330 (15 August 2018)

Welcome to week 330!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles might be found by an Internet title search.

Please let me know if you have questions or comments.

(8 August 2018): Why ‘Fred’ Is the Best Friend of Economics WritersThe New York Times

********This article is an interview of sorts, by Neil Irwin, who is an economics writer for the NYT, with himself.  It largely consists of a discussion of some of the tried-and-true tools that he uses as a reporter.  He tends to use single-purpose devices rather than “Swiss Army Knives” and chooses to stay back from the technological frontier, preferring to let others to find tools that work well (and don’t).  That is the first part of the article.  The second part, which is what shows up in the title, is ’Fred’, which stands for Federal Reserve Economic Data, which is maintained by the Federal Reserve Bank of St. Louis.  As he notes, Fred “allows you to use a single interface to pull, at last count, 509,000 different data series from 87 different sources of economic and financial data.  A big part of the advantage is simply that once you’re familiar with the interface, which is intuitive, you don’t have to relearn the data retrieval tool for each statistical agency every time.”  Irwin goes on to write, “I generally use Microsoft Excel for data analysis, which is powerful enough to do most of the stuff I know how to do on my own.”  Otherwise, he brings in a colleague to deal with more sophisticated work.

(10 August 2018): In Times of Trade War, Companies Get Creative to Avoid TariffsBloomberg.com

——–“Facing the barrage of President Donald Trump’s tariffs, Steve Katz is ducking for cover in the trade-war version of a demilitarized zone.  Katz manages a plant at United Chemi-Con in Lansing, North Carolina, a village of about 150 people . . . The facility . . . is covered by a foreign-trade zone based in Greensboro.  Trade zones are areas in or near ports of entry under U.S. Customs and Border Protection supervision that are generally considered outside of CBP territory.  With the blessing of the U.S. government, companies can import goods into the zone with reduced duties on a case-by-case basis. . . . To avoid U.S. tariffs on imported aluminum from Japan, Katz secured U.S. Customs approval to alter the activated area of the trade zone to include a shipping dock for exports.  The company is also hoping to designate a new trade zone around its warehouse in California to avoid tariffs on Chinese imports sent outside the U.S.”  Katz estimates that it cost the firm about $20,000 to alter the activated trade zone in North Carolina.

********As the article notes, this is a form of “tariff engineering” that is making a comeback as the U.S. moves away from the trade liberalization that has been underway almost continuously since the Reagan administration.  A three-page note provides additional information about the history and methods of tariff engineering.

(11 August 2018):De Tocqueville and the French exceptionThe Economist

********This is the second of six Philosophy Briefs on liberalism’s greatest thinkers.  Tocqueville is almost universally known for Democracy in America (1835-40) but The Old Regime and the French Revolution (1856) is also essential for understanding this “most unusual member of the liberal pantheon”—a proud member of the French aristocracy.  Tocqueville “believed that liberal optimism needs to be served with a side-order of pessimism.  Far from being automatic, progress depends on wise government and sensible policy.”  John Stuart Mill, in his Autobiography, “thanked Tocqueville for sharpening his insight that government by the majority might hinder idiosyncratic intellectuals.”  Thus Mill’s notion of the “tyranny of the majority” seems to owe a good deal to Tocqueville.

(12 August 2018):Business Book of the Year 2018—the longlistThe Financial Times

——–“The ups and downs of capitalism—past, present and future—are addressed by many of the books in contention for this year’s Financial Times and McKinsey Business Book of the Year Award.  The 15 titles on the longlist for the £30,000 prize include the forthcoming Capitalism in America, a sweeping and entertaining history of US economics and business by Alan Greenspan, former chairman of the US Federal Reserve, and Adrian Wooldridge [of The Economist]. . . . The award, now in its 14th year, will go to the ‘most compelling and enjoyable’ business book from the list.  Judges will select up to six finalists and announce the shortlist on September 14. . . . Last year’s prize went to Amy Goldstein for Janesville, her deeply reported book about the impact on a Wisconsin community after the closure of a General Motors assembly plant.”

********The article includes images and blurbs for each of the 15 finalists.  In some ways I am most curious about Bad Blood: Secrets and Lies in a Silicon Valley Startup, “John Carreyrou’s tale of the rise and fall of Theranos, the blood-testing  firm founded by Elizabeth Holmes.”  Many, many really smart and respected people were taken in by Theranos and it would be useful to know how this came to pass.  Adam Tooze’s book Crashed, an “exhaustive 700-page analysis of the global financial crisis, a decade on” also makes the list.  Tooze points out that “the crisis laid the ground for the populist backlash obvious in the 2016 vote for Brexit in the UK and the election of Donald Trump in the US.”  One might add, I suspect, the rise of the right in much of the EU.

(12 August 2018):Americans Own Less Stuff, and That’s Reason to Be NervousBloomberg.com

——–[Bloomberg Opinion by economist Tyler Cowen of George Mason University.]  “Some social problems are blatantly obvious in daily life, while others are longer-term, more corrosive and perhaps mostly invisible.  Lately I’ve been worrying about a problem of the latter kind: the erosion of personal ownership and what that will mean for our loyalties to traditional American concepts of capitalism and private property.  The main culprits for the change are software and the internet.  For instance, Amazon’s Kindle and other methods of online reading have revolutionized how Americans consume text.  Fifteen years ago, people typically owned the books and magazines they were reading.  Much less so now. . . . The change in our relationship with physical objects does not stop there.  We used to buy DVDs or video cassettes; now viewers stream movies or TV shows with Netflix. . . . Music lovers used to buy compact discs; now Spotify and YouTube are more commonly used to hear our favorite tunes.”    Then there are cars.  “The great American teenage dream used to be to own your own car.  That is dwindling in favor of urban living, greater reliance on mass transit, cycling, walking and, of course, ride-sharing services such as Uber and Lyft.”

********Cowen goes on to note, “Each of these changes is beneficial, yet I worry that Americans are, slowly but surely, losing their connection to the idea of private ownership. . . . We’re hardly at a  point where American property has been abolished, but I am still nervous that we are finding ownership to be so inconvenient.”  It seems like Cowen is expressing a thought that is somewhat akin to a change in the invisible handshake—social and historical forces that influence human behavior—that is driven by a change in the invisible hand—economic forces that influence human behavior.

********I’m not sure that the change Cowen notices, which is certainly real, is something to be concerned about, but it is interesting to think about.  What he describes is largely a change from purchasing goods—tangible things that give off services—to purchasing services.  If you buy a good, you are also buying a sequence—perhaps very long—of potential services, much more perhaps than you really want.  (Will I ever again watch the DVDs of the Danish TV series “Forbrydelsen” that I own?)  All this, I suppose, is just another example of the “Rent vs Buy” decision encountered in textbooks on finance.  Ownership can certainly be a burden.  When you buy a good, it is generally your problem when something goes wrong, but when you rent a good (buy  a service), it is generally the problem of the rental and something goes wrong, it s the problem of the rentor when something goes wrong.  In short, “he” who owns the good, owns the problem.  What do you think, are you concerned about people moving to purchase fewer goods and more services on the whole?

********Ride sharing services Uber and Lyft have a position on the supply side of the market for auto-based transportation services.  So the article “Uber and the False Hopes of the Sharing EconomyThe New York Times, is of related interest.  As it turns out, in New York City, approximately 80 percent of Uber drivers “bought cars for the purpose of making a living by driving.”  So, in the future, especially in urban areas, fewer cars may be purchased but they will be used more intensively, ceteris paribus.  But what is the optimum number of such service providers in, say, NYC?  It depends upon what problem you are trying to solve.  Learn more by reading “What’s the Right Number of Taxis (or Uber or Lyft Cars) in a City?The New York Times.

May you have a good week!

Bruce

329 (8 August 2018)

Welcome to week 329!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles might be found by an Internet title search.

Please let me know if you have questions or comments.

(4 November 2017): Why builders of big L.A. projects are making concrete with gravel and sand shipped from CanadaThe Los Angeles Times

——–“The 519 miles of L.A.’s freeway system.  Dodger Stadium.  City Hall.  All built with concrete filled with rock and sand washed down from Southern California’s iconic mountain ranges.”  Those materials are still abundant in the area.  “But now, as another building boom rumbles across Los Angeles and a new generation of high-rises climbs skyward, the rock and sand are coming from a much more distant source: Canada’s Vancouver Island, more than 1,400 miles away.”  Nonetheless, “thanks to a combination of materials science, cheap ocean shipping and, some argue, NIMBYism, today’s industrial concrete mixers are often filled with imported rock and sand.”  Regarding the cost, consider that “To ship 1 ton of rock over 1,450 miles of ocean to Long Beach costs about $7.25.  To truck it from Long Beach to downtown L.A., about 25 miles, adds an additional $8.75.  And at $16 combined, that’s less than the $22.75 it might cost to truck a ton of aggregate on the 65-mile trip from a quarry in Palmdale to downtown.”

