Chips: "Arm announces its new premium CPU and GPU designs"

From TechCrunch:

Arm, the company that designs the basic chip architecture for most of the world’s smartphones, today announced the launch of its next suite of designs for premium phones. It’ll be a while before you’ll see the first phones that use chips based on this design, but typically we see the first actual chips before the end of the year. With this launch, the company is announcing the Cortex-A77 CPU, the Mali-G77 GPU and a more energy efficient and powerful machine learning processor.

Given recent trends, it’s no surprise that the new Cortex-A77 doesn’t only focus on overall performance improvements, though the company’s promise of 20% IPC performance improvement over the last generation is nothing to sneer at. Thanks to a combination of hardware and software optimizations, the Cortex-A77 now promises significantly better machine learning performance, too.

Why focus on that when the company also offers a machine learning processor? Arm argues that most smartphones today don’t use a dedicated neural processor. Indeed, the company argues that 85 percent of smartphones today run machine learning workloads with only a CPU or a CPU+GPU combo. And even when an accelerator is available, the CPU has to hand that over to the accelerator, no matter whether that’s a GPU or a dedicated machine learning chip....

...MORE

Today I Learned: Alphaville's Bryce Elder Switches Tasks Quicker If Not Attempting to Loin

We try not to be too hard on Mr. Elder for tardy arrivals at Markets Live. It's been five months since we posted:
Was Apple's Decision to Stop Reporting Unit Volume Last November A Tell?

I vaguely remember reading about it at Markets Live, but the images are jumbled.

Bryce was delayed getting to the Markets Live desk, but unlike a day earlier, not complaining that ML cut into his actual work. He seemed oddly resigned to his task of  keeping the Rabble on the Right on a short leash.
Cue dream sequence:...

Bryce has the toughest job in da 'Ville, switching from whatever he's doing at 10:59 to ad lib commentary on what's up (and down) in the markets, all while attempting to keep the reader's comments on point and not defaming folks, or wandering off in twos and threes to chat amongst themselves about cricket or Gloucestershire Cheese Rolling (yesterday):

or something.
So I thought it noteworthy to link to this:

11:04 am

you read that right, as close to on-time as we are likely to see before the return of Halley's Comet.

He begins:

11:04 am

BE Sad news .....

BE 

BE The FT.com sing in was unable to happen this morning.

11:04 am

BE Did you know the FT has a corporate song we sing each morning, to express our "shafu" or company spirit.

BE "Flap your wings, carry hope on your shoulders, hand-in-hand, Financial Times people will make a salmon pink rainbow across the world"

BE It's stirring stuff. But, today, sadly, there was a failure when attempting to loin.

11:06 am

BE Apologies if the mood is rather lower today as a result....MORE

Meanwhile, Mr. Elder's boss, editor Izabella Kaminska has been seeing naked emperors for the last few years or so.

Here's the latest:

Emperor has no clothes, Jaguar crypto press release edition

And for the last time, the color of the Financial Times is bisque! 

see: Bond Guru Martin Fridson Erroneously Refers To The Financial Times As "Salmon Colored"  for the proof.

Now back to cheese rolling. Some of our previous coverage:

2nd June 2017 
Reluctant locals forced to participate in cheese rolling
UNWILLING Gloucestershire residents have been made to chase a wheel of cheese down a hill by Londoners wanting to see authentic rural life.

To the chagrin of the locals, they were forced to recreate their proud tradition of risking life and limb running down a near-vertical gradient in pursuit of cheese for the amusement of weekend visitors.

Tom Logan of Stroud said: “We don’t actually do stuff like this any more. I’m an IT consultant.

“If I need cheese I just go to Tesco. Even a really big cheese doesn’t excite me to the point where I’d be willing to break an ankle.

“But they said we had to, and they’re rich, and if they sold up property values round here would collapse, so we all chased a cheese down a hill and my solicitor’s fractured two vertebrae.”...MORE

 Okay, truth be told, that's the intro to the Daily Mash's coverage and the picture is from SoGlos.

Swine Fever Virus In Vietnam; Pork Prices Rising In France

Three from Reuters:
May 26
Vietnam swine fever cull surges, 1.7 million pigs dead

Vietnam culled a further 500,000 pigs over the past two weeks to tackle an oubreak of African swine fever, taking the total killed so far to 1.7 million, or 5% of the country’s herd, the agriculture ministry said on Monday.

Pork accounts for three-quarters of total meat consumption in Vietnam, a country of 95 million people where most of its 30 million farm-raised pigs are consumed domestically.

The virus, first detected in the Southeast Asian country in February, has spread to 42 of the country’s 63 provinces, the agriculture ministry’s Livestock Production Department said in a statement on its website....MORE

May 23
African swine fever threatens French deli meats producers

French deli meats makers are being squeezed by a surge in pork prices linked to an African swine fever epidemic that has decimated the pig herd in China, they said on Thursday, warning of potential bankruptcies in the sector. 

African swine fever, a highly contagious virus, has spread to every province on the Chinese mainland since August last year, killing millions of animals and prompting China - the world’s biggest pork producer - to turn to imports earlier this year.

In a knock-on effect, French live pork prices have gained 24% since early March, with a rise of as much as 30% for some ingredients used in making deli meats like saucisson, cooked ham and dry-cured ham, making it hard for producers to pass such price rises on to clients, industry association FICT said....MORE

Finally, May 24:
China says making progress on African swine fever vaccine

China will start work on clinical trials of an African swine fever vaccine, state media said on Friday, as the disease continues to spread through the world’s biggest hog herd. 

State-owned Harbin Veterinary Research Institute has found two vaccine candidates, proven in laboratory tests to offer immunity to the disease, China National Radio said in a post on China’s microblogging site Weibo.

“In the next step, the Chinese Academy of Agricultural Sciences will accelerate the progress of pilot and clinical trials, as well as vaccine production,” said the report.

However, scientists who work on animal vaccines have sounded a note of caution, saying that developing and launching an effective vaccine would be difficult....MORE

"Volkswagen to Reshuffle $56bn Battery Push as Samsung Deal at Risk"

From Bloomberg, May 26:

• VW ultimately needs 300-gigawatt hours of annual battery cell supply and without robust global multi-sourcing contracts.
• Tesla, beset by concerns over demand and its ability to make a profit, last month accused its battery supplier.
• Samsung and SK Innovation Co. as battery suppliers for Europe along with Contemporary Amperex Technology Co. for China.Volkswagen AG is making changes to its battery-purchasing plan worth about 50bn euros ($56bn) over concerns that one of its supply deals, with Samsung SDI Co. Ltd., might unravel, according to people familiar with the matter.

Samsung initially agreed to deliver batteries for just over 20 gigawatt hours, enough to power 200,000 cars with 100-kilowatt hour packs, before different views on production volume and schedule emerged during detailed negotiations, said the people, who asked not to be identified as the talks are confidential. The impasse cut pledged supplies to less than 5 gigawatt hours, they said.

