What we’re reading (1/23)
“S&P 500 Hits Another High” (Wall Street Journal). “Overall, shares of big U.S. companies edged higher, with the S&P 500 adding 0.3%. The tech-heavy Nasdaq Composite gained 0.4%. The Dow Jones Industrial Average slipped 0.3%, or about 96 points, pulling back after closing above 38000 for the first time Monday. The blue-chip index was stung by the decline in 3M as well as pullbacks in shares of Goldman Sachs Group and Home Depot.”
“A Sentimental View Of The Stock Market” (Paul Krugman). “[W]hat should we make of the surge in consumer sentiment? On one hand, it makes a lot of sense given the reality of an economy with low unemployment and inflation. On the other hand, the timing may have been driven by a financial indicator most Americans really should be ignoring.”
“Mass Layoffs Hit LA Times, California’s Biggest Newspaper” (SFGate). “The Los Angeles Times, the largest newspaper in California and one of the biggest by circulation in the entire United States, was hit with a heavy round of layoffs Tuesday. The move to terminate more than 110 positions within the company has been widely rumored for several weeks — even prompting a one-day walkout protest from the newsroom last week — but the scale of the layoffs, and when those layoffs would happen, was not widely known until Tuesday morning.”
“What Do Shareholders Want? Consumer Welfare And The Objective Of The Firm” (Keith Marzilli Ericson). “Shareholders want a firm's objective function to place some weight on consumer welfare, motivated by both self-interested and altruistic motivations. Firms have a unique technology for improving consumer welfare: lowering inefficient price markups, which increases consumer welfare more than it lowers profits. Optimal pricing formulas can be adapted to account for shareholders' marginal rate of substitution between profits and consumer welfare. Calibrations from preference parameters show many shareholders should place non-trivial weights on consumer welfare. A survey experiment on a representative sample elicits how shareholders would vote on resolutions giving strategic guidance to firms on what objective to pursue. Only 7% would vote for pure profit maximization. The median individual is indifferent between $0.44 in profits or $1 in consumer surplus, with those owning stocks preferring a lower weight on consumer welfare than non-stockholders.”
“Copper, Abundance, And Scarcity” (Arnold King). “The Malthusian argument is that copper prices should be headed up, because copper is an essential component in electricity transmission. The goal to “electrify everything” is going to make copper expensive. The Simonian argument (due to Julian Simon) is that human ingenuity is the ultimate resource. We may be able to find more copper somewhere beneath the earth. We may find a cheap substitute for copper. We may find a way to get more electricity transmission out of a given amount of copper. The Hotelling-Kling argument is that regardless of whether Malthus or Simon is correct, the futures price of copper already reflects this. There is no reason for me to bet against the futures market, since I have no superior information about the outlook for supply and demand for copper.”