********I stumbled upon this article while signing up to follow the Twitter account of James Rufus Koren, a reporter for the LA Times.  What was news for me, and what made it relevant, here, is the fact that the quality of the concrete used in construction depends upon the nature of the sand, gravel, water, and cement used in its production.  As project manager Todd Lamberty noted, “If you’re laying down a sidewalk, you can use whatever aggregate you want.  But to make high-performance concrete, the materials matter.  Use lower-quality sand and gravel and you’ll need to add a larger amount of cement. . . . The aggregate that’s locally mined is pretty poor quality in terms of its shear strength . . . You end up putting a ton of cement in the mix to make up for that, and cement is the most expensive component.”  So, in the background, there is what microeconomists call a cost-minimization problem for given product quality involved in construction.  The proper mix of materials depends upon their relative prices.  An interesting case in point is that Qatar and Kuwait “were among the top global importers of sand and gravel in 2015 . . . There’s plenty of sand in both Persian Gulf nations, but of the wrong sort.  Desert sand, formed by wind, is too smooth for making concrete.  Coarser sand formed by rivers and glaciers is preferred.”

(31 July 2018): Patrón Made Tequila Top-Shelf.  Will Bacardi Dilute It?Bloomberg Businessweek

********An engaging article about entrepreneurship in the context of the market for tequila, telling a part of the story of how Patrón came to be the watch word for tequila excellence.  The title indicates the concern that Bacardi Ltd., which purchased “the 70 percent of Patron Spirits International AG that it didn’t already own for $5.1 billion in January,” might erode product quality by introducing a different production process. If you like mules, you will want to check out the photos.

(1 August 2018): Oil Tanker Owners Are Scrapping the Most Ships in DecadesBloomberg.com

——–“Oil tanker owners are giving up.  A 19-month curtailment of OPEC cargoes, and environmental regulations that are proving uneconomical to comply with, have got owners purging the supertanker fleet at the fastest pace since the 1980s . . . While the demolition surge—sending vessels to be ripped apart on the beaches of India and Bangladesh—reflects the worst charter rates for owners in decades, scrapping often helps set the stage for market recoveries.  Morgan Stanly estimates that the global fleet of so-called very large crude carriers [VLCCs] could lack 100 million barrels of transportation capacity by late 2020.”

********This article provides a nice example of how various markets interact when one or more of them has a highly durable good.  Here there is the market for VLCCs, the market for VLCC services, i.e., the leasing of VLCCs, and the market for the steel from broken down vessels.  It is clear from the coverage that those in the related industries are aware of the cyclical nature of them, and how decisions to scrap today or not, has consequences for the market for new VLCCs at a later time.  The element of increased cost due to regulatory change brings in another interesting element.

(1 August 2018): [SR]America’s Long Love Affair With Beer Is on the RocksThe Wall Street Journal

——–“U.S. drinkers, particularly young ones, are having relationship problems with the national beverage [beer].  It’s no longer true they start out favoring mild pilsners and low-calorie beers, then graduate to harder stuff later in life, if at all.  Now they are thinking about other things: taste, value, beer bellies. . . . According to the Beer Institute, a trade group, drinkers chose beer just 49.7% of the time last year, down from 60.8% in the mid-‘90s.  Among 21- to 27-year-olds, the decline has been sharper.  Anheuser-Busch InBev SA, Budweiser’s owner, found that in 2016, just 43% of alcohol consumed by young drinkers was beer.  In 2006, it was 65%.”  As further evidence of decline, per capita beer consumption “in the U.S. fell to 73.4 liters last year, from 80.2 in 2010 and 83.2 liters in 2000.”  To compensate for the decline in volume, the beer industry has been “increasing prices.  That has helped make whiskey and wine relatively more affordable.  Beer prices rose 42% between 2000 and 2017, compared with 11% for wine and 19% for spirits, according to a Brewers Association analysis of data from the Bureau of Labor Statistics.”

********It seems, then, that changing tastes and changing relative prices have contributed to declining sales volume of beer in the U.S.  What might be called “Big Beer” has suffered the largest declines, with the craft beer segment still growing, although that growth rate has slowed in recent years.  (Large growth rates can never persist.)  Budweiser is experimenting with a variety of new types of beers, which seem like a mashup of beer and spirits, e.g., “a new Budweiser beer, aged with bourbon-barrel staves.”  Taking another approach, Molson Coors “is turning to cannabis drinks in search of growth . . . The company said it is forming a joint venture with the Hydropothecary Corp., a Canadian cannabis producer, to develop non-alcoholic, cannabis-infused beverages for the Canadian market.”  You can learn more about this in [SR]Molson Coors Turns to Marijuana as Beer Sales DropThe Wall Street Journal.  On a somewhat related matter, check out “Wrigley Billionaire Moves From Chewing Gum to Medical MarijuanaBloomberg.com.  Evidently those with experience in the marketing of traditional products like beer and gum see an opportunity to transfer their skills into the development of new products that connect with marijuana.  As the article notes, “the transition of billions of dollars into the legal U.S. economy from the black market is drawing a lot interest from investors.”

(4 August 2018):Specter of America’s Growing Fiscal Deficit and Debt Load LoomsBloomberg.com

——–“America’s worsening fiscal outlook and mounting government debt are hiding in plain sight, but that troubling mix may not get a pass from investors for much longer.  President Donald Trump’s tax cuts and new federal spending have fueled a budget deficit that the Congressional Budget Office predicts will reach $1 trillion in 2020.  With the Federal Reserve also winding down its debt holdings, that’s  forced Treasury Secretary Steven Mnuchin to lift note and bond sales to levels last seen in the aftermath of the recession that ended in 2009.”  Harvard University’s Martin Feldstein, who was a top economic aide for President Reagan has noted, “We are heading to $1 trillion annual deficits and therefore $1 trillion annual borrowing . . . That will push up long-term interest rates.  That could depress the equity prices that are already very much overvalued.”  Economist Jeffrey Frankel, also of Harvard University, adds: “We are currently experiencing the most radical pro-cyclical polity outside of war-time, perhaps ever . . . This is an especially bad time to raise the budget deficit not just because of business cycle timing, but also because of the demographic timing: the ongoing retirement of the baby boom generation means huge deficits in Social Security and Medicare are coming.”

********The size of the federal deficit should be a story of continuing importance over the next few years.  Running huge deficits at full employment can only make one wonder how the current administration would manage a mild recession, much less something like the Great Recession.  This question is raised in the context of a review of Crashed: How a Decade of Financial Crises Changed the World in The Economist.  The author of the book, historian Adam Tooze, “takes on the financial and economic history of the last decade in a monumental tome of nearly 700 pages.”  In doing so he develops four big themes: immediate response to the crisis of 2008, the euro-zone crisis, the shift in the developed world to more austere fiscal policy, and populist politics in Europe and America.  The changing mood, especially in the U.S., “raises fears about what will happen when another storm hits the world economy.  The level of co-operation that occurred in 2008 and 2009, such as when America’s central bank made dollars available to its cash-strapped European counterparts, may not be easy to achieve next time around.”

(4 August 2018):John Stuart Mill: Against the tyranny of the majorityThe Economist

********This is the first of six Philosophy Briefs on liberalism’s greatest thinkers.  (The introduction to the series appears is one of the leaders for the issue.)  Like most great thinkers, his ideas were multifaceted and not always appealing.  A writer on scientific method, political economy, ethics, and political philosophy, his most famous book is On Liberty.  In it he stated the “harm principle,” i.e., “the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.”

(5 August 2018):Need a loan?  Forget the corner payday lender—your boss has you coveredThe Los Angeles Times

——–“Your employer might contribute to your retirement account or help pay for health insurance.  But will it help you set up an emergency fund?  Or offer you a loan of a few thousand dollars when your transmission breaks downs?  If you work for Comcast Corp., yes. . . . Founded this year by Comcast’s venture-capital arm, benefits firm Brightside announced last month that it would offer loans through San Diego firm Employee Loan Solutions.  The loans of $1,000 to $2,000 will be available to most employees, do not require a credit check and are paid back through payroll deductions.  With an interest rate of 24.9%, the loans are more expensive than the typical credit card but are dramatically cheaper than other types of debt available to borrowers with bad credit or little credit history.  Payday loans in California, for instance, come with annual interest rates topping 400%.”  This is an example of so-called “financial wellness benefits” that are becoming “increasingly common parts of corporate benefits packages.”  The loan program offered by Employee Loan Solutions, “called TrueConnect, is already offered through nearly 1,000 employers, many of them public agencies.”

