The Imminent Capitalist Reckoning

Have you ever heard of the economist William Baumol? Probably not, because economists are almost always boring and often little more than hacks that rich people invest in to help them save money on taxes. But Baumol appears to be one of the rare economists to stumble upon a genuine insight. One of his ideas is known as Baumol’s cost disease (always name your smart discoveries after yourself), which essentially states that if large capital investments are used to automate the mass production of goods, the price of those goods will fall and the costs of services – i.e., tasks that humans must in large part perform – will rise as a result. Because wages for workers benefiting from increasingly automated, increasingly efficient, mass-production will rise, these workers will be more able and willing to pay higher prices for services. When this happens, prices and wages for service workers will rise. Thus, even though Beethoven’s Fifth remains Beethoven’s Fifth whether it be played in the 18th century or the 23rd, God willing, the players and conductors in the 23rd will be payed much more than the player and conductors were payed in the 18th. And, since the playing of Beethoven’s Fifth can’t be automated the way manufacturing a diaper can be, the cost of the Fifth, relative to the cost of the diaper, will increase.

Put another way, as the ability of capital to mass produce dead objects/goods increases, the relative price of these dead objects will decrease against that which cannot be mass-produced – again, i.e., tasks that humans must in large part perform.

One more try: as people experience income growth and can purchase many goods with less money, they will pay more for things that are less easily automated, aka people-performed work aka services. If you still don’t understand at this point you should probably stop reading and make loud fun of me for being a bad writer and explainer.

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Yes, This One Matters


Ever since his election in March of 2013, Pope Francis has made big headlines all over the world. In both substance and form, he has demonstrated a marked shift from the personalities and policies of the past two popes – John Paul II and Benedict XVI. For conservatives this has been concerning, for liberals, thrilling.

Regardless of one’s political, religious, and general cultural opinions, it is essential to acknowledge that the Holy Catholic Church is an ingenious institution. The most important criterium for judging the effectiveness of an institution are 1) how long it has lasted, and 2) the loudness of its voice in the present. On both fronts, the Church gets an A-plus.

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An NBA Franchise Bubble? Ctd.


A few days ago a commenter (and friend) wrote a response to the post regarding the $2 billion sale of the Los Angeles Clippers. Analyzing the sale, I felt that it may have been excessive, given that the Clippers revenues for the last year were $164.9 million. The $2 billion price tag was 12 times yearly revenues and no professional sports franchise had ever sold for more than six times yearly revenues before. Because of this, and other NBA franchise sales in recent years, I floated the notion that we may be seeing a bubble of some kind in the valuation of NBA franchises. The commenter (and friend) countered with the above chart, which shows that, for S&P 500 companies, a price-to-earnings ratio of 12-to-one is average, even low. In fact the current S&P ratio as I type is figured to be 19.17, far higher than 12. The implications of this are that, in comparison, the Clippers were not sold at an outrageously high price and the market rate for NBA franchises is more or less reasonable.

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Just Don’t Look

It can be tough to condemn things nowadays. While it’s important to criticize when called for, sometimes the attention that follows is greater than it would have been otherwise. People may think something is bad because of criticism, but it was because of the criticism that they took note of it in the first place. Calling something out gives it a certain status, when otherwise it may have disappeared or been far less impactful. It’s like playing a game where the object is to not think about an elephant. Without the framing you win, but as soon as you tell someone not to think about an elephant they’re thinking about it. It seems Republicans campaigning against Obamacare have found this out the hard way. A Brookings Institution researcher gives us some data:

His analysis, which he detailed in a blog post, compared states’ per-capita ad spending with their enrollment rates, and found that it was often the case that the more money spent on anti-ACA ads, the more Americans signed up for coverage—a trend made more impressive by the fact that, in the run-up to this fall’s midterm elections, the advertising budget of the ACA’s opponents was about 15 times the size of that of the law’s supporters.


“The first one is that with the negative ads, citizens’ awareness about this subsidized service increases, and the more ads they see, the more they know that such a service exists. … The other theory is that citizens who were exposed to an overwhelming number of ads about Obamacare are more likely to believe that this service is going to be repealed by the Congress in the near future … [so] he or she will have a higher willingness to go and take advantage of this one-time opportunity before it goes away.”

This connects with some of the problems I was discussing yesterday with new media models. Most sites sell ads based on visitors, so merely by looking at the site you’re contributing, even if you’re looking at to write about how it’s problematic. Publishing a post critical of those sites also gives them more attention. It’s a catch-22 that’s tough to resolve.

New Media Update

Two stories I’ve read in the past few days give interesting indications of where new media may be headed. One of them, by Tom Schreier and published a few days ago on, is a first-person account of a young writer’s struggles to get ahead at Bleacher Report, the crowd-written online sports site. The other is a Lizzie Widdicombe New Yorker piece from almost a year ago about the women’s website, whose founder was Bryan Goldberg, also a Bleacher Report founder. The site hires a lot of young women and churns out content, a quick look at their website demonstrates that you have to scroll down for quite a while to get to anything produced more than 24 hours ago.