Access to vast amounts of batteries to power a growing number of electric vehicles has emerged as a new battleground for global automakers amid capacity constraints, supply bottlenecks and limited access to raw materials. Producing batteries safe to use in cars is more complex than the technology used for consumer electronic devices like smartphones.

“VW ultimately needs 300 gigawatt hours of annual battery cell supply and without robust global multi-sourcing contracts this will be impossible,” Evercore ISI analyst Arndt Ellinghorst said. “It’s one thing talking up electric vehicle volume numbers, building the necessary value chain remains a major challenge.”

Shares of Samsung SDI dropped as much as 4.9 percent in early trading on Tuesday in Seoul, their biggest intraday decline in more than two weeks. They were down 1.9 percent as of 9:21 a.m. local time....MUCH MORE 

Grains and Soybeans Jumping Higher

This piece notes the storms across the Midwest but it should also be pointed out that it has been cooler than average—in some places much cooler—which has slowed evaporation of rain that falls and slows the emergence of crops that do get in the ground. As they teach middle schoolers in Kansas:

...According to the Kansas State University Department of Agronomy, if a farmer plants corn from when the ground temperature is between 50°F and 55°F, it can take 18 to 21 days to see emergence. If the farmer plants corn when the ground temperature is between 60°F and 65°F, it might only take 8 to 10 days to see emergence....

Here's the last 90 days of mean temperatures across the contiguous 48 states via NOAA:

Note that departure from average in the anomaly map across so much of the Midwest.
The Dakotas grow the best pasta wheat in the world, durum, and if that 90-day trend persists your fettuccine is going to be more expensive.

From AgWeb:

Strong Weekend Storms Continue to Delay Planting
May 28, 2019

Good Morning from Allendale, Inc. with the early morning commentary for May 28, 2019.

Grain markets jumped higher again as strong, weekend storms continued to pour heavy rains across a large part of the U.S. growing region and threatens to slow an already delayed planting season. Above-normal rainfall is expected across most of the Midwest and Plains farm belt over the next 15 days, further delaying planting of corn and soybeans and potentially damaging the quality of the developing winter wheat crop, forecasters said. Trade will continue to monitor weather maps as well as crop progress over the next few weeks.

Last week, July corn futures were up 21.25 cents, July soybean futures up 7.5 cents and July wheat futures up 26.5 cents. Soyoil futures were down 20 points and soymeal was up $0.40.

Crop progress report will be released today at 3 p.m. CST. Traders are looking for corn planting at 63-65% complete (49% last week, 92% last year and 91% 5-year average). Soybean planting expected at 28-30% (19% last week, 77% last year and 62% 5-year average). Hard red Spring wheat planting at 86-87% (70% last week, 91% last year and 92% average).

President Trump pressed Japanese Prime Minister Shinzo Abe to even out a trade imbalance with the U.S. and said he was happy with how things were going with North Korea despite its recent missile and rocket launches....

...CFTC Commitments of Traders report (as of 5/21/19) showed managed funds new net positions short -116,729 corn contracts, short -153,131 soybean contracts, short -41,760 wheat contracts, long 72,705 live cattle contracts and long 56,984 lean hog contracts....

...MORE

Corn was setting new 13 month highs this morning with soybeans and Chicago (soft) wheat playing catch-up:

 

FinViz

 

Cat Bonds: "NOAA says 30% chance 2019 hurricane season sees above normal activity"

The headline story from Artemis, May 24:

The U.S. National Oceanic and Atmospheric Administration’s Climate Prediction Center says there is a 30% chance that the 2019 Atlantic hurricane season sees above normal levels of activity and warns of factors including El Nino and a warmer than normal Atlantic that can affect intensity of the season.

Overall, a near-normal Atlantic hurricane season is forecast, with a 40% chance of being near-normal season, a 30% chance it is above-normal season and a 30% chance of a below-normal season.
This leads NOAA to forecast that between 9 to 15 named storms (winds of 39 mph or higher) will form during the 2019 hurricane season, 4 to 8 of which may become hurricanes (winds of 74 mph or higher), with from 2 to 4 forecast to become major hurricanes (category 3, 4 or 5; with winds of 111 mph or higher).

NOAA gives a 70% range of confidence for this forecast, which predicts slightly more hurricanes and major hurricanes than others of the main forecasters that we track here.
The ongoing El Nino conditions are expected to persist and suppress the intensity of the hurricane season, NOAA explains.

But, countering this, the administration also notes that an expected combination of warmer-than-average sea-surface temperatures in the tropical Atlantic Ocean and Caribbean Sea, as well as an enhanced west African monsoon, will both favor increased hurricane activity....MORE

That El Niño forecast is directly at odds with Australia's BoM.
As noted a couple weeks ago in "Hurricane Watch: Australia's Bureau of Meteorology Lowers Odds of Full-Blown El Niño":

Long time readers know the El Niño/Southern Oscillation, through a couple teleconnections influences the North Atlantic hurricane season. Stronger/longer El Niño tends to correlate with fewer hurricanes, La Niña tends toward more 'canes....

*** 

...Look for later hurricane season forecasts to add one or two more hurricnes than the earlier guesses.
The BOM is one of our big three public sources on ENSO conditions, along with Columbia Uni/IRI and the US. NOAA.
For El Niño Modoki situations Japan's Japan Agency for Marine-Earth Science and Technology (JAMSTEC) is the go-to.
Finally, the comment thread on this NOAA page seems to be leaning toward a Modoki:...

And it's not just a less powerful El Niño that raises the chances for a more active hurricane season.
Should the above mentioned Modoki variation be the summer-of-2019 story we hark back to this 2009 post:
New Type Of El Nino Could Mean More Hurricanes Make Landfall

... "Normally, El Niño results in diminished hurricanes in the Atlantic, but this new type is resulting in a greater number of hurricanes with greater frequency and more potential to make landfall," said Peter Webster, professor at Georgia Tech's School of Earth and Atmospheric Sciences.
That's because this new type of El Niño, known as El Niño Modoki (from the Japanese meaning "similar, but different"), forms in the Central Pacific, rather than the Eastern Pacific as the typical El Niño event does. Warming in the Central Pacific is associated with a higher storm frequency and a greater potential for making landfall along the Gulf coast and the coast of Central America....

The official start to hurricane season is Saturday, June 1.
Stay tuned.

"Ikea will soon have a meatless version of its iconic meatball"

This is probably a better idea than the last time the meatballs made an appearance on the blog:

"CMA CGM Partners with IKEA to Test Marine Biofuel On Board Containership"

My first thought on seeing the headline was that CMA CGM would be using waste meatball drippings from IKEA to upgrade from high-sulfur bunker fuel which got me thinking of land based conveyances and...
...then I got hungry.

From what I understand, the stories of cars converted to run on waste restaurant oil smelling like chips, fries,  frites etc and getting every dog in the neighborhood straining on their leashes are not true which seems a pity.....

From Fast Company:

As part of the company’s sustainability push, you’ll be able to get a fake meat version of your favorite furniture-shopping snack.