********As the article notes, 24.9% interest on a loan is enormous, but pales in comparison to payday loans with annual percentage rates in the hundreds.  Thus these employer loans are occupying a space between credit card rates and payday loans for those in financial trouble.  Why are the rates so much lower than those for payday loans?  Presumably the costs of origination and collection are much less.  It has helped, too, that employers have become aware that their workers are among those who have been borrowing at high payday rates.

********You can learn more about Employee Loan Solutions from the 2016 article “Offer payday loans as an employee benefit, this start-up saysLos Angeles Times.  What I noticed is that these loans, too, are called payday loans, which is sure to lead to confusion.  Some terminology to differentiate between conventional payday loans and those that originate through an employer seems desirable.

(5 August 2018):Steel Giants With Ties to Trump Officials Block Tariff Relief for Hundreds of FirmsThe New York Times

——–The imposition of “25 percent tariffs on steel and 10 percent on aluminum” has led the Trump administration to “establish a process for companies to request ‘exclusions’ for any product they could not otherwise buy in the United States . . . But the Commerce Department, which is overseeing the process, also allowed American companies to argue against an exclusion request. . . . Since May, companies have filed more than 20,000 requests for steel tariff exemptions.  As of the end of July, the Commerce Department had denied 639 requests.  Half of those denials came in cases where United States Steel, Nucor or a third large steel maker, AK Steel Holding Corporation, filed and objection . . . Department officials said on Friday that they have not granted a single steel exclusion request that drew an objection.”  Critics of the exclusion process have said that it has “overwhelmed Commerce Department staff members, who do not have the resources to sift through thousands of complicated requests and objections and judge them on their merits.  They say the default position is to simply listen to a company that objects, regardless of whether the objection is legitimate.”

********This is a clear example of how the imposition of tariffs move an element of decision making from market participants to a government bureaucracy.  As a result, there is a little bit less invisible hand and a little bit more invisible foot affecting prices and quantities.  An editorial in The Wall Street Journal expands on these thoughts: [SR]Trump’s Political Tariff Bureaucracy.”  For an ironic twist on the tariff story, read “Alcoa Requests Reprieve From Trump’s Aluminum TariffsThe New York Times.  It turns out that Alcoa “imports much of its aluminum from its facilities in Canada, which is among the countries subject to Mr. Trump’s metals tariffs.”

********Another tariff story that caught my attention this week pertains to dried beans: [SR] “Kidney Beans Piled to the Rafters: Tariffs Are Biting in Farm Country” The Wall Street Journal.  The story originates from Menomonie, Wisconsin.  It tells the story of how Chippewa Valley Bean Co., whose president is Cindy Brown, has been affected by the EU response to the steel and aluminum tariffs imposed earlier this year.  As a result of the tariffs, “Cindy Brown is running out of room to store . . . beans.  One-ton bags of them cover the floors in her cavernous warehouses. . . . Chippewa Valley Bean Co. had been on track to ship to Europe 60% of its beans traded internationally this year, worth $25 million.  Now, ‘we’re just sitting on our hands’ . . . Businesses reliant on a single product are especially exposed.  Focusing on a specialty crop . . . paid off for Chippewas Valley for years . . . Now, specialization is magnifying the tariff pain . . . Ms. Brown . . . said the company last month shipped nearly 40% less than what is typical for this time of year.”  It is not known what benefit, if any, processors like Chippewa Valley will receive from the Trump administration’s promised $12 billion of emergency aid to support producers of agricultural commodities.  There is a nice four-minute video interview with Cindy Brown on CNBC.  She makes her position very clear when, toward the end of her interview, she calls for “Trade not aid.”

May you have a good week!

Bruce

328 (1 August 2018)

Welcome to week 328!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles might be found by an Internet title search.

Please let me know if you have questions or comments.

(26 July 2018): ’Sin’ taxes—eg, on tobacco—are less efficient than they lookThe Economist

——–So-called “sin” taxes, i.e., “levies on socially harmful practices . . . are seen as a double win—useful sources of revenue that also improve public health.”  Traditionally imposed on alcohol and tobacco, they have been extended in recent years to sugar as one approach to combat obesity.  Studies have shown that “Sin taxes do change behaviour.  Alcohol and tobacco are addictive, so demand for them is not as responsive to price changes as, say, the demand for airline tickets to fly abroad. . . . Estimates vary from study to study, but economists find that on average, a 1% increase in prices is associated with a decline of around 0.5% in sales of both alcohol and tobacco . . . Data on the efficacy of sugar taxes are scantier, but the available evidence shows that they, too, lower consumption.”

——–Sin taxes are, however, relatively blunt instruments.  “People who only occasionally drink or smoke do their bodies little harm, yet are taxed no differently from heavy smokers and drinkers.”  Furthermore, groups are differentially affected by them.  For example, “Britons who bought only a few drinks a week were far more sensitive to price fluctuations than heavy drinkers.”  As a result, the Institute for Fiscal Studies “suggests that it might make more sense to place higher levies on the tipples more in favour with heavy drinkers, such as spirits.”

********The article provides a nice overview of sin taxes in relation to alcohol, sugar, and tobacco.  I was especially interested in the suggestions made—some perhaps tongue in cheek?—to reduce their bluntness.  (MIT’s Jonathan Gruber said that “if he were king” he would of obesity by imposing “taxes on sugar and fat . . . based on individual’s body-mass indices.)  The article is paired with a Daily Chart on “Taxes on tobacco, alcohol and sugar really do curb vice” that explores the “three main justifications for imposing a tax on a specific good.”  I.e., raise funds, account for negative externalities, and discourage the use of undesirable products.

(26 July 2018):Alaska: Front Line in the Global Trade WarBloomberg.com

********This is an 18-minute podcast on the Alaskan seafood industry and the potential impact on it of tariffs imposed by the U.S. and China.  As it turns out, the seafood industry is the largest private-sector employer in Alaska and roughly one-third of its production is sold to China.  Also noteworthy is that China processes much of the seafood it imports and then exports a good deal of it to the U.S., the EU, and Japan.  Thus the Alaskan seafood industry is hit twice by tariffs: once on exports to China of unprocessed seafood and once on imports to the U.S. of processed seafood.  Given the global character of supply chains, this is situation may be encountered with some regularity.  I was impressed by all four individuals participating in the podcast: an intern, an industry representative, an economist, and the program host.

********The podcast takes a somewhat narrow view of the consequences of the trade “war” between the U.S. and China.  For a broader perspective oriented towards “early warnings” The New York Times offers this article: “If the Trade War Starts to Damage the Economy, Here’s How You’ll Be Able to Tell.”  It provides a range of indicators that “are likely to provide early signs of trouble: data that is more big picture than individual anecdotes, but more timely than things like G.D.P. and the unemployment rate.”  GDP and the unemployment rate are good examples of economic data that operate “with long time lags.  By the time there would be solid evidence that the trade war was doing damage, the damage would already have been done.”  These lags are much like those that operate in the context of climate change, except that lags involved with climate change are much longer.

(28 July 2018): [SR]U.S. Almond Farmers Are Reeling From Chinese TariffsThe Wall Street Journal

——–“U.S. almond farmers are getting crunched from all sides as they head into what is likely to be a record harvest season.  Prices for California almonds have fallen by more than 10% over the past two months, reflecting expectations for a bumper crop and steep tariffs imposed this year by China, which until recently was the second-largest importer of U.S. almonds after the European Union.”  In addition to tariffs on U.S. almonds, “China has quietly closed a trading loophole that for years allowed large volumes of American almonds to be transported into the country via Vietnam without incurring import taxes.  Beijing is also cracking down on commodities that have been illegally smuggled into the country or brought in via transshipments, where they are routed to other countries and then shipped to China.”  The object of these moves by China is “to make its tariffs on U.S. agricultural products as effective as possible.”

********The closing of so-called “gray shipping channels” combined with higher tariffs has left many almond growers and exporters “worried about the coming months, when the U.S. harvest season commences and shipment volumes peak.”  As noted by Zach Williams of Stewart & Jasper Orchards in Newman, California, “No one wants to take an advance position on contract because they’re afraid that there will be another tariff down the line that they didn’t account for.”  Gray shipping channels are akin to grey markets, about which you can learn more here.

