Yellen’s No Show at the House Small Business Hearing Signals Keynes Is Back

Both sides of the political aisles were caught off guard when the House Small Business Committee hearing convened on the 25th of May 2021 to review the progress of the small business Covid relief programs under the $900 billion Covid-19 relief bill was attended only by the Small Business Administrator Isabel Guzman. The Treasury Secretary Janet Yellen was a prominent absentee, although she was required by law to do so.

This could be a minor oversight, a bureaucratic quirk, a miss, something you may be tempted to ignore. Who doesn’t take a chance to skip a meeting when there are other more pressing affairs to attend? But this is exactly the problem here: why is it a program of $900b aimed at assisting small business not important? Maybe Yellen was not enthused about a program originated by the previous administration. But it may also be Yellen is not interested in small business that much.

It is perhaps too early to conclude with confidence that Yellen did not attend the hearing because the small business has lower priority to her, but the size of the program is too large not to bear some significance. The Biden administration proposed a $2.3 trillion infrastructure program, later downsized to $1.7 trillion, aimed at funding roads, bridges and infrastructure projects, broadband internet, and manufacturing, workforce development and R&D.

Yes, it is a bit of a stretch to use this absence as a proof that Jane Yellen is not interested in small business, but if you look at her academic background, her stated position and priorities during her leadership role at the top three most powerful economic bodies in United States and recent policy announcements as the US Secretary of Treasury, the small business is a glaring miss, a dwarf sitting between two giants: labour and large corporations.

Labour is one of the persistent areas of research and application during Yellen’s career as an academic and executive economist. The key tenet of her work is that wage is an important element in individual’s (with social implications at large) motivation leading to higher employment and ultimately to prosperity (The Fair Wage-Effort Hypothesis and Unemployment). This belief is reflected in her view that stimulus should be maintained during difficult times and a while after to help society transition from periods of crisis to stability. 

Yellen’s academic background is described often as “very” Keynesian, as someone who sees the role of government as a principal actor in the nation’s economy, especially in difficult time. All these instruments of intervention and control are aligned with her goal of supporting the working class. 

Meanwhile, calls for raising the minimum wage makes the life of the small business even more difficult. The increase global minimum tax will result in an increase in prices by global corporations which will put extra pressure on small businesses.

The Biden’s administration tax reform is designed accordingly: tax large corporations and wealthy individuals to support wage increases and create jobs through large government funded infrastructure projects. There is little or nothing at all in for the small business as that doesn’t fit the mould of the big Keynesian framework. The recently announced historic G7 agreement on global corporate taxation is in fact a disguised partnership between big business and governments, a way of streamlining income for governments while giving certainty to corporations. Yellen was a key champion behind this deal “driving a hard bargain” to achieve the final result for the benefit of the “working class people in the US and around the globe”. It sounds like punishment at times to “bring justice”, but it isn’t. The large corporations even welcome it because they can now avoid patchy harassment in separate European countries. They very well aware of the pricing power they possess.

We need to wait and see how economic policies evolve in the near term in the US and Europe before coming to a definite conclusion. Small business is the main employer and it is a key source of innovation. Non-friendly policies will be felt in time in a not so friendly way.

Do Not Stand Still: Lesson from an Optical Illusion Trick

There is an interesting puzzle that occasionally is being circulated around. Click on this picture to see how it works. It’s simple, but, like all illusions of this type, surprising.

ImageIllusions like this just prove how complex, amazing and dilligent our brain is. It doesn’t just work to give us information about the environment, it works even harder to improve itself and do the most with the hardware the nature bestowed upon us.

This is an optical illusion caused by the brain using its computational abilities to manipulate the sensorial data. It does this on many occasions, for good reason, otherwise we would go nuts. It puts things into perspective, literally, to help us cope with the external world.

Disobey the Instruction and See

Disobey the instruction and instead of staring at the dot for ten seconds just let you eyes roam skip around and hit the dot occasionally.  This time when the picture transitions to the white background no distortion occurs. Why is that? The abscence of fabricated reality is caused by the brain not being able find a persistent pattern that can be classified as a candidate for process automation.

An easy way to explain this is to use the Japanese cartoons as a proxy for how this works. To make the production as effective as possible the Japanese cartoon designers keep most of the animated frames static with the exception of the essential details that must change in synchronisation with the sound to create maximum cinematic impact. Very often these details are the mouth, the eyes, the hands and the main moving objects (bullets, rays, guns, etc.). Remember Heidi and her crooked mouth?  Unless you want to notice this, if you follow the story the static frames don’t even bother you.  The brain does the same: it tries to focus on what is new and keeps the static scene as a background to free up working memory as much as possible. It also does this to automate information processing involving subconscious thinking. This is why often you are not even aware of these illusions unless you set up traps like this puzzle.

Do Not Stand Still

In a bigger scheme of things this demonstrates how difficult is to adopt a set of contradictory skills and keep them in balance. On one hand organising information processes in detail is helpful, on the other hand it can be misleading because by the time the organisation is complete, the data source already changed and the organisation is not suitable anymore.  You want to be thorough, but not slow. You want to be fast, but not superficial.

The brain uses the same principle of efficiency in all its operational aspects. This is how habits are formed.  Repeated actions signal the brain it is time to push the memory of the related information into the basal ganglia and let the subconscious deal with the execution of these routines.  On many occasions we just do things without even knowing.