In a year, Ikea sells roughly a billion meatballs. Along with the Billy bookcase, the food is one of the company’s most iconic products. But it plans to soon begin selling an increasing number of “meatballs,” made from plants rather than beef and pork.

The company launched a veggie ball–one that is visibly made from vegetables–in 2014. But the new meatless meatball in development now will follow the path of other products, like the Impossible Burger, designed to mimic meat so closely that they might be mistaken for the real thing.

“What we would like to do is to create an alternative for the typical meat eater that still has a craving for meat,” says Michael La Cour, managing director at Ikea Food Services. “Let’s say, a flexitarian that knows too much meat consumption is not always the best, and I want to do my part, but on the other hand, I love the taste and texture of meat. These are the people that we would like to create an alternative for.”...

....MUCH MORE

Previously on the IKEA channel:
Apparently Balenciaga Made A $2100 Knockoff of the IKEA Tote Bag, IKEA Is Amused
Today in Umlauts: Hästkött (Swedes love it)

The untold story of the Ikea meatball scandal is that Swedes love horse meat
It's tough to stomach, but Ikea is the latest big-name food maker to be felled by the no-it-isn't-beef-it's-horse-meat-scandal that is quickly spreading across Europe. Czech authorities alerted the discount furniture maker that they had found horsemeat in a sample of meatballs, and Ikea subsequently pulled the product from stores in 14 countries.

Ikea is of course outraged and put out a strongly worded statement... 

IKEA Is Already Designing Furniture For Autonomous Vehicles
Autonomous Robots 'May' Have Mastered The Assembly Of IKEA Furniture
Today in Umlauts: "Journey into the heart of Ikea"

This store is 10.46 acres (over 4 hectares) under roof.
Un-freaking-believable.

From Curbed:

How 12 hours in the biggest Ikea in the U.S. destroyed my soul
The country’s largest Ikea opened in Burbank, California, last month. At 456,600 square feet, twice the size of, and one mile away from, the old Burbank Ikea, this new store offers a lot more of everything people have come to expect from the brand: More inspirational showrooms, more lingonberries, more Billy bookcases. But how much is too much Ikea?...

***

...10:08 a.m. umlauts: 11 fights: 0
Ikeas are laid out "the long natural way": One is supposed to wind semi-aimlessly through the aisles. In every store, the first section of this labyrinth consists of model rooms from model homes, where unseen model people live model lives. Little boxes made of ticky-tacky, etc. Each room is planned at Ikea HQ by a designer, complete with biographies of the people who inhabit them. Cabinets are filled with Ikea-brand pens and pencils, magazine organizers are labeled, and closets are hung with discontinued clothes from Target....

Russia Floats Another Nuclear Icebreaker

These aren't even the next-generation ships and they are still the most powerful in the world.
The troika of doom.

From the Barents Ovserver:

Launch of icebreaker «Ural» will give boost to year-around Northern Sea Route shipping

With two powerful nuclear reactors, Rosatomflot’s third LK-60Ya icebreakers will help Russia export even more gas to Asia by 2022.

Liquid natural gas (LNG) is big money for Russia’s private owned Novatek. But more powerful icebreakers are needed to reach the markets in Asia with the huge LNG tankers sailing out from Yamal and the Ob Bay. Especially along the eastern part of the Northern Sea Route, from the northern Kara Sea through the Laptev Sea towards the East Siberian Sea.

Novatek aims for year-around shipping in volumes more than twice today’s annual production of up to 15,5 million tons at Yamal LNG. By 2023, Arctic LNG II is expected to produce 19,8 million tons and the Ob LNG, announced last week, will add an annual production of up to 4,8 million tons.

«Without a modern nuclear icebreaking fleet, it is impossible to imagine the development of the Northern Sea Route,» said Vyacheslav Ruksha, Director of the Northern Sea Route Directorate of Rosatom State Corporation in a comment to Saturday’s launch of the new icebreaker.

«It is important that a decision has been made to conclude a contract for the construction of the fourth and the fifth serial nuclear-powered icebreakers. We are awaiting the start of construction of the Leader nuclear-powered icebreakers. With their appearance in the Arctic, it will be possible to talk about year-round navigation along the Northern Sea Route,» Ruksha said....MUCH MORE

This is the current world heavyweight champ, 50 Years of Victory:

Although not as powerful as the new ships it has superior ice breaking capabilities: up to 5 metres (16 feet) by ramming versus 3 metres (10 feet) for the new machines,

As noted in the January post on the new Russian icebreaking submarine:

For the big guy, "50 Years of Victory", the Rosatom people advertise its "1300 rooms" which sounds a lot like a troop transport to me, big enough for an entire Russian naval infantry brigade with room to spare.

"Bloat Does Not Explain the Rising Cost of Education"

The writer has a comfy endowed chair in economics at George Mason University.

From Marginal Revolution:

by  Alex Tabarrok May 27, 2019 at 7:31 am 

In Why Are The Prices So D*mn High? Helland and I examine lower education, higher education and health care in-depth and we do a broader statistical analysis of 139 industries. Today, I will make a few points about education. First, costs in both lower and higher education are rising faster than inflation and have been doing so for a very long time. In 1950 the U.S. spent $2,311 per elementary and secondary public school student compared with $12,673 in 2013, over five times more (both figures in $2015). The rate of increase was fastest in the 1950s and 1960s–a point to which I will return later in this series.

College costs have also increased dramatically over time. For this book, we are interested in costs more than tuition because we want to know what society is giving up to produce education rather than who, in the first instance, is paying for it. Costs are considerably higher than tuition even today, although in recent years tuition has been catching up. Essentially students and their parents have been paying an increasing share of the increasing cost of higher education. Moreover, as with lower education, costs have been rising for a very long period of time.

I will take it as given that the explanation for higher costs isn’t higher quality. The evidence on tests scores is discussed in the book:

It is sometimes argued that how we teach has not changed but that what we teach has improved in quality. It is questionable whether studies of Shakespeare have improved, but there have been advances in biology, computer science, and physics that are taught today but were not in the past.

However, these kinds of improvements cannot explain increases in cost. It is no more expensive to teach new theories than old. In a few fields, one might argue that lab equipment has improved, which it certainly has, but we know from figure 1 that goods in general have decreased in price. It is much cheaper today, for example, to equip a classroom with a computer than it was in the past.

The most popular explanation why the cost of education has increased is bloat. Elizabeth Warren and Chris Christie, for example, have both blamed climbing walls and lazy rivers for higher tuition costs. Paul Campos argues that the real reason college costs are growing is “the constant expansion of university administration.” Redundant administrators are also commonly blamed for rising public school costs.

The bloat theory is superficially plausible. The lazy rivers do exist! But the bloat theory requires longer and lazier rivers every year, which is less plausible. It’s also peculiar that the cost of education is rising in both lower and higher education and in public and private colleges despite very different competitive structures. Indeed, it’s suspicious that in higher education bloat is often blamed on competition–the “amenities arms race“–while in lower education bloat is often blamed on lack of competition! An all-purpose theory doesn’t explain much.