(29 July 2018):British farmers worry: Who will pick the fruit after Brexit?The Washington Post

——–“Britain today is completely dependent on foreign workers to pick its fruit and vegetables.  According to the National Farmers Union, an industry lobbying group, of the 60,000 seasonal workers in the fields last year, barely 1 percent was British.  The vast majority come from Eastern Europe, particularly Bulgaria and Romania.”  So, “as Britain prepares to leave the E.U., brining the era of free movement [of labor] to a close, farmers have begun to panic: Who will pick the crops next spring?”  A sense of the challenge facing farmers is provided by “Stephanie Maurel, the chief executive of Concordia, a recruitment company that supplies workers to about 200 British farms,” who notes that “We’ve had two applications out of 10,000 . . . It’s statistically quite damning.”

********I was struck by the similarity of the British situation to that of the U.S., i.e., most of the agricultural harvesting is done by people who migrate to the country, do the work, and then return home.  If foreign workers can’t do the work due to migration restrictions and domestic workers won’t do the worker due to the nature of the work (as argued in the article), then more off the harvesting will be done my machines, possibly robots as the article mentions.  Still, some produce, e.g., berries, “are notoriously difficult to pick mechanically.”   Left out of this discussion, of course, is the role of agricultural tariffs.  With the weather, farmers have plenty to worry about, then there are the vagaries of the invisible foot.

********The NYT article “Brexit Plans Raise Fears of Food Shortages and Jammed Ports” provides some additional perspective on the British food supply in the wake of Brexit.  In the event of a departure from the EU without an agreement, a scenario is envisaged “that could mean new border checks, log-jammed ports, marooned trucks, and food, drugs and other essential supplier drying up.”  Some seem to think that food supplier will stockpile goods, but the British Retail Consortium holds that “Stockpiling of food is not a practical response to a no-deal on Brexit and industry has not been approached by Government to begin planning for this.”  All this reminds me of economic debates about the efficacy of central planning in comparison to the market.  I would have thought that this had been settled long ago but the authoritarian temptation can sometimes be too hard to resist.  A book that deals directly with this question is Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, by Don Lavoie.

(29 July 2018):TCA 2018: Netflix’s Cindy Holland says ‘taste communities’ help drive programmingThe Los Angeles Times

——–“Netflix’s proprietary algorithms are some of the most tightly guarded corporate secrets since the formula for Coca-Cola.  On Sunday, the streaming service shed a little bit of light on the ‘taste communities’ that help guide many of its decisions about programming and user recommendations.  Cindy Holland, who serves as vice president of original series for Netflix, told reporters gathered at the Television Critics Assn. press tour in Beverly Hills that the company doesn’t make programming decisions based on demographics, but rather on the tastes of broadly defined groups of subscribers who gravitate toward the same shows.”

********Netflix’s approach to programming was mentioned a few weeks ago, see TIF Weekly 326.  At that time a piece in The Economist was discussed where the term ‘taste clusters’ was used.  The expression ‘taste communities’, used here, seems to be more frequently used, using Google hits as a measure (11,900 hits for ‘taste communities’ and 4,300 for ‘taste clusters’).  Whatever the term, this is the way Netflix does it, drawing upon its massive data base to make programming development decisions, rather than the intersection of various demographics.  You can learn a bit more about Holland’s presentation from an article in Adweek.

(30 July 2018):World’s Biggest Toilet-Building Spree Is Under Way in IndiaBloomberg.com

——–“India is on the greatest toilet-building spree in human history, and it’s a windfall for companies.  Prime Minister Narendra Modi’s $20 billion ‘Clean India’ mission aims to construct 111 million latrines in five years.  Besides promising to improve the health, safety and dignity of hundreds of millions of Indians, the national hygiene drive has spurred an 81 percent jump in sales of concrete building materials and 48 percent increase in bathroom and sanitaryware sales . . . The scale-up of latrines and a nationwide campaign to encourage their use is driving a market for toilet-related products and services that’s predicted to double to $62 billion by 2021.”  As Val Curtis, director of the London School of Hygiene and Tropical Medicine’s Environmental Health Group notes, “It’s the biggest, most successful behavior-change campaign in the world.”

********This is meaningful infrastructure development on a very large scale.  What, I wonder, would $20 billion spent on U.S. infrastructure look like?

(31 July 2018):A little Wisconsin root in a big trade warMarketplace

——–“Journalists love to list the disparate items caught up in the trade war. . . . There’s something giddy about the seeming randomness of it.  But lists of tariffs are not random.  They’re made by actual people looking very carefully at products and politics across international borders.  Former U.S. trade official Matt Gold used to help make those lists.  He makes us smart on how governments in a trade war take a gimlet eye to literally every product that exists in the world.”  One of those products is ginseng.  “It’s a pretty obscure little medicinal root to most of us.  But it’s a highly prized crop grown mostly in Wisconsin, sold mostly to China, and a target for the trade war.”

********This is episode 75 of “Make Me Smart With Kai and Molly,” a program of Marketplace, “a radio program that focuses on business, the economy, and events that influence them.”  I have not been a listener of Marketplace but when our local NPR station changed its evening lineup, I became a little more aware of it.  They provide a lighter touch to business and economic news that is appealing.  The current episode on ginseng provides a glimpse of how products are identified as tariff candidates.  This is a podcast.  The relevant parts of it run from 7:48 to 24:10, so a good sixteen minutes of content on tariff setting with ginseng as the test case.

May you have a good week!

Bruce

327 (25 July 2018)

Welcome to week 327!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles might be found by an Internet title search.

Please let me know if you have questions or comments.

(13 July 2018): A Fear of Lawsuits Really Does Seem to Result in Extra Medical TestsThe New York Times

——–American doctors “often rail against the country’s medical malpractice system, which they say forces them to order unnecessary test and procedures to protect themselves if a patient sues them.”  Estimating the cost of such defensive medicine, though, has been difficult to do without a control group.  But researchers at Duke and MIT have found a group that has allowed them to do so by looking at “the health care system for active-duty members of the military.  Under longstanding law, such patients get access to a government health care system but are barred from suing government doctors and hospitals for malpractice.”  The study of researchers Jonathan Gruber (MIT) and Michael D. Frakes (Duke) “looked at what happened to the hospital care that military members received when a base closing forced them to use their benefits in civilian hospitals, where it is possible to sue.  Spending on their health care increased, particularly on extra diagnostic tests.”  The study indicated that “liability concerns cause treatment to rise by more than 5 percent for emergency room patients who go home the same day—or not at all in a typical office visit.”

********Gruber and Frakes used multiple measures to quantify quality of care.  It is not at all surprising that doctors would practice more defensive medicine when exposed to more exposure to litigation risk, but the relatively small size of the cost of that practice is.  The lesson from that seems to be that “Any law that limits the cases where patients can sue, or the amount of money they can collect, is likely to lower medical use in the hospital by less than the 5 percent they measured in their study.”  One must search elsewhere, it appears, to find the silver bullet that will bring health care costs under control.

(18 July 2018):Dying Alone in Japan: The Industry Devoted to What’s Left BehindBloomberg Businessweek

——Japan is aging.  “In 2017 there were 946,060 births and 1,340,433 deaths . . . marking a seventh consecutive year of population decline.”  Young people in Japan are putting off “marriage and children—or skip them altogether.  What’s left is one of the world’s oldest societies, millions of junk-filled homes, and a dearth of heirs.”  In this situation companies like the Tail Project have arisen.  Based near Tokyo, it “specializes in cleaning out and disposing of the property accumulated by the deceased, a service that [is] increasingly in demand.”  There is a professional group for people who clean out such homes.  The Association of Cleanout Professionals has 8,000 members, collectively bringing in “$4.5 billion a year.  Over the next 5 to 10 years, the group expects its membership will double.”

********The article provides a glimpse of what it is like to work in the competitive “clean out” industry, which is connected to Japan’s well-established secondhand industry.  Those who clean out the domiciles of Japanese who die alone have items that supply it regularly.  All this may seem rather sad, but the Japanese have a word for it: ‘Kodokushi’, which means “lonely death.”  Clearly this is a case where social and historical factors—the invisible handshake—are affecting the invisible hand.

********This is not a new story.  The phenomenon of lonely death was “first described in the 1980s” and it was reported on in 2015 by Al Jazeera in “The woman who cleans up after ‘lonely deaths’ in Japan.”  Furthermore, The New York Times had a lengthy story on the subject, but not the industry, in November 2017.  There was a nice follow up to the story, that indicates that it was a part of “The End” series.  Now that we know a bit about lonely death in Japan, what about its occurrence elsewhere, e.g., the United States?  I’ll be looking for that article.