Could it be that we have similar illusions in other areas of our lives?  What happens when we work on something fixated on a particular detail? Let’s take politics as an example. If a political party treats an aspect of our society as a red dot and frames it in vivid colours making everyone getting obsessed about that, how long does it take the audience to adopt the new colours and not even notice it is in fact a simple black on white scenario? Or the way an organisation works: environmental change occurring around an official red dot and no one sees the real change until late. Or late say, someone makes a vaccine rare unfortunate occurrence a red dot that gets everyone’s attention, while vastly more people suffer from not using the vaccine.

It can happen in the context of a group of friends, larger social groups, cities, etc.

Or the economy. Follow the news flow in financial markets and you see in a year a long string of red dots occurring on issues that trigger a sharp reaction from the markets, or a sub group of market participants, only to disappear in a week or two as if nothing happened. But boy, wasn’t that issue so credible even after (or more importantly AFTER, allowing those who see beyond the focal point to take advantage of the illusion) the red dot stopped flashing like mad?

Keep looking, and when you see a red dot refuse to get hypnotised. Consider other points of reference. Move your focus around. By all means notice the red dot, but do not submit yourself entirely to its magnetic eye.

Facebook Is Becoming A Virtual Phone Company

Facebook Messenger now makes up 10% of global mobile Voice Over IP calls. Because the audio quality of mobile VOIP calls are higher than the quality of the standard phone calls, considering that these calls are free and accessible, the use of Facebook Messenger will continue to go up. Facebook will also add free mobile VOIP feature to WhatsApp.

Two years ago, I anticipated Facebook will become a communications medium in which your Facebook ID is your de facto phone number. I admit that while Facebook Home didn’t succeed at all, with 600 million Messenger users and 800 million WhatsApp users the mobile VOIP call feature could have a global impact on the telecommunication services.

The phone companies will have to rely increasingly on charging for data usage rather than for the traditional voice calls.  Even that avenue of profits may become problematic with Google, Facebook, Elon Musk and Richard Branson (through their new satelite ventures) aiming to become global ISPs for over 50% of world population. Telecommunications companies will have to adapt and figure out new ways of generating income.

Eclipse: Solar Energy’s Achilles Heel

Europe power grid system was put to the test by the recent solar eclipse that swept the continent. The solar power installed base generates over 89GW, of which more than half is sourced by Germany with a capacity of 39GW. The German grid operators managed the rapid transition from full power to a low level caused by the eclipse and back to normal levels by rebalancing the power system using traditional power sources and reserves. Overall the European grid was back to normal without any issues. This event though is warning us the solar power system has a major weakness.  If an event causes a significant reduction in solar exposure, the power grid relying on this type of source will be affected severely. For instance, a massive volcanic eruption could cloud vast areas of land for a long time.  Solar power is an excellent source of energy, but it needs a good backup plan. Europe’s Power Grid Passes Eclipse Test; No problem meeting electricity demand, despite large amount of solar capacity.

The Clash of Two Shanghai Secrets

Thomas Friedman wrote an op-ed article in the New York Times he probably wished it never happened. “The Shanghai Secret“, as the op-ed is titled, received a blistering response from Ann Qiu. It’s not like Thomas Friedman said anything outrageous. By contrary, the article is as inoffensive as it can be, similar to many others commenting on China’s extraordinary effort to achieve international reputation in education. Anyone following the PISA rankings knows the Shanghai region is included in this list as a country. The world was surprised to see it topped the PISA score ranking in 2009.

After visiting Shanghai’s Qiangwei Primary School, Thomas Friedman declares he found the secret of Shanghai’s schooling performance: “a deep commitment to teacher training, peer-to-peer learning and constant professional development, a deep involvement of parents in their children’s learning, an insistence by the school’s leadership on the highest standards and a culture that prizes education and respects teachers”. One could think he may have stirred the ire of some American or European teachers who work very hard doing exactly that, but surprisingly it was a Chines educator who took offense of the comments made in this article. Ann Qiu decided to write a replay when she read “what Mr Friedman said to the American people through this very influential newspaper, I couldn’t help feeling upset”. She goes on to say “an American who has interests in China at least should have some basic understanding of Chinese contemporary history. To me, Mr Friedman is not such a person”. That’s harsh. The game is on!

The anger stems from a personal experience shared by many parents in China. There are two frustrations that are brewing in this reply: firstly, the students are homework force-fed, they rote learn and they have to pass standardised tests as an absolute measure of success in education, and secondly, the parents are responsible for the homework, working long hours as if they have a second job, unpaid, mind you.

While Thomas Friedman quotes a Chinese teacher who said with pride that his job also includes “parent training”, Ann Qiu almost explodes at that thought: “Mr Friedman was applauding a deep involvement of parents in their children’s learning, Chines parents, in fact feel kidnapped by it. […]. Every afternoon, after school time, before dinner time, on a mother or father’s mobile phone, a homework list is sent by the teachers who often are in charge of three major subjects: Chinese, math and English. […]. Through these tools, teachers pass their duties to parents because it then becomes the parents’ job to make sure that their children complete the homework.”

This reminded me of a documentary I watched in the early nineties about the education system in Japan where students and parents were under relentless pressure to perform and produce good test results. Young students from primary to secondary school levels would go to coaching colleges after school and then continue to study until late night with just a few hours to sleep before going to school next day. Japan invested in education with a clear goal of creating a skilled and disciplined workforce to establish itself as a global economic leader at any cost. It seems China is following the same steps Japan took a few decades ago.