More importantly, the data reject the bloat theory. Figure 8 shows spending shares in higher education. Contrary to the bloat theory, the administrative share of spending has not increased much in over thirty years. The research share, where you might expect to find higher lab costs, has fluctuated a little but also hasn’t risen much. The plant share which is where you might expect to find lazy rivers has even gone down a little, at least compared to the early 1980s....

....MORE

Bank of England: "Opening the machine learning black box"

From Bank Underground:

Machine learning models are at the forefront of current advances in artificial intelligence (AI) and automation. However, they are routinely, and rightly, criticised for being black boxes. In this post, I present a novel approach to evaluate machine learning models similar to a linear regression – one of the most transparent and widely used modelling techniques. The framework rests on an analogy between game theory and statistical models. A machine learning model is rewritten as a regression model using its Shapley values, a payoff concept for cooperative games. The model output can then be conveniently communicated, eg using a standard regression table. This strengthens the case for the use of machine learning to inform decisions where accuracy and transparency are crucial.


Why do we need interpretable models?
Statistical models are often used to inform decisions, eg a bank deciding if it grants a mortgage to a customer. Let Alice be that customer. The bank could check her income and previous loan history to estimate how likely Alice is to repay a mortgage and set the terms for the loan. A standard approach for this type of analysis is to use a logistic regression. This returns a ‘probability of default’, ie the chance that Alice won’t be able to repay the loan, spelling trouble for the bank and herself.

A logistic regression is a very transparent model. It attributes well-defined risk weights to each of its inputs. The transparency comes at a cost though: logistic regressions assume a particular relationship between the explanatory factors. This may not hold, in which case the model’s predictions may be misleading. Machine learning models are more flexible and therefore capable to detect finer nuances provided there is enough data to ‘train’ a model. This is also the reason for their current success and increasing popularity ranging from personalised movie recommendations over credit scoring to medical applications.

However, the cost of this flexibility is opaqueness, which gives rise to the black box critique of machine learning models. It is often not clear which inputs are driving the predictions of the model. Furthermore, a well-grounded statistical analysis of the model is generally not possible. This can lead to ethical and legal challenges if models are used to inform decisions affecting the lives of individuals. This is particularly true for models from deep learning which are driving many AI developments.

There also are concerns regarding the interpretability of machine learning models more specific to policy makers, like eg at the Bank of England’s decision-making committees. First, when using machine learning alongside more traditional approaches, it is important to understand where they differ. Second, a challenge in decision making is trying to understand how relationships between variables might change in the light of policy actions. In both cases, interpretable and transparent models are likely to be very helpful.

Opening the black box
It would therefore be of great use to bring machine learning into the same playing field as currently used models. This would promote transparency and likely speed up model development while helping to avoid harmful bias. Such an approach is laid out here. The idea is to separate statistical inference into two steps. First, the contribution each variable makes to a model is measured. Second, these contributions are taken as the input to a standard regression analysis....MORE

Interview With One Of The Sharpest Central Bankers In the World, Russia's Elvira Nabiullina

We've been singing her praises for a few years now. Here's the introduction to a 2018 post:

"Russia’s central bank quietly raised its key interest rate by 0.25 percentage points on Friday"

If you think having Donald Trump question the Fed head for raising rates is playing rough, just imagine working for Vlad Putin as his popularity drops.
Considering the hand she's been dealt, the chief of the Russian central bank, Ms. Nabiullina, should have garnered a couple more Euromoney Central Banker of the Year awards to sit next to the one she received in 2015.

Seriously, since she took over in 2013 oil prices collapsed, then doubled, the annexation of Crimea led to the first set of sanctions, the rouble fell 50%, the U.S. Treasury threatened Russian banks with exclusion from SWIFT, the second set of sanctions on companies and oligarchs led to the retraction of multi-billion dollar credit facilities which had to be replaced internally and a couple other things that I'm having trouble remembering.
And all the while Vladimir is looking over your shoulder.

Anyway, all good mini-rants come to an end, here's the headline story from Sputnik CNBC

(astute reader will note eco-friendly intro recycling)

Russian Central Bank boss on risk of global recession from CNBC.

CNBC Interview with Elvira Nabiullina, Governor, Central Bank of Russia

Published Thu, May 24 2018 12:00 AM EDT

Below is the transcript of a CNBC interview with the Central Bank of Russia's Governor, Elvira Nabiullina, and CNBC's Geoff Cutmore.

GC: Governor, I wanted to start by getting an updated view from you on how you think the Russian economy is doing right now. It seems like it's been a relatively strong start to the year, are you feeling confident that this resilience will continue through the rest of 2018?

EN: The Russian economy has entered stable, if not considerable rates of growth. The last year showed a growth of 1.5%. Our estimate for 2018 and for 2019 and 2020 thereafter is in the 1.5 – 2% range. Perhaps you recall that we estimated the potential growth rate at this level. The Russian economy has pretty much emerged from recession and has recovered, reaching growth rates close to potential.

It is growing in accordance with our baseline forecast but our President has set us the objective whereby the Russian economy grows at rates above world levels. This means almost 4%. Of course this requires a rise in the potential growth rates. It requires structural reforms, in terms of labour productivity, private investment and then the economy can grow at higher rates than it is now.

GC: The problem is, as you have pointed out over and over again, without serious institutional reform, we're not going to achieve those higher growth rates here. Do you think that there was perhaps a missed opportunity in reappointing many of the same figures to the government that have been in position previously and have not really pursued the kind of structural reform that this economy needs?

EN: I think that structural reforms in Russia are possible, not to mention that they are essential. And it is expected that the government will propose specific measures by the autumn, by October, so as to achieve higher growth rates in economic growth and to increase prosperity. But I would like to stress that it is very important, including from the standpoint of the Central Bank, that structural reforms of this kind should go together with macroeconomic stability.

In other words, a rise in economic growth rates should not be to the detriment or at the expense of…on the basis of macro-stability, low inflation, a well-balanced budget deficit. And I think that this is within the abilities of the new government. Naturally, the Central Bank will perform its part of the work in supporting macroeconomic stability.

GC: So, you are comfortable, though, with the idea that you sacrifice higher growth for stability. So, stability is something you would prefer at the expense of slower growth?

EN: I think this is the wrong impression of macro-stability and high, sustainable growth rates. I believe that high, sustainable growth rates can only be possible on the basis of macro-stability…because, if cheap money, as some have suggested, is used in an attempt to stimulate higher growth rates at the same time as the economy is already growing close to potential rates, this could only lead to an overheating, to a short-lived spike in economic growth and then it could fall back once more, and we have seen this with certain countries so, therefore, I believe, the Central Bank believes that it is high and stable economic growth rates may be on the basis of a combination of macroeconomic stability and structural reforms....