(19 July 2018):60 Reasons Trump Worries About Pump PricesBloomberg.com

——–“It is 110 days to the midterms, and you will likely visit the gas station many times between now and then.  Hence there’s an all-hands effort to keep a lid on pump prices. . . . A close look at the most competitive House races shows why . . . Higher pump prices are especially panful if you drive more and earn less than average—which happens to be more common in red states.  ClearView Energy Partners LLC, a Washington-based research firm, produces regular analyses of how energy prices affect Americans.  It calculates the average red-state driver bought almost a fifth more gasoline than the average blue-state driver in 2017, paying for it out of disposable personal income that was 16 percent lower.”  It is notable, then, that there “are 60 House races currently defined as either leaning Republican or Democrat or a toss-up by the Cook Political Report, spread across 29 states.”

********To me the primary interest of the article is the possibility of making “deep dives” into the data to see what might affect the voting outcomes in the 2018 elections.  Does the president have sufficient control over policy “instruments” to affect the election and if so, does he have the inclination to use them?

********Regarding “deep dives” into the data, the article “Democrats Take a Data-Driven Approach to Win Rural America” presents one possible use.  Evidently “The lack of access to broadband and health care in less-populous areas of the U.S. are two of the issues that Democrats hope they can use to loosen the Republican grip on rural voters.”  The article immediately below connects nicely with this theme.

(19 July 2018): [SR]America’s Factory Towns, Once Solidly Blue, Are Now a GOP HavenThe Wall Street Journal

——–“The Republican Party has become the party of blue-collar America.  After the 1992 election, 15 of the 20 most manufacturing-intensive congressional districts in America were represented by Democrats.  Today, all 20 are held by Republicans.  The shift of manufacturing from a Democratic stronghold to a Republican one is a major force remaking the two parties.  It helps explain Donald Trump’s political success, the rise of Republican protectionism and the nation’s polarized politics.  It will help shape this year’s midterm elections.”

********This article is pretty detailed and defies easy summary by me.  The article notes, however, that “Many counties that leaned toward Democrats lost so many factory jobs during the last 25 years that they ceased being manufacturing centers.  As the U.S. factory workforce diminished in size—from 15.4% of the U.S. workforce in 1992 to 8.5% today—it moved out of big cities that were union strongholds and into blue-collar suburbs.”  As Stanford political scientist Jonathan Rodden notes, “Manufacturing moved to where the Republican Party has been building strength.”  As the article goes on to note, “The Republican Party didn’t have a grand strategy to capture manufacturing.  It happened over time as the economy and party changed.”  Rather, these changes seem to have been the logical consequences of sectoral changes in the United States resulting from the pursuit of freer international trade.

(20 July 2018):Fukushima’s Nuclear Imprint Is Found in California Wine (Drinkers, Don’t Panic)The New York Times

——–“Ever since a huge earthquake off the coast of Japan sent a tsunami crashing into a nuclear plant in Fukushima, setting off one of the world’s worst nuclear crises, scientists have been uncovering the radioactive legacy of the 2011 disaster. . . . Now a group of French nuclear physicists say they have stumbled on Fukushima’s signature in Northern California wine. . . . In a new study, the researchers report testing 18 bottles of California rosé and cabernet sauvignon from 2009 onward and finding increased levels of radioactive particles in the wine produced after the Fukushima disaster.  In the case of the cabernet, the levels of the radioactive materials doubled.”  The test used by the researchers derives from methods used to detect wine fraud, which is a “persistent and lucrative crime.”  The test is based upon the presence of cesium-137, which “cannot have existed before the mid-20th century”—certain nuclear events “would leave unique signatures on time and proximity to the grapes.”  Although ingesting cesium-137 can lead to an increased risk of cancer, the World Health Organization holds that the levels of radioactive material “from Fukushima in food and drink in countries outside Japan has been too low to result in a health hazard.”

********Interestingly, the cesium-137 test can be conducted on unopened wine bottles.  Evidently the idea for the test occurred to one of the researchers as he was shopping in a supermarket and found several bottles of Napa Valley cabernet sauvignon produced after Fukushima.  The Chernobyl disaster took place in April 1986—there is a new book out on it—so the methods used for Fukushima are no doubt applicable to European wines since then.  Then there is Three-Mile Island in 1979.  Do consumers put enough age on the wines of the northeastern U.S. to test them, too?  Obviously, there is a lot of wine that could (and should) be tested.  Even thought the NYT article provides reassuring words—don’t panic—it is easy to imagine that consumers don’t purchase wine with the expectation of ingesting cesium-137.  So, the Fukushima disaster should decrease the demand for the wines of Northern California, and presumably Oregon and Washington, ceteris paribus.

********While we are on the subject of wine, I thought the post “Lost in Translation?  Misunderstanding Old World and New World Wine” at The Wine Economist was noteworthy.  It touches upon a variety of subjects relating to how those in Europe and those in the United States think about (and regulate) wine.  In particular, a recent revision of wine classifications in France from four categories to three has French winemakers thinking a bit differently about specific segments of the wine market, especially in light of climate change: “Changing climate undermines the logic of winemaking rules established decades ago when growing conditions might have been much different.”

(25 July 2018):How About a Free Market for Wages?Bloomberg.com

********This opinion piece draws attention to the fact that the “U.S. economy is growing, but workers are seeing less and less of the benefits.  Since the Great Recession, real gross domestic product per capita has increased substantially, but real compensation per hour—which includes benefits like health care—hasn’t grown at all.”  A capitalism that works for only a “relatively small slice of society that owns large amounts of capital” is one that may well lead people to turn to other alternatives, “like the socialism now gaining popularity within the Democratic party and the younger generations.”  So, anyone who cares “about preserving “the free-market system should . . . be thinking very hard about how to raise wages.”  How might one do that?  At the federal level, “One idea is to change regulations and laws to make labor unions more powerful.  Another is to strengthen antitrust enforcement.  Such changes, to be sure, are unlikely in the current political context.  But the state level is a different matter.  At the state level, one can “ban noncompete agreements” that “bar employees from going to work for a company’s competitors.”  California has already done this.  A second possibility is “to vigorously police companies that try to collude to suppress wages.”  Although such the Sherman Antitrust Act generally holds such behavior to be illegal, antipoaching agreements might still be legal for franchise chains.  “Many franchises stipulate in their contracts that franchise owners aren’t allowed to hire each other’s workers.”  Clearly the current political context in North Carolina is unfavorable to the suggested state level changes to increase wages.

********Reading the opinion piece it is hard not to think of John Maynard Keynes and his General Theory of Employment, Interest, and Money (1936).  The book is widely regarded, at least by economists, as an attempt to save capitalism from itself by reforming—not replacing—capitalism.  In 1936 the problem to be solved was widespread unemployment and underproduction.  Today, it seems that the problem to be solved is large and growing inequality.  Will another Keynes come forth to reform capitalism?

May you have a good week!  Bruce ,

326 (18 July 2018)

Welcome to week 326!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles might be found by an Internet title search.

Please let me know if you have questions or comments.

(11 July 2018): Britain’s Online Shopping Boom Is a Bust for the High StreetBloomberg Businessweek

——–The high streets—central shopping districts—of Britain are being devastated by online retailers.  “E-commerce accounts for 18 percent of retail sales in the country—almost double the U.S. level and higher than anywhere else in the western world.”  Although “Online retailers typically benefit from lower overhead than their store-based counterparts, . . . in the U.K. that advantage is bigger than just about anywhere.  The country has the developed world’s highest commercial property taxes.”  For example, last year “Tesco paid £700 million in property taxes, and J. Sainsbury Plc, the No. 2 chain, paid £550 million.  Amazon’s bill: £14 million.”  As CFO Kevin O’Byrne of Sainsbury’s says: “We start the year £500 or £600 million behind Amazon before we’ve even opened our doors.”

********Philip Hammond, the Chancellor of the Exchequer, notes: Britain “needs to find a better way of taxing the digital economy” to level the  playing field between traditional retailers and etailers.  That is one way to go to.

(12 July 2018): The Crucial Southern BlackberryJSTOR Daily

——–“It’s berry season in much of the United States  Depending upon where you live, that might mean you can wander into a field where berries grow wild and pick your own fruit.  Historian Bruce E. Baker writes that in the American South, during the years after the Civil War, picking wild berries [especially blackberries] was one of the ‘smaller bits and pieces by which people made a living.’”

