

Personal Income and Outlays, June 2022

Personal income increased $133.5 billion (0.6 percent) in June, according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) increased $120.4 billion (0.7 percent) and personal consumption expenditures (PCE) increased $181.1 billion (1.1 percent).

The PCE price index increased 1.0 percent. Excluding food and energy, the PCE price index increased 0.6 percent (table 9). Real DPI decreased 0.3 percent in June and real PCE increased 0.1 percent; goods increased 0.1 percent and services increased 0.1 percent (tables 5 and 7).

Feb. Mar. Apr. May June
Percent change from preceding month
Personal income:  
     Current dollars 0.6 0.6 0.5 0.6 0.6
Disposable personal income:  
     Current dollars 0.6  0.6 0.4 0.6 0.7
     Chained (2012) dollars 0.1  -0.4 0.2  0.0 -0.3 
Personal consumption expenditures (PCE):  
     Current dollars 0.6 1.2 0.5 0.3 1.1
     Chained (2012) dollars 0.0 0.3 0.3 -0.3 0.1 
Price indexes:  
     PCE 0.5 0.9 0.2 0.6 1.0
     PCE, excluding food and energy 0.3 0.3 0.3 0.3 0.6
Price indexes: Percent change from month one year ago
     PCE 6.3 6.6 6.3 6.3 6.8
     PCE, excluding food and energy 5.3 5.2 4.9 4.7 4.8

Current-Dollar Measures

The increase in current-dollar personal income in June primarily reflected increases in compensation (led by private wages and salaries) and proprietors' income (mainly nonfarm) (table 3). Other current transfer receipts increased $12.9 billion in June, reflecting a legal settlement from corporate business to persons. The national income and product accounts record these settlements on an accrual basis in the month when the settlement is reached, regardless of when they are recorded on companies’ financial statements.

The $181.1 billion increase in current-dollar PCE in June reflected an increase of $94.9 billion in spending for goods and an increase of $86.2 billion in spending for services (table 3). Within goods, gasoline and other energy goods was the leading contributor to the increase. Within services, the largest contributors to the increase were spending for health care and for housing and utilities (mainly housing). Detailed information on monthly PCE spending can be found on Table 2.3.5U.

Personal outlays increased $186.5 billion in June (table 3). Personal saving was $944.5 billion in June and the personal saving rate—personal saving as a percentage of disposable personal income—was 5.1 percent (table 1).


From the preceding month, the PCE price index for June increased 1.0 percent (table 9). Prices for goods increased 1.5 percent and prices for services increased 0.6 percent. Food prices increased 1.0 percent and energy prices increased 7.5 percent. Excluding food and energy, the PCE price index increased 0.6 percent. Detailed monthly PCE price indexes can be found on Table 2.3.4U.

From the same month one year ago, the PCE price index for June increased 6.8 percent (table 11). Prices for goods increased 10.4 percent and prices for services increased 4.9 percent. Food prices increased 11.2 percent and energy prices increased 43.5 percent. Excluding food and energy, the PCE price index increased 4.8 percent from one year ago.....


From Trading Economics (also on blogroll at right)


Two Months Into The Fed's Quantitative Tightening Plan, The Reduction In Treasuries and Agency MBS Is Still Not Happening

From the Fed's May 4, 2022 press release: 

Plans for Reducing the Size of the Federal Reserve's Balance Sheet

....The Committee intends to reduce the Federal Reserve's securities holdings over time in a predictable manner primarily by adjusting the amounts reinvested of principal payments received from securities held in the System Open Market Account (SOMA). Beginning on June 1, principal payments from securities held in the SOMA will be reinvested to the extent that they exceed monthly caps.

  • For Treasury securities, the cap will initially be set at $30 billion per month and after three months will increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills.
  • For agency debt and agency mortgage-backed securities, the cap will initially be set at $17.5 billion per month and after three months will increase to $35 billion per month.....

That is an idealized shrinkage of $1.583 billion per day.

Of course the roll-off of maturing paper won't be that smooth but that's what the $47.5 billion per month works out to.

From the Federal Reserve Bank of St. Louis' FRED Database:

On June 1 the Fed had total assets of $8.915050 Trillion, the vast majority of which are U.S. Treasury bills, notes and bonds and Agency (Fannie and Freddie) Mortgage Backed Securities. On July 27, the cut-off date for the most recent H.4.1 report, total assets on the Fed's balance sheet were $8890004, A total reduction over the 57 days of $25.046 billion compared to the expected 90.231 billion.

Even more interesting is where the minimal reduction to date is not happening, the two largest line items.

From the latest H.4.1:

July 28, 2022


1. Factors Affecting Reserve Balances of Depository Institutions

Millions of dollars

Reserve Bank credit, related items, and
reserve balances of depository institutions at
Federal Reserve Banks

Averages of daily figures

Jul 27, 2022

Week ended
Jul 27, 2022

Change from week ended

Jul 20, 2022

Jul 28, 2021

Reserve Bank credit


-    4,098

+  666,530


Securities held outright1


-    3,425

+  798,688


U.S. Treasury securities


-      798

+  476,788







Notes and bonds, nominal2


-      214

+  413,544


Notes and bonds, inflation-indexed2


-    1,375

+   27,204


Inflation compensation3


+      791

+   36,040


Federal agency debt securities2





Mortgage-backed securities4


-    2,627

+  321,900




And oddly enough, not a single question about the balance sheet run-off from the media at Chairman Powell's press conference on Wednesday.


July 22 The Federal Reserve Is Not Shrinking Its Balance Sheet

July 15 Why Isn't The Federal Reserve Shrinking Its Balance Sheet?

July 9 Huzzah! The Fed's Balance Sheet Shrinkage Appears To Have Begun!

July 1 The Federal Reserve's Plan To Shrink Its Balance Sheet Does Not Appear To Be Going Very Well

June 27 Fed Balance Sheet: Not Seeing The Reduction In Fannie/Freddie Mortgage-Backed Securities

We deliberately waited for three weeks after the start of the program to allow for settlement issues in the Agency MBS portion of the portfolio.

Where this gets really interesting is in five weeks the plan is to increase the QT to $95 billion per month.