...MUCH MORE

"China's January-April industrial profits tumble 3.4 pct year-on-year"

Two from China Global Television Network (CGTN).
First up, the headline story,27-May-2019:

China's industrial firms posted a 3.4-percent slump in profits in the January-April period, according to data from the National Bureau of Statistics (NBS) on Monday.

Profits notched up by industrial firms in the country shrank 3.7 percent year-on-year in April to 515.4 billion yuan (74.80 billion U.S. dollars) following robust gains in March.

Zhu Hong, a senior statistician from NBS, ascribed the comparatively large fluctuation to the reduction of value-added tax that began in April, which brought forward pent-up demand for some industrial goods and boosted profits in March.

Industrial companies' debt increased 5.5 percent from a year earlier to 63.87 trillion yuan by end-April....MORE

And:

Is U.S. prepared for a Long March?

"Billions of dollars are pouring into the coffers of the U.S. because of the tariffs being charged to China," U.S. President Donald Trump boasted trophies of his trade measures on Chinese products on Twitter last November. 

The president vowed to use "every lawful presidential power to remedy trade disputes" since his campaign trail in 2016, but in spite of Trump's triumphant tweet, figures show that the trade war against the world's second-largest economy turned out to be dragging the U.S. further into the economic quagmire.

Oxford Economics estimated that the tariffs in place since 2018 cut U.S. GDP by about 0.1 percent this year. The country would see its GDP growth shrinking to below 2 percent and lose nearly 200,000 jobs if Trump insists the tariff hikes on 200 billion U.S. dollars worth of Chinese imports and if Beijing retaliates. 

Trump's aggressive approach on China, in a large part, was to reduce the U.S. trade deficit with China, but the endeavor was met with a widened trade gap with China.

If Trump's tariff threat is a big gamble, then the businessman-turned-president is losing it. 

The global value chain is determined by the market law, which means different segments of the chain – research, manufacturing, assembly, and distribution – are designated to countries in accordance with their comparative advantages. This is how globalization works, and any violation of it will backfire.

With its extensive labor force and abundant resources, China can provide countries at the higher end of the value chain less-expensive but better-quality products. While U.S. exports to the Chinese market plummeted by 26.8 percent in the first four months of 2019, Chinese exports to the U.S. dipped by only 4.8 percent. 

This is vivid evidence of American customers' heavy dependence on Chinese imports. Trump may need to figure out how the global value chain works before advising that Americans buy alternatives from non-tariffed states or domestic market....

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Rather aggressive and eliding right past a couple of the major issues of the last 20 years but easy to dance to, I give it an 83. 

"Netflix Has 175 Days Left To Pull Off A Miracle... Or It's All Over"

In other news, "Model Emily Ratajkowski: 'organic content is king' in brand building".
Okay, just kidding. Ms Ratajkowski appears to be quite knowledgeable about brand building but that's a story for another day.

Today's story, from Forbes:

Last year, half of Americans aged 22 to 45 watched zero hours of cable TV. And almost 35 million households have quit cable in the past decade.

All these people are moving to streaming services like Netflix (NFLX). Today, more than half of American households subscribe to a streaming service.
The media calls this “cord cutting.”

This trend is far more disruptive than most people understand. The downfall of cable is releasing billions in stock market wealth.
Combined, America’s five biggest cable companies are worth over $750 billion. And most investors assume Netflix will claim the bulk of profits that cable leaves behind.

So far, they’ve been right. Have you seen Netflix’s stock price? Holy cow. It has rocketed 8,300% since 2009, leaving even Amazon in the dust:

But don’t let its past success fool you.

Because Netflix is not the future of TV. Let me say that one more time… Netflix is not the future of TV.

The Only Thing That Matters
Netflix changed how we watch TV, but it didn’t really change what we watch…
Netflix has achieved its incredible growth by taking distribution away from cable companies. Instead of watching The Office on cable, people now watch The Office on Netflix.
This edge isn’t sustainable.

In a world where you can watch practically anything whenever you want, dominance in distribution is very fragile.

Because the internet has opened up a whole world of choice, featuring great exclusive content is now far more important than anything else.
For example, about 20 million people tuned in to watch the first episode of the latest season of hit show Game of Thrones.

It was one of the most-watched non-sporting events in TV history....MORE

"NOAA warns of threat to weather forecasts from 5G spectrum"

From the American Institute of Physics, Physics Today, May 24:

The agency’s administrator testified to Congress that the harm to weather models could set forecasters back decades.

The National Oceanic and Atmospheric Administration remains at an impasse with the Federal Communications Commission (FCC) over how to protect weather satellite observations from interference by 5G telecommunications equipment.

At a hearing by the House Science Committee’s Subcommittee on Environment on 16 May, acting NOAA administrator Neil Jacobs warned that US weather forecasting capabilities could be severely degraded if the FCC proceeds with its plans for green-lighting transmissions within a 24 GHz spectrum band that it recently auctioned to telecommunications companies. He said NOAA and NASA have concluded that the out-of-band emissions limits set by the FCC are insufficient to prevent interference with weather satellites’ ability to detect water vapor. He reported that the FCC has taken issue with the input parameters NOAA and NASA used when modeling the interference effects.

Meanwhile, the FCC is facing pressure from Congress to address the concerns raised by NOAA, NASA, and other parts of the scientific community. Leaders of several committees have urged the FCC to reconsider its approach to opening up the 24 GHz band, which includes frequencies as low as 24.25 GHz. Weather satellites detect 23.8 GHz emissions from water vapor in the atmosphere.

Jacobs explained that subject-matter experts from NOAA, NASA, and the FCC have been studying the issue since 2017 but have yet to reach agreement on appropriate limits on out-of-band emissions—signals that spill over from a particular frequency bandwidth but nonetheless contribute to the quality of the transmission....

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Capital Markets: Trade and Rare Earths and Brexit and Other Stuff

After all these years I should know better but it still seems hilarious that the totally misnamed "VanEck Vectors Rare Earth/Strategic Metals ETF" (REMX) with their tiny little 8.38% exposure to rare earths jumped 14% over 4 days after President Xi went to visit the rare earth magnet maker.

Anyhoo, from Marc to Market, Saturday May 25:

The Evolution of Three Issues are Key in the Week Ahead 
As May winds down, the light economic calendar will allow investors to take their cues from the evolution of three disruptive forces--trade, Brexit and the US economy.

With actions against Huawei and possibly a handful of Chinese surveillance equipment producers, the US raised the stakes. The retaliatory tariffs are effective on June 1, but Beijing has not formally responded to the moves against Chinese companies.

The Trump Administration seems to believe that the pressure from the tariffs and other actions will get China to capitulate to US demands. Officials were still playing up the likelihood that the two presidents meet on the sidelines of the G20 meeting in Japan at the end of next month. There is a relatively benign consensus narrative that the tariffs are a tactic, and, like at the end of last year, a meeting between Trump and Xi will jump-start talks again. However, there is nothing for China to gain at this juncture by talks. The US tariffs have already been lifted on $200 bln of its imports to 25%. The process has already begun to slap a 25% levy on the remaining Chinese goods that have escaped a penalty tax thus far, including popular consumer products like cell phones, tablets, and computers.