********It is definitely blackberry season here.  Livia Gershon has written an inviting summary of Baker’s article, which I then went on to read.  A link to it is provided at the bottom of her post.  The role of the commons as a resource for all to use figures prominently in the article.  Referring to the use of the commons in England, Baker notes:

English people had rights to gather nuts, fruits, and other plants for food.  These rights carried over into the antebellum South, supported by a series of legal opinions and laws requiring crops, not livestock, to be fenced in.  Johnson Hagood, governor of South Carolina when that state passed a law requiring all livestock to be fenced in, explained the rationale: the original title to land had been granted to an individual because he would improve the land, contributing in that way to the common good by paying taxes on the value of the improvement.  Since unimproved land did not contribute to the common good through taxes, the people as a whole were entitled to make use of it.  Gathering blackberries from the commons did not have the same economic impact as pasturing cattle and hogs, but when put together with all the other foodstuffs and medicinal plants available from the commons, it was not insignificant.

After the Civil War, “there was a concerted attack on common rights in the South. . . . Controversies over fence laws intensified into the late 1870 and early 1880s.  Around the same time rights to hunt and fish were restricted by state legislatures in a variety of ways.  Within this context, rights to pick blackberries came under attack as well.”  It is interesting to see that there is a North Carolina Right to Hunt and Fish Amendment on the November 6, 2018 ballot.  No provision is made for harvesting other “fruits” of the land.

(14 July 2018):Along Maine’s northeastern coast, seaweed stirs an international controversyThe Washington Post

——–The harvesting of seaweed off the Maine coast has brought seaside homeowners and seaweed harvesters into conflict.  The “squabble is aggravated by colonial land laws and 20-foot Bay of Fundy tides that award a property owner a new expanse and then take it away twice a day.  The fight has tumbled into the courts, and there taken another peculiar turn.  The Maine Supreme Court is now pondering whether seaweed is a plant—which would make it the property owners’—or an animal, which would mean it could be harvested by anyone, like fish from the sea.”  David Garbary, a biology professor at Nova Scotia’s St. Francis Xavier University is unequivocal:  “This is one of those absurd questions where you get tied up in definitions that are not relevant . . . This is a perfectly good photosynthetic organism, and it’s a plant.”

********Next case, please.  The seaweed in question, rockweed, is held to be sustainably harvested and provides a source of income to those in Maine’s poorest county.  As such, there is a conventional argument about tradeoffs between environmental and economic concerns in the article.  What struck me though, was the following quotation: “the kind of seaweed common on intertidal waters of the north Atlantic Ocean is used mostly to feed plants and animals. . . . The long weed [rockweed] collapses brown and matlike over rocks when exposed at low tide.  As the tide rises, the plant lifts into sinuous forests, buoyed by bladders of air on its stems.”  What beauty is missed if one looks simply at the weed on the rocks and not the buoyed seaweed of the tide.  This is a lack of imagination that is all too easy to understand.

(16 July 2018):What Game Theory Says About Trump’s Trade StrategyBloomberg.com

——–“Financial markets were of two minds last week about the impact of mounting trade tensions between China and the U.S.  On the one hand, the escalating tit-for-tat tariffs still affect only a relatively small part of the two countries’ economies.”  In that case the consensus is that the effects on stocks and the economy should be small and temporary.  “On the other each, each escalation . . . increases the market’s downside risk scenario of slipping . . . into a full-blown trade war that would significantly damage corporate earnings and the overall growth outcome.”  Market narratives, however, have missed a third scenario, a “Reagan Moment” that “goes beyond tweaks to the existing system by delivering changes in the overall global economic landscape that favor the U.S. in both relative and absolute terms.”

********The frame provided above serves as a basis for seven “insights from game theory on what to watch and expect.”  Reading the insights provides an opportunity to imagine that the trade policy of the president involves more than a misplaced application of bilateral deal-making to multilateral trade.

(16 July 2018):A Surprising Bid for Remington, and an Unsurprising RejectionThe New York Times

——–The Navajo Nation, one of the largest Native American tribes in the U.S., made a bid to buy arms manufacturer Remington out of bankruptcy, offering $475-525 million in cash.  The bid was rejected.  “The Navajo Nation’s plan for Remington was novel: It intended to shift the company away from its consumer business, including curtailing the sale of the AR-15-style weapons frequently used in mass shootings, to focus on police and defense contracts.  The tribe planned to use profits from those businesses to invest in research and development of advanced ‘smart guns’—those with fingerprint or other technology intended to prevent anyone but the gun’s owner from using the weapon.”  Over time, the Navajo Nation intended to shift production and distribution of guns onto the reservation, thereby developing skills and reducing unemployment there.

********I found the plan of the Navajo Nation to be interesting.  Perhaps it will still come to pass.  The Navajo Nation “would have had an advantage in sales for police and military contracts.  Not only must a certain percentage of government business go to minority-owned companies, but the Native American Incentive Act also confers certain other advantages.”  Here is a link to learn just a little more about the Act.

(17 July 2018): [SR]’Subscribed’ Review: For a Flat Monthly FeeThe Wall Street Journal

——–[Review of Subscribed: Why the Subscription Model Will Be Your Company’s Future—and What to Do About It, by Tien Tzuo with Gabe Weisert.]  “Owning things is so over.  Who wants the hassle of having your own car, lawn mower or tuxedo when, for a small monthly fee, you can just use one whenever you need it?  Services such as iTunes and Spotify taught us that all those CDs can finally be consigned to the dump; [and] Netflix cleared out the DVDs . . . But this is just the beginning, according to Tien Tzuo . . . ‘Simply put,’ he writes, ‘the world is moving from products to services.  Subscriptions are exploding because billions of digital customers are increasingly favoring access over ownership, but most companies are still built to sell products.’”  Contributing to the success of subscription businesses is their ability to “derive important information from their customers’ behavior in real time, . . . [making them] better at fast adaptation than companies dependent on their in-store employees for feedback.”

********This review reminded me of the recent article in which the “taste clusters” used by Netflix figured prominently.  Presumably those using the subscription model are more likely to generate consumer use information, including time and place, that the traditional “buy the product” model does not.  Is a service model more likely to lend itself to further application of artificial intelligence than a goods model?  There can be little doubt that the answer is “Yes.”

May you have a good week!  Bruce

325 (11 July 2018)

Welcome to week 325!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles might be found by an Internet title search.

Please let me know if you have questions or comments.

(5 July 2018): [SR] ’Barrel-Aged Stout and Selling Out’ Review: Windy City WindfallThe Wall Street Journal

——–“The popular image of the brewing industry is of a war between Craft and Big Beer.  It’s small, independently owned breweries facing off against multi-billion-dollar corporations hawing bland-tasting beer with outsize control over the global market.  These terms are useful for drawing battle lines in the beer world, but as Josh Noel explains in ‘Barrel-Aged Stout and Selling Out,’ the reality is slightly more complicated.  Mr. Noel’s book recounts the rise of Chicago-based Goose Island Brewery, a vanguard name in craft brewing that was purchased in 2011 by Anheuser-Busch InBev, the biggest and baddest beer maker on the planet.  Mr. Noel, a beer and travel writer for the Chicago Tribune, uses the tale of Goose Island and Anheuser-Busch to elucidate ‘how craft beer became big business.’  His briskly written narrative will be of interest whether one prefers Bud Light or Goose IPA.”

********The WSJ review was interesting, and I wish it were possible for those who do not subscribe to it to read it in its entirety.  Failing that, the review by John Holl provides an excellent substitute.  Looking at this from the perspective of western North Carolina, one sees that phenomenon of a craft brewer being incorporated into a larger brewer is local, too.  Wicked Weed and Oskar Blues are mentioned in the review and, as it turns out, Wicked Weed helped Noll finish his book.  Holl, as a reporter on the beer scene, has a different perspective than most.  He notes: “When it comes to writing about beer, what we’ve mostly had for the last several years are broad strokes history books, tasting books, niche category books, cookbooks, travel guides, or nerdy, scientific looks at ingredients or processes.  With the release of Barrel-Aged Stout and Selling Out . . . the writing game will change.  I firmly believe that folks will look differently at how beer should be covered.”  You can learn more about John Noll and his book at his website.

