👋 ASB Partners Nuggets 5.30.25
This is a short weekly email that covers a few things I’ve found interesting during the week.
Interesting Links/Reads
Many links are sourced from Marginal Revolution (bold and italics are my own to highlight what I found particularly interesting)
The Bank of Starbucks by Alex Tabarrok May 28, 2025 at 7:18 am in Economics Food and Drink
Connor Tabarrok points out that Starbucks is also a bit of a bank:
In 2011, Starbucks rolled out the ability to load money onto a virtual card via their mobile app. purchases made with these pre-loaded dollars earned extra rewards points, which could eventually be redeemed for free drinks. According to their quarterly report from this March, through the app pre-payment system and physical gift cards, Starbucks owes almost $2 billion in coffee to it’s customers.
…The company can treat this money as a 0% interest loan, and with about 10% of funds eventually being forgotten, it’s actually a negative interest loan.
Starbucks can make money on the float and it makes more money as interest rates rise. At $2 billion and 4% they can earn about $80 million annually on the float. Moreover, breakage (some money on the cards is never redeemed) is running at about 10% so that’s another $200 million a year for a grand total of $280 million or a little over 5% of the $5 billion in operating profit. Not a game changer but also not bad for free money.
As interest rates rise, the value to Starbucks of pre-loaded cards increases. So does the cost to users but I suspect supply incentives will dominate here so you can expect to see Starbuck’s pushing these cards.
This practice has become even more prevalent than it was when this was originally posted in January, with AA, Delta, and other airlines now doing this as well. Be sure to always search for 1 or 2 passengers to see the price difference!
Podcast/Videos
I binged listened to a lot of Tyler Cowan this week…
COWEN: If so much of labor and capital is going to be revalued, is quality land the best investment? Because I don’t know which firms will benefit the most. You might bet on AI firms — sure, that’s kind of easy, though it’ll be priced in. But the other firms, who knows? So, buy land in Los Angeles, say.
CLARK: I think that electricity and the production of electricity is going to be of tremendous value.
COWEN: What’s the thing you would buy?
CLARK: I think you buy components that go into things like gas turbines and other things which are the base of the technology tree for generating electricity, of which you know people are going to want to do lots of. You could buy a basket of different components here. I would expect that to be of durable, meaningful value.
COWEN: But as you say in your book, the neurosurgeons with less than five years’ experience — on average, they’re not as good. If we shorten the earlier process, you’ll end up with many more neurosurgeons who have, say, 11 years of experience. If someone tells me, “Your surgeon — he raced through everything in six years, but he has 13 years’ experience doing this operation, and here’s his track record,” I’m going to be just delighted. I’m not going to say I want someone who went through 16 years — some of which was hoop jumping — and he has only four years of doing this operation.
Really, neurosurgeons know who are the top neurosurgeons doing a particular operation because those are the people who write the most articles, give the most lectures, do the most volume. They’re people that are known to be very, very good. It can be very hard for a consumer to know that.
What I found is, most consumers are so awed by the fact that you are a brain surgeon, that you’ve gone through this training, that they take what most surgeons tell them at face value. I happen to practice in New York City, where everyone gets second, third, fourth opinions, so people are a little more critical about their physicians and do more research. I think it is very important to get second, third opinions and speak to people in the medical profession.
COWEN: Why do so many neurosurgeons get divorced?
SCHWARTZ: I think it’s the same thing. When you have a career where not only are you out of the house for a long time, and you get called out of the house at awkward times, so that could be on Valentine’s Day, that could be at 2:00 in the morning. But even when you’re there, even when you’re at home, there’s part of you that’s always absent.
There are famous cases, for example, I read about Dostoevsky, who was an epileptic. He used to experience the presence of God when he had a seizure. He was 100 percent certain that God exists, and he would have a religious experience associated with that seizure. That’s been well-described. Then, when you treat them, either with medicine or surgery, and you cure them of their epilepsy, their religious experiences go away.
I’m not trying to diminish religious experiences per se, but the fact that you can alter someone’s beliefs and their religious experiences by altering the brain tells us a lot about religion and about the human mind and the human brain.
COWEN: Oh, sure, but I’m struck by how small many companies can become. Midjourney, which you’re familiar with, at the peak of its innovation was eight people. That was not mainly a story about consultants. Sam Altman says it will be possible to have billion-dollar companies run by one person. I suspect that’s two or three people, but nonetheless, that seems not so far off.
It seems to me, there really ought to be significant parts of the government — by no means all — where you could have a much smaller number of people directing the AIs. It would be the same people at the top giving the orders as today, more or less, and just a lot fewer staff. I don’t see how that can’t be the case.
There was this incredible franchising set up in England. It was like a McDonald’s, but to get variolated. There were these entrepreneurs who advertised themselves as having lower-risk ways of getting immunized and cheaper ways of getting immunized. There was this famous family of the Suttons that started a franchise in 18th-century England in the 1750s. Then they spread into the continent of Europe and actually into North America.
I hope you enjoyed it.
Adam
You're amazing!