Say what you want about Chinese trade practices, and no one seriously defends them, but the US red lines cannot be the basis of serious negotiations. Trump has indicated that the US will not accept a mutually beneficial deal because it needs to be compensated for past wrongs, and he has explicitly stated that he will not allow China to become the largest superpower. Many observers seem to think that because China sometimes speaks in communist ideological terms, it is monolithic. It is not. The US demands cannot do anything but strengthen the hardline hawkish camp within China's ruling circles.

A meeting at the G20 meeting plays into Trump's hands. It could look as if China capitulated. Trump had demonstrated a flair for the dramatic as he showed when he walked away from North Korean talks and also again this past week when he walked away from the domestic bipartisan talks for an infrastructure initiative. The G20 venue and the spontaneity would be to Trump's advantage. Chinese officials prefer a more scripted event.

Xi and Vice Premier Liu visited a rare earth facility at the start of the week. Intended or not, it was understood as a small reminder of vulnerabilities and asymmetries that China can exploit that are not captured in the macro data that US policymakers rely on to think that they can dominate the tariff escalation ladder. While the Trump Administration is stretching national security to justify steel and aluminum tariffs and threaten protection for the auto sector, the rare earths are truly essential for defense, as well as modern technologically advanced goods, including electric/hybrid cars, windmills, computer memories, cell phones, rechargeable batteries, and even some medicines.

Last year the US imported about 4100 tonnes of rare earths from China at the cost of about $175 mln, which is hardly even a rounding error for the bean counters who understand prices but not values. Most of the rare earths are embedded in the products it imports. US dependence on China for rare earths is well documented.

Reports suggest that China will impose limits on rare earth exports to the US as a way to express its displeasure. There is precedent from nine years ago when in a dispute with Japan, China cut its access to rare earths. Given the complex supply chains and distribution channels, it is difficult for China to play this card directly. Just like it is not very easy to weaponize the yuan or China's Treasury holdings, weaponizing rare earths could have broad impact, not the kind of laser focus that the PRC seems to prefer. This is not to say China can't or won't. The argument here is less bold: the cost of doing so is high and therefore, likely at a higher rung in the escalation ladder.

In China's command economy, a quota is set for rare earth production. The most recent one for H1 19 was set mid-March. The mining quota was set at 60k tonnes in H1 19, which is down nearly 18.5% from a year ago. The smelting and refining quota was cut by almost 18% to 57.5k tonnes. The decline partly reflects the high quotas from the first part of last year, which were later balanced with lower quota in the second half. The 2018 quotas for the entire year worked out to be 120k tonnes of mining and 115k tonnes of processing. The quotas for the second half are expected to be announced by the end of June.

A date for the trade talks to resume has not been set. The rhetoric remains bellicose. Reference in Chinese state media about another "Long March" and the importance of "self-reliance" are meant to pull on the nationalist strings. The trajectory of developments since the end of the tariff truce does not appear to have run its course yet....

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Ha! The FT's Keohane & Cie Has Been Working The Nissan-Renault Fiat Chrysler Beat

On May 18 the question on everyone's lips was "Where In the World Is David Keohane? 'BNP Paribas rolls out hologram projection technology'" in which yours truly noted:

...The Keohane tweet looks legit, short, punchy, slightly bemused. I think it is Mr. K. tweeting.
On the other hand, after disappearing from the pages of the FT for a month we see ten stories since May 12 on his FT stream page. And oddly enough the first of these, "Nissan’s parable of shoddy governance" is actually bylined 'Leo Lewis in Tokyo' and although Mr. Keohane has become a prime source for the Renault end of the Ghosn débâcle he also covers the big French banks....

Well today we see:

SCOOP: Fiat Chrysler is in advanced discussions about a deal to forge extensive ties w/ France's Renault. Seismic shift in auto biz if it happens. Lots of moving parts, lots on the table. @FT exclusive w/ @Petercampbell1 @DavidKeo @JFK_America https://t.co/SFpZbJI0sa

— Arash Massoudi (@ArashMassoudi) May 25, 2019

—Apologies to Mr. Massoudi, corporate finance and M&A editor at the FT and Peter Campbell, auto industry correspondent  for making them part of the 'et Cie' but as has been said: "You dance with the one who brung ya".

Here's the latest:
Fiat Chrysler proposes €33bn merger with Renault

Combined entity would become the world’s third-largest carmaker

2 hours ago

With a couple of the earlier deal stories, including the May 25 scoopage at Mr. K's FT stream page.

On the Passing of Murray Gell-Mann: THE MAKING OF A PHYSICIST

Professor Gell-Mann is the third Nobel Laureate on the blog today but his is in physics, a point that makes a difference to some people including the descendants of Alfred Nobel.
He died on Friday.
From Edge.org:

THE MAKING OF A PHYSICIST
A Talk With Murray Gell-mann [6.30.03]

MURRAY GELL-MANN
September 15, 1929 – May 24, 2019

Uncharacteristically, I discussed my application to Yale with my father, who asked, "What were you thinking of putting down?" I said, "Whatever would be appropriate for archaeology or linguistics, or both, because those are the things I'm most enthusiastic about. I'm also interested in natural history and exploration."
He said, "You'll starve!"

After all, this was 1944 and his experiences with the Depression were still quite fresh in his mind; we were still living in genteel poverty. He could have quit his job as the vault custodian in a bank and taken a position during the war that would have utilized his talents — his skill in mathematics, for example — but he didn't want to take the risk of changing jobs. He felt that after the war he would regret it, so he stayed where he was. This meant that we really didn't have any spare money at all.
I asked him, "What would you suggest?"

He mentioned engineering, to which I replied, "I'd rather starve. If I designed anything it would fall apart." And sure enough when I took an aptitude test a year later I was advised to take up nearly anything but engineering.

Then my father suggested, "Why don't we compromise — on physics?"

Edge is pleased to bring you a conversation (and video) with Murray Gell-Mann conducted in SantaFe over the Christmas holiday in 2003 — in which he conveyed "something about his life and his attitude toward the world and toward physics."
— JB

MURRAY GELL-MANN (September 15, 1929 – May 24, 2019) was a theoretical physicist and, until his death, Robert Andrews Millikan Professor Emeritus of Theoretical Physics at the California Institute of Technology; winner of the 1969 Nobel Prize in physics; a cofounder of the Santa Fe Institute, where he is a Distinguished Fellow; a former director of the J.D. and C.T. MacArthur Foundation; one of the Global Five Hundred honored by the U.N. Environment Program; a former Citizen Regent of the Smithsonian Institution; a former member of the President's Committee of Advisors on Science and Technology; and the author of The Quark and the Jaguar: Adventures in the Simple and the Complex.