(5 July 2018):Why Soybeans Are at the Heart of the U.S.-China Trade WarBloomberg.com

——–“China’s newly imposed tariffs against U.S. soybeans heralds a major trade shift for a crop that’s soared to prominence in recent decades.  While the Asian nation is targeting a slew of American farm goods in  this round of taxes [tariffs?], soybeans are the top agricultural commodity the county imports from the U.S. by far.  The oilseed, used to make cooking oil and animal feed, accounts for about 60 percent of the U.S.’s $20 billion of agricultural exports to China.  If China retaliates with 25 percent tariffs, American shipments may drop by at least $4.5 billion, according to a study by the University of Tennessee.  Brazil, already the world’s biggest soybean shipper, is set to be the biggest winner, filling the gap left by the U.S.”  As a harbinger of things to come, the most-active “soybean futures on the Chicago Board of Trade sank 14 percent in June as tensions swelled between the U.S. and China, the largest loss in four years.”

********This article clearly show the indirect effects of a tariff.  In this case, the Chinese tariff on U.S. soybeans leads to a substitution of Brazilian soybeans for those grown in the U.S.  So, while China and the U.S. engage in “Tariff Wars,” some other countries will benefit.

(6 July 2018):’No comment’: The death of business reportingThe Washington Post

********This article relates the experience of Post business and economics reporter Steven Pearlstein as he “went looking for a well-run company to write about.”  The company he identified—Clorox—regularly shows up “on the list of best companies to work for.”  What he found was a company unwilling to talk with him because “Clorox’s executives were too busy.”  About this, Pearlstein remarked: “Such is the sorry state of corporate media relations these days.  Even the prospect of a positive story can’t crack open the door to the executive suite.”  Regarding such declining access to executives, Alan Murray, a former reporter and editor of The Wall Street Journal who now heads up Fortune, noted: “One, they [the executives] don’t trust us.  And, two, they don’t need us.”  The article continues with an informal look at the declining coverage of business news by the media and the declining trust in the media by business, a sort of “vicious circle” with no clear end in sight.

********There is much of interest in the article, but one thing stood out for me.  I.e., the distinction between ‘earned media’ and ‘owned media’.  The former refers to stories in traditional media that result from business activities—mergers, profits, malfeasance and the like.  The latter refers to media created and distributed by the business itself.  Clearly, the business—organization more generally—cannot directly control earned media but it can completely control owned media.  Of course, even earned media can (and is) influenced by owned media, through press releases, and quarterly and annual reports, but the control is not complete.  As one executive told Pearlstein, top executives “live in an environment where they can’t tolerate a  whole lot of risk. . . . A negative story, if it is picked up by social media, can be more damaging than ever.  That’s why they have become so nervous about engaging the press.”

********It turns out that there is a third type of media: paid media.  For more detail, see the blog post by Sean Corcoran, “Defining Earned, Owned, and Paid Media.”

(7 July 2018): [SR]A Milk Startup Takes On 300 Million CowsThe Wall Street Journal

——–“India boasts the world’s largest dairy herd—some 300 million buffalo and cows that produce 165 million metric tons of milk annually.  Yet the average farmer owns  just two cattle, and most live on one-family farms on tiny plots that lack roads and electricity.  In the U.S., the second-largest producer globally, the average dairy farm has nearly 150 cows. . . . Between cow and consumer, milk quality has suffered.  Middlemen in India often sneak water, sugar or powdered milk into raw milk, adding volume and lowering the quality.  The milk that independent middlemen gather from farmers and deliver to towns and villages is often unpasteurized and not properly refrigerated.  That’s why almost all Indians boil their milk.”  In these circumstances, Srikuman Misra moved back home to eastern India “to launch a milk company . . . Armed with social media, smartphone apps and big-data analytics, Mr. Misra’s dairy business is among hundreds of start-up companies leveraging the arrival of the internet in rural areas in India.”

********The article has a captioned six-minute video that appears to be available to those who do not subscribe to the WSJ.  The written article clearly indicates how legal and political factors, as well as historical and social factors, have slowed the move to profitability of Misra’s business—Milk Mantra—which sells, among other things, Milky Moo.  Its motto: “No need to boil.”  Misra and his wife, Rashima, a partner and marketing executive, believe that “India’s emerging middle class would spend more on a high-quality, healthy product.”

(9 July 2018): Why America’s cheese capital is at the center of Trump’s trade warThe Guardian

——–“Plymouth, Wisconsin, styles itself as the cheese capital of the world.’  The town of 8,445 people . . . was once the site of the National Cheese Exchange where cheese commodity prices were set and today about 15% of all US cheese passes through the town.  Now Plymouth residents are worried they will become one of the first big victims of Donald Trump’s escalating trade war.  In retaliation for his administration’s tariffs on steel and aluminium, the US’s largest trading partners, Canada, China, the EU and Mexico, have all targeted the cheese industry with regulations and extra duties . . . Cheese may seem an unlikely target for an international trade dispute.  But the retaliation is a well-aimed political kick directed at a state that produces 27% of the country’s cheese (3.37bn pounds in 2017) and which Trump barely won in the last election.”

********(Spelling note: aluminium is a variant spelling of aluminum and is used more generally outside North America.  It is more consistent with other element spellings such as helium, lithium, and magnesium.)  I was interested in the relationships among Canada, Mexico, and the U.S.  The article notes that Mexico is the top dairy market of the U.S. and “implemented tariffs of up to 15% on cheese in early June in retaliation for Trump’s tariffs on steel and aluminium.  On Thursday that tariff rose to 25%.  Canada, which has astronomically high tariffs on dairy products of 270%, has also imposed more restrictions.  Canada’s power dairy lobby managed to exclude much of dairy from the North American Free Trade Agreement . . . But what was once a bargaining chip in an ongoing discussion over the renegotiation [of] that agreement is now off the table.”

(9 July 2018):Starbucks will stop handing out plastic straws by 2020The Washington Post

——–“Starbucks, which doles out more than 1 billion straws a year, says it will phase out single-use plastic straws from its stores by 2020.  The coffee giant—the largest retailer to commit to eliminating single-use plastic straws—said that it will replace the ubiquitous plastic straw with recyclable ‘strawless’ lid,’ as well as straws made from biodegradable materials, as part of a no-plastic-straws movement that has gained momentum in recent years.”  According to sales representative Kara Woodring for Aardvark, a paper straw manufacturer,  paper straws can “easily run four times” the price of plastic straws, which “typically cost less than a half-cent each.”  Woodring went on to note, “Straws are kind of an unnecessary item we’ve gotten accustomed to . . . If you can go without, that’s great.”

********For me, the article shows the invisible handshake at work, i.e. social and historical forces that affect human behavior.  A video of a sea turtle with a plastic straw in its nose that went viral has led to a raised awareness of the contribution of plastic straws in global environmental degradation, especially in the sea.  Although this movement will surely decrease the demand for plastic straws, it might well lead to a decrease in demand for straws as a whole, i.e., plastic and paper, as more come to the realization that straws are “an unnecessary item we’ve gotten accustomed to.”

(9 July 2018):Amazon Antitrust Critic Joins FTC as Agency Sets Sights on TechBloomberg.com

********In the 20 June 2018 TIF Weekly (322) there is a mention of Lina Khan’s 2017 article 2017 “Amazon’s Antitrust Paradox”  in The Yale Law Journal, which is available as a pdf.  She is joining the Federal Trade Commission “as a legal fellow for the next few months” as the agency “prepares to increase antitrust scrutiny of technology firms.”  Her article argues that “the current antitrust enforcement framework is ill-equipped to tackle Amazon’s dominance and the potential harm it poses to competition.”

May you have a good week!  Bruce

324 (4 July 2018)

Happy Independence Day and welcome to week 324!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription to be read in their entirety, although complete articles may be found by an Internet title search.

Please let me know if you have questions or comments.

(26 June 2018): A.I. Has a Race ProblemBloomberg Businessweek

——–A few years back when Brian Brackeen “was preparing to pitch his facial recognition software . . . the software stopped working.  Panicked, he tried adjusting the room’s lighting, then the Wi-Fi connection, before he realized the problem was his face.  Brackeen is black, but like most facial recognition developers, he’d trained his algorithms with a set of mostly white faces. . . . For years the same problem has bedeviled companies including Microsoft, IBM, and Amazon and their growing range of customers for similar services. . . . Microsoft, IBM, and China’s Face++ misidentified darker-skinned women as often as 35 percent of the time and darker-skinned men 12 percent of the time, according to a report published by MIT researchers earlier this year.  Such software can see only what it’s taught to see, which has been mostly white men.”

********The article goes on to say that in recent months, major vendors have “diversified their training data sets to included darker-colored faces and have made strides in reducing bias.”  A fascinating and thought-provoking article.  Perhaps training facial-recognition software provides a model for bias formation in human beings?