The model of both sites is similar in that they both enlist young, green reporters to write about what they like. With Bleacher Report it’s their favorite sports teams and with Bustle it’s current world events, fashion, pop culture, and pretty much whatever interests the writers on a particular day. The idea is that people want to read writers who sound like them and lots of regular people will want to write about things that they care about. From a reader’s standpoint it’s a quick-and-easy way to stay in the loop and both sites have provided good opportunities for people to take their passions to the next level. From a business standpoint it’s easy to organize and execute because it’s low cost. And, with sophisticated techniques to up the page-views to increase ad revenue, profitable. However, close readings of each of these two pieces inspire concern. Take this quote from the New Yorker story:

A well-researched exposé, such as the one Sports Illustrated recently ran about N.C.A.A. violations by the Oklahoma State football team, may take many months of work from a highly paid reporter and editor. But, in the end, Morrissey said, “it yields the same revenue as a ‘25 Sexiest Female Athletes Who Can Kick Your Ass’ post, which costs, like, two hundred dollars.”

And this one from Deadspin:

In my three years at Bleacher Report, I covered the San Jose Sharks while studying in the Bay Area, and the Twins, Wild, Timberwolves, and Vikings upon returning home to Minnesota. I wrote over 500 articles, generated nearly three million page views, and received $200 for my services.

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Marketization vs. Privatization

The latest London Review of Books has a review of a new book-length essay about British modern history. Overall it’s dense and audience specific and not really worth reading, but it does make a fantastic distinction that should be remembered:

Marketisation – the introduction of ‘market mechanisms and market norms into activities hitherto run on non-market lines’ – is, he thinks, more insidious than privatisation: it’s ‘a coherent programme aimed at radical social transformation’. Once marketisation is underway, most human activity – manufacture, agriculture, energy; statecraft, education, health and law; publishing, curating, leisure and affective life itself – is redefined, its self-descriptions colonised and its intrinsic values overwhelmed. There is now only one way to speak, and one set of standards – choice, freedom, the individual – which have little to do with ‘duty’ or any of Marquand’s sunken treasure. In due course the public realm gives way entirely to a ‘market realm’ and eventually to a ‘market society’.

This is opposed to privatization, which is the institutional transfer of ownership from public to private stakeholders. An example would be if, tomorrow, Congress and the President transferred all publicly run schools in the country to private control. Marketization (as defined above) on the other hand, is a much more subtle, but much more powerful phenomenon. While privatization refers to a specific event that can be tangibly measured and evaluated and is not necessarily indicative of widespread transformation, marketization deeply effects decision-making at every level of society. It is the incorporation of certain values into one’s thought process, often without the person’s knowledge or conscious assent. It’s not a description of any one specific action, but a systemic change that effects everything in the future. Above it’s described as an insidious cultural development that has poisoned all levels of British life. Who knows if this is really true, but it’s a sobering thought. Economic logic at its worst is a simplified kind of Social Darwinism – the idea that success is earned with inherent or developed scientific superiority, that, according to evolutionary logic, I’m meant to survive and you’re not so that’s justification enough. It would be a shame if that calculus were brought to bear on all aspects of life.

An NBA Franchise Bubble?

Excellent reporting from’s Ramona Shelburne gives us new numbers on the sale of the Los Angeles Clippers. Currently former/current owner Donald Sterling is contesting his wife’s sale of the team to former Microsoft CEO Steve Ballmer for $2 billion, saying that the team is legally his by right and he is being defrauded. These figures came from Bank of America people and were given during the court proceedings:

The book, called “Project Claret” so as not to give away on the cover sheet that these numbers are indeed the financials of the Clippers, reveals that the team is projected to finish this season with $62.3 million in revenues from ticket sales, $25.8 million from its local cable contract and $24.1 million in additional team revenue. The Clippers are also projected to receive $52.7 million on the season in shared national league revenue, according to the document. After taking away player payroll costs, total operating revenue for the 2013-14 season is projected to wind up at $100 million.

Without player costs, the team revenue totals $164.9 million. Let’s back up a moment and remind ourselves that the Clippers sold for $2 billion. That’s 12 times the revenues from the last year. What? Why would you buy something for 12 times more than it made last year?

“No team in the history of sports has sold for six times total revenues, so that should give you an idea of how crazy this purchase price is,” said a sports banker, who was not involved in this transaction.

Even according to Bank of America, no team has been purchased for more than five times its total revenues. Before the bidding commenced, Bank of America valued the Clippers between $1 billion and $1.3 billion dollars, double the $550 million sale price of the Milwaukee Bucks, which set the league record for a sale price just months before. The document cites a five-year mean of teams that have been purchased during that time of a sales price of 3.4 times total revenue.

Bank of America people went on and on at the trial about how the price was so much higher than they ever expected and that this sale should definitely not be rescinded because the Clippers (and by extension the NBA) would never get a better offer than this. Of course in large part these things were said to convince the judge not to return control of the team to Sterling, but there has to be at least some validity to their claims. To me it’s concerning. Yes we know that the popularity of the NBA has increased a ton the last five years and there’s a huge new TV deal coming for the 2016-2017 season, but we have to wonder if it’s really worth paying 12 times the yearly revenue of a team for ownership. The Milwaukee Bucks just got $550 million, which is also striking considering that the Hornets/Bobcats (in a similar size market) were bought for a paltry $275 million just four years ago.

The value of NBA franchises is increasing at a massive rate, and while that’s great for owners, it could spell trouble for the overall business model. Even after projecting the Clippers increased revenues from the new TV deal, Ballmer’s price tag is still more than seven times greater. It feels like a bubble to me. People think these franchises will be worth it and, in a way, I hope they’re right because it’ll be good for the NBA. But I’m skeptical.