THE MAKING OF A PHYSICIST

[MURRAY GELL-MANN:]

I was born on Manhattan Island just a few weeks before the great stock market crash and I grew up there, except for a few years in the depths of the Depression, when the situation of my family became especially difficult and we couldn't afford the rents in Manhattan. Not only did the crash herald the beginning of the Depression, but the draconian National Origins Act of 1924 became fully effective in 1929. Both of these developments were bad for my father, because he ran a small language school. A German-speaking immigrant from the Austrian part of Austria-Hungary, he had learned flawless English as a young adult. Is pronunciation and grammar were perfect. You might suspect he was a foreigner only because he never made any mistakes. He tried a number of different jobs and finally achieved some modest success with his language school. Besides teaching English to immigrants, he taught German and he hired other teachers for the Romance languages. However, the combination of the Depression and the dearth of new immigrants ruined his school and we fled from the Gramercy district, where I lived when I was a little child, to the area near the Bronx Zoo. Later on we returned to Manhattan, to the Upper West Side, and I grew up there.

My father came to America in the first decade of the 20th century. He was a little over 20 at the time. He had spent a year at the University of Vienna and a year at the University of Heidelberg in Germany. He would have returned to Vienna for the third and final year of his undergraduate work, but his parents had immigrated to the U.S. and were not doing well, so they asked him to come over and help. At the time he knew very little English, but he came to Philadelphia, where he worked in an orphanage and learned English and baseball from the orphans. It's a good thing he came, since if he hadn't he would probably have been killed in the First World War.

My mother lived most of her life in New York and believed for a very long time that she was native-born. She voted in four or five presidential elections before she found out that she'd actually come over from Austria-Hungary as a baby. She had to be naturalized in a big hurry in 1940. If she hadn't become a citizen then she would have turned into an enemy alien when the United States joined the war.

My mother was very kind and nurturing, but she had somehow lost her ability to deal with anything intellectual. I don't know how that happened. When she was a high school student she had extremely good grades. Her report cards showed that she had done well in algebra and Spanish, but I don't think she could recall a single formula or a single word of Spanish when I knew her. She would have liked to go to college, but her stepfather ruled it out and said she had to work. She went to secretarial school instead and became a secretary. She was a good typist and her spelling and grammar were always excellent.

She did a very good job of taking care of the family, and was very loving. She also had the idea that I was a little bit special, and she tried very hard to get me into a private school, although my father had no interest in that whatsoever. I didn't know what was happening, but I kept having to pile blocks on top of one another in various tests at different places in New York City. I realize now, of course, that these were all attempts to get me into a private school with a full scholarship. They all failed, unfortunately, until finally a very nice music teacher named Florence Freint succeeded in getting me into Columbia Grammar School.

My brother Ben was a wonderful influence in my life. He taught me almost everything I knew when I was little. Ben and I would do all sorts of things together. He loved bird-watching and we were also interested in flowering plants, trees, butterflies, and many other things. After we moved back to Manhattan we still went up to the Bronx for some of our bird-watching because just north of the Bronx Zoo is the only remaining stretch of the hemlock forest that once covered the whole of New York. We regarded the city as a hemlock forest that had been over-logged, and so we spent some of our time in the small portion of the forest that was still preserved.

I learned a number of things relatively early. My brother taught me to read from a cracker box when I was three. We were visiting our cousins, the Walkers, and while we were sitting in the kitchen he showed me how to read the text on the cracker box. I picked up reading rather quickly after that, so I was somewhat ahead of other kids in learning.

My father and brother were both interested in how to pronounce the sounds in various languages and we all practiced. Except for German and English we didn't have them exactly right, of course, but we were close. My interest in etymologies and the relationships among languages was stimulated by one of my father's books. When I was a little child and we moved to a tiny apartment, he had to give away his library, which beforehand was very extensive. He kept a few books, though, and one of them was on Greek and Latin roots in English.

That subject really fascinated me, and I never ceased being absorbed by the relationships among languages. I'm now involved, with a number of linguists, in a project I helped to organize to explore very distant relationships among human languages. Many of the established holders of chairs in historical linguistics don't believe in investigating these distant relationships, but I strongly disagree with them. They recognize families of languages that go back something like six thousand years, for example Indo-European, Uralic, and Austronesian, but in most cases they refuse to consider larger families (I call them "superfamilies") that go back much further in time. If they were right, then the evidence for the families they do acknowledge would be marginal, but in fact that evidence is overwhelming, and therefore it makes sense to go back further and explore superfamilies.

Since the evidence for those larger groupings is naturally scarcer than it is for closer relationships, we have to be as careful and as scientific as possible.My brother was almost nine years old when I was born and, like me, was three years ahead of most other students in his school. He graduated from high school at the age of 14 and went on to City College in New York, but didn't like it very much. He wanted to spend more of his time bird-watching, so he didn't attend classes regularly and at the age of 15 became what we now call a college drop-out. This was not very common in the 1930s, and certainly not at the age of 15. He became interested in photography, and curiously enough I played a role in that, although I've never had anything to do with photography since then....

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"Every Tech Commercial"

Since we're on the topic of advertising and manipulation here's a repost from 2013 that holds up pretty well.
From College Humor:

Andreessen Horowitz: "Investing in the Podcast Ecosystem in 2019"

From A16Z:

In the world of podcasting, the flywheel is spinning: new technologies including AirPods, connected cars, and smart speakers have made it much easier for consumers to listen to audio content, which in turn creates more revenue and financial opportunity for creators, which further encourages high-quality audio content to flow into the space. There are now over 700K free podcasts available and thousands more launching each week. 

As new tech platforms hit scale, we on the consumer team have been closely watching the future of media and the technology driving it — in all forms. We’re interested in investing in the next wave of consumer products and startups coming into the ecosystem, and that includes the audio ecosystem.

Our investment philosophy is to not be too prescriptive, so we do the kind of “market map” overview below to help us have a “prepared mind” when we see new startups in the space. The below deck and commentary (with some sections redacted, of course) was presented to the extended consumer team, including general partners Connie Chan and Andrew Chen, who are investing in this space. If you’re working on anything interesting in this area, we’d love to hear from you! 

(P.S.: If you’re interested in getting a PDF version of the 68-page deck itself, you can sign up for our newsletter to get a copy.)

From niche internet community to one-third of Americans

Over the course of the last 10 years, podcasts have steadily grown from a niche community of audiobloggers distributing files over the internet, to one-third of Americans now listening monthly and a quarter listening weekly.

Americans listening weekly to podcasts grew from 7% in 2013 to 22% in 2019. 

65% of monthly podcast listeners have been listening for less than 3 years.

People are already spending a lot of time on podcasts, and it’s growing: listeners are consuming 6+ hours per week and consuming more content every year.

The demographic of podcast listeners is not your average American. Roughly half of podcast listeners make $75,000 or more in annual income; a majority have a post-secondary degree; and almost one-third have a graduate degree [source]. There’s also a gender gap with podcast listeners skewing mostly male, mirroring the gap among podcast creators as well. However, the gender gap has narrowed from a 25% gap in 2008 to 9% today.