(26 June 2018): How to Steal 50 Million BeesBloomberg Businessweek

********Narrowly speaking, this is an article about bee theft in California during the February almond-pollinating season.  More broadly, it is about some of factors affecting commercial bee-keeping in the U.S. and the world.  Along the way one learns that “every February, 2.5 million colonies—two-thirds of the commercial honeybee colonies in the U.S.—are clustered in a few California counties” and that apiarist Valeri Strachan is “one of a handful of Americans who can extract semen from drone bees and use it to inseminate virgin queens.”  Her work enables the Strachans to “produce close to 50,000 queen bees a year.”

(27 June 2018): Where 3 Million Electric Vehicle Batteries Will Go When They RetireBloomberg Businessweek

——–“The first batches of batteries from electric and hybrid vehicles are hitting retirement age, yet they aren’t bound for landfills.  Instead, they’ll spend their  golden years chilling beer at 7-Elevens in Japan, powering car-charging stations in California and storing energy for homes and grids in Europe.  Lithium-ion car and bus batteries can collect and discharge electricity for another seven to 10 years after being taken off the roads and stripped from chassis—a shelf life with significant ramifications for global carmakers, electricity providers and raw-materials suppliers.”  Finding after-vehicle uses for EV batteries is becoming much more important as the global stockpile of such batteries “is forecast to exceed the equivalent of about 3.4 million packs by 2025, compared with about 55,000 this year.”

********Among the firms looking to create an aftermarket for EV batteries are General Motors, BMW, Toyota, BYD Co., and “a clutch of renewable-energy storage suppliers.”  All this indicates that EV batteries have a potential “second life” that can yield a revenue stream after vehicle use.  This might reduce consumer concern about large battery “deaths” by increasing the value of a dead battery, thereby decreasing the cost of replacing such a battery.

********An article that also relates to EVs is “Big Oil, Utilities are Lining Up for an Electric Vehicle WarBloomberg.com.  It notes: “A red-hot electric vehicle market has triggered a face-off between Big Oil and utilities.  Oil majors, who’ve sold fossil fuels to cars for a century, are now moving into an electricity sector that’s preparing for exponential growth.  The problem is that utilities, the primary power suppliers for a century, have the same idea.”  According to Erik Fairbairn, one of the U.K.’s largest EV charging companies, power providers are “for the first time, meaningfully interacting with car companies and the oil industry.”  According to Fairbairn, it is estimated that “only 3 percent of car charging will occur while drivers are in transit, with the overwhelming majority plugging them in overnight at home or wherever they leave their vehicles sitting idle.  This directly plays into the hands of existing utilities.”

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(28 June 2018):North Carolina’s newest cash crop is illegal for most farmers to growThe News and Observer

——–“North Carolina farmers take chances whenever they try to grow something new, but no crop poses the kind of uncertainties that surround industrial hemp.  Hemp is used in thousands of products, from parachutes to energy drinks and a growing number of supplements and remedies containing CBD oil.  But the plant is also a cousin of marijuana, which makes almost everything about it harder for growers, from getting loans to buy seed to selling the crop at the end of the season.  Among the added worries: The level of the compound that gives you a high when you smoke marijuana, THC, might inch up a fraction of a percent in your hemp plants, making them a drug under federal law no more legal to possess or sell than cocaine or heroin.”

********This was a front-page article of the N&O on July 2nd.  It provides an unusually good overview of the legal, horticultural, and market challenges facing hemp growers.  The U.S. Senate version of the farm bill, but not that of the House of Representatives, “would make it legal nationwide to grow and sell industrial hemp and hemp-derived products with THC levels of less than 0.3 percent.”  You can learn more about industrial hemp from the NC State Extension.

(29 June 2018):Are Antibacterials Scarier Than Bacteria?  Great QuestionBloomberg.com

——–[An opinion pieced by Faye Flam.]  Bacteria, fat, and GMOs are three of the things that have born the brunt of well-meaning journalists over the years.  But evidence is growing that some bacteria are good, Triclosan used in cookware is unsafe, and GMO food is not adverse to human health.  In order to think more rationally about such matters, it is necessary “to think about safety not as a black or white issue, but to consider risk-benefit ratios.”  This becomes more involved when one considers that, as risk communication expert Peter Sandman holds, “risk perception is a combination of the actual hazard and a more subject factor he calls outrage.”  As he notes, “People may choose whether to buy antibacterial soaps, stain-repellant pants or Teflon pans, but once drinking water becomes contaminated with anything, people are likely to become outraged because control has been taken away from them.”

********The idea that risk perception is a combination of (objective) actual hazard and (subjective) outrage struck me as interesting and useful.  A brief statement by him is “Risk = Hazard + Outrage: Coping with Controversy about Utility Risks”; a sidebar provides five suggestions for managing outrage.  Sandman, educated at Princeton and Stanford, has an extensive and current site.  Especially interesting to me was the Topical Indexes page.  There one can see the 2×2 classification he uses to distinguish among Precaution Advocacy (High Hazard, Low Outrage), Outrage Management (Low Hazard, High Outrage), and Crisis Communication (High Hazard, High Outrage); there is no label for (Low Hazard, Low Outrage).  There is a lot of useful information on Sandman’s site, including a pdf of his “classic” book and videos.  Outrage management and its relationship to risk-benefit ratios seems to have very broad application.

(1 July 2018):A way of monetizing poor people’” How private equity firms make money offering loans to cash-strapped AmericansThe Washington Post

——–Payday lending has been curtailed by federal regulations, giving rise so an expanded market for “consumer installment loans” such as those offered by Mariner Finance, which is “owned and managed by a $11.2 billion private equity fund controlled by Warburg Pincus, a storied New York firm.  The president of Warburg Pincus is Timothy F. Geithner, who, as treasury secretary in the Obama administration, condemned predatory lenders.”  Among the methods used to extend loans, Mariner Finance mails checks to potential borrowers.  Once the checks are signed, the borrower is committed to repaying the loan at an annual interest rate of up to 36 percent.

********This lengthy article is focused more on Mariner Finance and its various products and practices, rather than the mass check mailings that drew my attention.  There is a six-minute video, however, that captures the essence of the article and the reality of those who cash the checks to meet a financial emergency, which is “must see” for its look at how delinquent borrowers are processed by the legal system.

(2 July 2018):The Internet Is Secretly Powered By Billions Of Tiny AuctionsBloomberg.com

********This is a 31-minute podcast from the Odd Lots duo Joe Weisenthal and Tracy Alloway.  This session has a 28-minute Q&A with software engineer Afsheen Bigdeli, who works on online ad platforms.  This articulate and not-too-technical podcast provides a look under the hood of all the data gathering and software-based decision making that take place when you click a link or simply sign in to a site.  All this is intriguing and more-than-a-little concerning.

********The podcast connects well with “Netflix is moving television beyond time-slots and national marketsThe Economist.  Broadly speaking it indicates some of the advantages—large scale and being first—that have aided Netflix in its development, which reminds me of Amazon, especially in its early years.  Of specific relevance to software-driven auctions, though, is what Netflix has done (can do) with its massive database.  “The company has identified some 2,000 ‘taste clusters’ by watching its watchers.  Analysis of how well a programme will reach, draw and retain customers in specific cluster lets Netflix calculate what sort of acquisition costs can be justified for it.  It can thus target quite precise niches, rather than the broad demographic groups broadcast television depends on.”  In the limit, every person is a niche and Markets on One are arrived at, although they are not likely relevant for the entertainment industry and its programming.  But something like that must take place when one clicks on a link and gets an ad, or a suite of ads, tailored just for that person.

(3 July 2018):Something in the Water: Life after Mercury PoisoningJSTOR Daily

********This lengthy article relates the mercury poisoning visited upon the people and wildlife of Minamata, Japan and its environs from 1932 to 1968; Minamata is on the island of Kyushu and abuts the Shiranui (Yatsushiro) Sea.  Although the poisoning “is famous in Japan and around the globe” it was unknown to me.  Ultimately it led to a “UN treaty that governs the use of mercury, called the Minamata Convention on Mercury.”  Evidently director and documentarian Noriaki Tsuchimoto’s masterpiece is the 150-minute film “The Shiranui Sea.”  All this seems to illustrate clearly the interaction of the invisible forces.  For the invisible handshake, see below.

********One story that stood out for me was that of Rimiko, whose mother Mitsuko Oya cared for her fisherman husband who suffered from the so-called Minamata Disease resulting from mercury ingestion.  When Mitsuko brought him home from the hospital, she “tried to help him recover the best way she or anyone knew how; by feeding him more nutritious fish from the bay.”  The irony of it all.

May you have a good week!  Bruce