Podcast listeners are not your typical American: they’re affluent, highly educated, and skew male.

In the years following the release of Apple’s podcast app in 2012, smartphones pulled ahead of computers for podcast consumption and have grown to become the dominant way that consumers listen to podcasts. The green line includes smart speakers, which have grown 70% year over year in terms of listening.

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"The Return of the Hidden Persuaders"

The sight of the Facebook ad salesman extolling the mindbending effects of advertising on FB to potential customers at the same time his boss Mr. Zuckerberg is on Capitol Hill denying any efficacy whatsoever in shaping public attitudes—whether by  commission of or omission of—anything on or not on his website is pretty funny.

From American Affairs Journal:

Critiques of advertising are back. Ten years ago, casual talk about how advertising influences behavior would have come across as weird and paranoid—the preserve of the online conspiracy fringe. Today it is everywhere. Leading journalistic outlets fret over something resembling mind control. Politicos talk in ominous tones of stolen elections and Manchurian candidates. And government agencies, large monopolies, and many other institutions seem to want access to our precious “data.” The new marketing technologies are the culprit, we are told. Big Data gathering, targeted advertising, GPS tracking—the robots are coming. And they are coming for nothing less than the freedom of our wills.

Scary stuff. But what is really going on? Is it all a bit overblown? Or are there even more profound social and cultural changes taking place beneath the surface?
Let us start at the beginning. Advertising is really nothing but an attempt at social engineering. It is an attempt to channel human desire and action into specific, pre-planned activities that are considered amenable to those who run the advertisements—in some cases the same people who run our society. So it should not be particularly surprising that advertisers often venture into the mystical realm of social psychology seeking illumination. There they find, basically, two sets of tools for manipulating people: psychodynamics and behaviorism.

Let us start with the former. It is distinctly German in flavor. In the work of someone like the nineteenth-century psychodynamic pioneer Wilhelm Wundt it is shot through with Kantian transcendentalism and Hegelian idealism. In the more popular work of Sigmund Freud it is laced with Nietzsche’s philosophy of the will. Psychodynamics is a discipline obsessed with ghostly presences and melancholy absences. It tells us that we want something—a new car, a certain lover, a ham sandwich—because the object is inhabited by the spectral presence of something that we remember from long ago, something that receded from our grasp and left us with a gaping void into which our desires flow. The “trick” of stimulating desire, a psychodynamist will tell you, is to call the ghosts to the surface and then fill the gap between fantasy and reality with a flashy object.

The most obvious and vulgar example of this was when Freud’s own nephew—Edward Bernays, the founder of modern public relations—tried to flog cigarettes to women as phallus substitutes. The story goes like this: During the 1920s the suffragette movement was ascendant. Young women in the Western world were marching in order to secure the vote. Bernays consulted Freud’s colleague and translator A. A. Brill. Here is what Brill reportedly said:

Smoking is a sublimation of oral eroticism; holding a cigarette in the mouth excites the oral zone. It is perfectly normal for women to want to smoke cigarettes. . . . But today the emancipation of women has suppressed many of their feminine desires. More women now do the same work as men do. Many women bear no children; those who do bear have fewer children. Feminine traits are masked. Cigarettes, which are equated with men, become torches of freedom.¹

Bernays then took the phrase “torches of freedom” and turned it into a public relations campaign. He hired a group of women to march in a 1929 Easter Sunday parade holding their torches of freedom for the entire world to see.

Bernays’s little stunt probably did quite a bit to normalize smoking among women. But did it really have anything to do with “oral erotic zones”? Probably not. Yet Brill was largely correct to observe that cigarettes were seen as the exclusive domain of one sex. And Bernays’s strategy of piggybacking on a movement for equal rights to sell cigarettes was no doubt clever. This had less to do with “oral erotic zones” than it had to do with social engineering—tobacco companies wanted a larger market, and smoking equality between the sexes expanded their market. So they hitched themselves to the equality bandwagon to sell their cigarettes. Today we see advertisers trying to attach their brands to fashionable political causes all the time—from massive corporate sponsorship of pride parades, to Budweiser’s “America” cans in 2016, to Pepsi’s widely ridiculed ad featuring Black Lives Matter protest imagery.

Politicians adopted these techniques early on. Bernays himself advised President Calvin Coolidge to meet with celebrities in the White House. Coolidge was seen as a rather dull man, so Bernays set up “pancake breakfasts” between him and popular Broadway stars. He then fed stories to the press with witty headlines. One such story mentioned that one of the stars had “almost made Coolidge laugh.” Bernays was a master of seamlessly eroding the boundaries between corporate power, the press, and political power. All three were corralled into a single arena and made to sing from the same hymn sheet. In many ways, the world we live in today is the one that Bernays built.

Behaviorist Advertising
But let us now turn to the second influential theory. Behaviorism is a lot cruder than psychodynamics. If psychodynamic advertising is like a mysterious foreigner calling late at night to read you poetry, behaviorist advertising is more like a robocaller that interrupts your microwave dinner. Behaviorism is all about repetition. In its modern form it was born out of the personal hell of a strange, obsessive man interacting for long periods of time with caged pigeons.

Burrhus Frederic Skinner, then a graduate student in psychology at Harvard, created what he called an “operant conditioning chamber.” The device itself was not quite as interesting as the moniker makes it sound. In fact, the operant conditioning chamber was just a box with some lights, a speaker, a food dispenser, a mildly electrified floor, and some levers to activate the latter two features. Into the “Skinner box,” as it came to be known, went a pigeon—or perhaps a rat, if the incessant cooing was getting on Skinner’s nerves.

What Skinner found was that the creature tended to learn from its mistakes. Eventually it realized that if it hit the lever connected to the electricity it would get a shock, and if it hit the lever connected to the food it would get a tasty treat. Needless to say, the poor pigeon learned to avoid the shock lever and peck at the food lever when it was hungry. From this “experiment,” Skinner began to construct a grand theory of human behavior. He argued that human behavior is basically “conditioned” by stimulus and response, and that the pigeon shocked into avoiding the wrong lever was basically a model for us all. Others were less enthusiastic, however. Linguist Noam Chomsky wrote:

Skinner confuses “science” with terminology. He apparently believes that if he rephrases commonplace “mentalistic” expressions with terminology derived from the laboratory study of behavior, but deprived of whatever content this terminology has within this discipline, then he has achieved a scientific analysis of behavior. It would be hard to conceive of a more striking failure to comprehend even the rudiments of scientific thinking.²

But while Chomsky was dismissive of the scientific content of Skinner’s theories, he was quick to point out that they contained very strong and rather aggressive prescriptions for social engineering. “The libertarians and humanists whom Skinner scorns object to totalitarianism out of respect for freedom and dignity,” wrote Chomsky. “But, Skinner argues, these notions are merely the residue of traditional mystical beliefs and must be replaced by the stern scientific notions of behavioral analysis.”³ The psychodynamists tried to bend the whims and desires of the population to their own ends; Skinner wanted to control the popular will through intrusive intervention....

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